30 Will He Make a Second Movie? (1/2)

It had been five weeks since Paranormal Activity had been released. During that time, the movie had achieved an impressive box office gross of 24 million and 158.3 thousand dollars, topping the North American Weekly Box Office Ranking for the fourth week running. But, in the sixth week, as school resumed after the holidays, box office figures across North America waned, and Paranormal Activity recorded a dismal 11 million and 501.7 thousand dollars. Fortunately, weekly box office rankings did not rank movies beyond the fourth week. Otherwise, Paranormal Activity would have slipped to third place.

As box office figures plummeted, everybody assumed that Paranormal Activity's potential in North America had been exhausted. The number of theaters screening the movie declined gradually, and by the end of the movie's run, weekly box office income had dropped below 10 million dollars. That said, the movie had no doubt made history. It was a miracle and a legend. Despite its measly production cost of 10 thousand dollars and its modest promotional cost of less than a million, the movie had somehow managed to make 154 million and 200 thousand dollars in North American box offices alone!

Lionsgate Films were already gearing up to release the movie overseas. On the internet, movie fans all over the globe, including Europe and Asia, had expressed a burning desire to see the movie. It was expected that the movie would turn a profit overseas. Its reception might not be as strong as it had been in North America, but there was little question that it would fetch tens of millions of dollars in those regions. It was not hard to imagine that Paranormal Activity's global box office figure would one day top 200 million dollars.

Film companies and business analysts were stumped by this seemingly supernatural phenomenon. Nobody had ever seen a movie turn a 15-thousand-fold profit until Paranormal Activity had come along. Breathless with awe, a financial analyst on Wall Street told the press, ”It turns out the most profitable movie of 1998 is Paranormal Activity, not Titanic. And that's just the tip of the iceberg. Once the movie hits the overseas market, and the DVD's start rolling out, we might even see a 30-thousand-times return on investment. Lionsgate Films and that wonder boy have turned out to be quite the cash cow.”

Lionsgate Films had become the pride of America and the envy of every film company in that country. The media loved them. Their humble beginnings coupled with their meteoric rise into success had made for a great story; they'd been hailed as a ”unicorn company”. Even competitors took their hats off to them. Their viral marketing strategy for Paranormal Activity had been a stroke of genius. Given how perfectly, in retrospect, things had worked out in their favor, people could not help but wonder if the ”rumors” that had flooded the internet prior to the movie's release were also part of their machination.

Naturally, some film companies had been unhappy about Lionsgate's success. One company told the media, ”Paranormal Activity's promotional strategy actually came from that Chinese director. He proposed that idea to us when he came to our company to pitch his movie. He had it all planned out from day one. He told us, 'My strategy is going to drive tons and tons of people into the cinemas; trust me!' That gaslighting tactic left a bad taste in our mouths. But Lionsgate went ahead with it, which wasn't the most ethical thing to do if you think about it.”

The fact was that those film companies' disapproving attitudes toward Lionsgate had been simply sour grapes. A good number of acquisition managers—including Stephen Thomas of Artisan Entertainment—had been fired, suspended, or demoted for missing out on the golden opportunity. When the chairman of Artisan Entertainment had gotten wind that his company was one of the fifty-four that had overlooked Paranormal Activity, he sought an explanation from the CEO. The blame ultimately fell on Stephen Thomas, and he was given the axe.

In the sixth week of the movie's release, some of the cinemas had finished screening Paranormal Activity, and it was time for Lionsgate to collect their pre-tax commission from the cinemas.

When it had come time to divide the spoils, Paranormal Activity had grossed 154 million and 200 thousand dollars in box offices. That sum had been then distributed between Lionsgate and the theater chains based on a ratio that had been deemed equitable and agreed upon in black and white by both parties.

There had been several types of agreements that had been the convention at the time. One had been known as a ”guaranteed price contract”. In such an arrangement, the publishing company would pay a flat fee to a theater chain for a set amount of screen time. For example, Lionsgate Films might have paid 100 thousand dollars to The Vitascope Cinema in exchange for the right to screen their movie between 12:00 a.m. and 6:00 a.m. for a period of one month. All of the income generated by the movie during that month, no matter how much or how little, would have gone to Lionsgate; none of it would have gone to The Vitascope Cinema.

However, such an agreement had not been very popular. In North America at least, the prevailing arrangement between a publisher and a theater chain had been the profit-sharing model. In such an arrangement, the profit-sharing ratio would have been agreed upon by both parties prior to the movie's release. Over time, the industry had more or less settled on a standard model, which had been a split of 90/10 with a floor of 70 percent.

