Lights, cameras... auditors?

Steve Taylor FCCA, senior Vice President, Finance, at Paramount Pictures, tells Colette Steckel about his long career with the studio and why he�s not into the glitz of Hollywood

The gregarious man fooling about in front of the camera is Steve Taylor, senior Vice President, Finance, of Paramount Pictures. We�re in the vast Paramount lot in Hollywood, by a rather lovely park for an impromptu photo shoot. Taylor, in between witty asides and guffaws of laughter, is being pictured in front of the historic Bronson Gate, Paramount�s landmark and probably one of the most recognised symbols of the film industry in LA.

When the photographer calls it a day, we head back to the finance department�s office in the quaint Valentino building, named after the silent screen idol who was Paramount�s star back in the 1920s. Valentino lived in the building, which was an apartment block built in 1926 right next to the studio. Paramount bought it in 1990 and, while retaining its original façade and features, remodelled the interior as an office dwelling. Taylor and his finance team moved in as soon as the paint was dry. While the rooms have the typical partitioned walls and work-stations, Taylor�s office, with its quirky iron staircase, dining room table, squishy sofa and piles of books and papers, has the lived-in look of a comfortable apartment.

A bit like a home from home, which is rather fitting really, if you think about it, because Paramount has been Taylor�s professional haunt for over 30 years. Which, to my mind, makes him a veteran in the movie business. �Well, I�m starting to feel old, if that�s what you mean,� quips Taylor. �But I�ve been around long enough to know just about everyone in the industry, at least on the finance side. Some of them even worked for me. There are only six or seven major studios of note and, if you know the finance people at those studios, you can compare notes on accounting treatments, share opinions and perhaps get a consensus among us. We do need to talk to each other occasionally because some of our accounting issues are unique.�

Four years ago, tough US GAPP requirements for the film industry were introduced to address the amortisation period of film revenues. Under SOP 00-2, the maximum exploitation period for estimated revenues is 10 years (compared to the previous benchmark of 20 years), project development costs are depreciated over three years, and other costs are expensed as incurred. �This is one of those odd accounting conventions where the actual figures we put in our financial statements are derived from estimates,� notes Taylor. �Estimating the future revenues from a film is highly subjective but we�ve been doing this so long that we have a pretty good idea of how much a film will make.�

Taylor is currently grappling, as he puts it, with one particular accounting policy that has come under fire from the auditors: accounting for shared part films. The policy was devised by Taylor and his counterpart at Fox studios in 1997 to record the revenues and costs associated with the blockbuster Titanic. Titanic was the first co-financed movie for Paramount and set a precedent for forming strategic production partnerships with other studios on expensive pictures.

The Motion Picture Association of America puts the average movie at a cost of $75m. Add in the ever-rising advertising costs, which hover around the $60m mark, and it�s no surprise that studios with a commitment to a slate of 15 or so films a year are turning to co-financed deals to protect their downside. �As films get more expensive, and they do cost extraordinary amounts of money, we�ve taken to sharing the costs and reducing our financial risks. Of course, you have to share your revenue streams as well, but then not every film makes a profit.�

Taylor won�t get into the intricacies of how he accounts for shared part films, which I fancy could take us all day. �It�s a complicated policy,� he says, but for the sake of a novice, he tries putting it simply. �With, say, a 50/50 film, you pay 50% of the production costs and you own 50% of the net proceeds after distribution costs. No matter who gets what in terms of rights and how much each party distributes, everything goes into a pot and the whole lot is split. We�ve maintained this policy since 1997 but the auditors are now starting to question it.

�What�s happening in the US is that the auditors are changing the way they do things; judgement is being taken away from the local partners and accounting issues are dealt with by the national office, which isn�t based in Los Angeles. The local auditing office understands the film industry. This particular accounting treatment, which we�ve been doing for eight years as have other studios, has been signed off but now the national audit office decides it�s not right. There�s no new pronouncement, the accounting phrases in the annual report haven�t changed, and an office who doesn�t know our business is telling us we may have to change the way we do things. It�s a little frustrating,� sighs Taylor, who is due to meet with the auditors the moment I leave.

The policy has become a hot topic within the industry. A white paper has been recently published that offers a different take on the accounting treatment, but Taylor is ready to do battle over what he believes is the most appropriate way to record shared part films. As well he might, because the studio is set to release the much-anticipated War of the Worlds - a joint production with Dreamworks - at the end of the month. �The numbers are staggering, let me tell you,� remarks Taylor, although he, of course, won�t reveal the numbers. �The investment is enormous but this is our summer blockbuster and we expect it to be a huge financial success.�

Taylor notes that the Spielberg/Cruise partnership in the movie will guarantee attendance at the box office, which is why Paramount is willing to invest so much. �Blockbusters like War of the Worlds are the locomotives that drive the company.� New and successful films maintain the value of Paramount�s impressive library, which it continues to license year in year out to cable channels and foreign television studios, and release on DVD. �It�s the library that makes a studio.�

According to Taylor, he came to work for Paramount �by accident�. Back in 1974, when he was still living and working in the UK, he decided to give expatriate life a go. By then, he was a qualified accountant and clocking up financial experience at Smith & Nephew, but he was after a new challenge. A chance opening as a special project accountant at the Paramount office in Amsterdam persuaded him to uproot from Birmingham. He stayed at the Dutch arm of the studio, which was and still is a purely accounting function, for six years. By then he was financial controller and his work at the office had come to the attention of Paramount headquarters in New York. �I was invited by the senior Vice President, Finance, to join the New York office. He made me an offer I couldn�t refuse,� jokes Taylor, borrowing the infamous phrase from The Godfather, one of Paramount�s library gems. I doubt a horse was involved though.

With his wife and two children in tow, Taylor moved to New York in 1980 and joined the studio�s headquarters as director of theatrical accounting. His work focused on the accounting for films on theatrical release as well as dealing with the complex rules for participation and residual accounting, which is where actors who appear in Paramount films are entitled to a pay-out as are the actors� unions and guilds, of which there are 58.

Backwater

At the helm of studio boss Frank Mancuso, Paramount�s headquarters later transferred to Los Angeles. In 1988, Taylor was appointed senior Vice President, Finance, and his family moved to California, a state that has its charms, not least the balmy weather. �At the time, LA was considered a cultural backwater compared to New York. And, of course, it was the film factory while New York was the headquarters and hub of the company,� explains Taylor. �But LA has improved a great deal since then and you can�t knock the climate; I get to play golf all year round.�

For someone who encounters stars and famous directors, some of whom have sat in his office, Taylor refreshingly lacks the kind of celebrity fever that grips some of those in the movie business. �Hollywood doesn�t appeal to me. I�m not into the glitz and glamour of the job. I don�t take much pleasure in going to premieres and film events. It�s not my scene.�

Taylor is at his happiest working behind the scenes, ensuring that any decision on finance is made intelligently and with all the facts. �It�s about no surprises,� says Taylor. �Before any deal is done, from film financing to acquisitions, it�s important for us as accountants to know what the impact might be. We do a pretty good job here of keeping to our studio budget because hopefully we�ve anticipated everything than can happen. And that comes down to experience.�

With Taylor�s sixtieth birthday looming next year, he�s starting to consider what he might do on his retirement. He�s toying with the idea of doing some voluntary work, perhaps using his accounting prowess to keep track of the funding at the California Youth Theatre, a charity with which he has been linked. Or there�s taking up a non-executive director position, spending more time with his family, or even just playing more golf. But one gets the impression that he might just miss being part of the movie industry, and more importantly, getting to grips with the finer points of accounting for the complex workings of a Hollywood studio. �Thirty years is a long time. But there�s never a dull moment. The finance team have dealt with everything that has been thrown at it,� he says, rather triumphantly. �But there�s always something new that comes along.� Which, if I�m not mistaken, might just be the cue for the auditors.