In other words, Lionsgate would receive a dividend equivalent to 90 percent of the weekly box office income generated by Paranormal Activity, minus any pre-agreed fixed expenses that the theater chains would incur, such as cleaning costs, maintenance costs, and the electricity bill.

But that had been just Plan A. It had also been customary for both parties to agree upon a Plan B. Under Plan B, the publishing company would receive a dividend equivalent to 70 percent (or as low as 60 percent, depending on how the negotiations went) of the total income generated by the publisher's movie; no deductions would be made for the theater chain's operating expenditure.

The publisher would then calculate and compare the profit yielded from each plan on a weekly basis. The larger figure would be the dividend paid by the theater chains to the publisher.

Of course, publishers might opt for a 90/10 split for the first three weeks of screening, 60/40 for the fourth and the fifth week, 50/50 for the sixth week, 40/60 for the seventh, and so on. The exact splits and how they tapered off varied from contract to contract. But one thing was for certain—once the agreement had been made, there'd be no going back.

Nevertheless, when all was said and done, when the movie had run its course at the cinemas, it had usually been the case that the publisher and the theater chains each would pocket roughly the same amount of money, making it a 50/50 deal.

Which begged the question—did theater chains ever falsify box office figures? First, it had been a common practice for publishing companies to employ professional investigators to go down to the theaters to verify sales. Sometimes the audits would be preempted; other times they would come without warning. Second, due to the rigorous enforcement of the law in America, and the Internal Revenue Services breathing down corporations' necks, misrepresentation and forgery of box office income had been seldom attempted. For theater chains, the potential benefits of gaming the system had not been worth the risk of invoking the wrath of the law and losing their reputation.

In this case, Lionsgate and the theater chains had agreed upon the standard model of ”90/10 with a floor of 70 percent”. By the end of the movie's six-week run, Lionsgate Films had received a cut of 91 million and 760 thousand dollars out of a total box office income of 154 million and 200 thousand dollars, which had been nearly 60 percent. After deducting their investment of three million dollars, which had covered promotion, publishing, transportation, printing, and other miscellaneous costs, the film company's pre-tax profit for the six-week release had finally amounted to 88 million and 750 thousand dollars.

At that point, the pre-tax profit for the North American region had yet to reach 100 million dollars. Given that there had only been around 500 theaters left screening Paranormal Activity, and that the profit-sharing ratio between Lionsgate and the theaters had wound down to 40/60, it'd seemed unlikely that the movie would ever achieve a pre-tax profit of 100 million by the end of its run. So Wang Yang had agreed to receive a 40-percent dividend from Lionsgate Films.

After accounting for all the gains and expenses, the finance department of Lionsgate had proceeded to submit various taxes to the Internal Revenue Services. Although corporate tax policies at the time had been conducive to small enterprises like Lionsgate, the company had still ended up paying 20 percent in taxes. The after-tax profit had come to 71 million and 580 thousand dollars, of which Wang Yang had received 28 million and 632 thousand dollars.

But that had not been the end of it. Wang Yang had still had to pay a Federal individual income tax to the Internal Revenue Services, a state income tax to the state of California, and many other taxes. Given the multitude of taxes one had had to pay in America, it had been difficult for the average person to ensure he paid them duly, let alone wisely. So Wang Yang had taken a trip down to Trust Law Group and consulted Hebel Carl on the tricky matter of tax avoidance. After a lengthy discussion, it had dawned upon him that his hard-earned income of 28 million and 632 thousand dollars would be reduced to 21.4 million after taxes.

Of course, Wang Yang had not had to file and pay his income taxes right away. In America, individual income tax returns were to be submitted annually and would be due on the 15th of April, also known as ”Tax Day”. Wang Yang would safe as long as he filed his returns by then; but failure to do so constituted tax evasion, a serious offense in the Internal Revenue Service's book. Long arduous audit and cruel punishment awaited those who did not play by the rules.

Wang Yang had had no intention of delaying his tax payments. But as his dividend was still being disbursed to him piecemeal, he'd thought it best to pay his taxes next year in a lump sum, after he had collected all his earnings. By then, he would have received 21 million dollars in cash and become a multi-millionaire.

Lionsgate had not divulged to the media how much money Wang Yang had made from the movie, but that had not discouraged them from snooping around. The media had managed to find some information, and putting the pieces together, they had come to an estimate of low seven figures. Lionsgate did not comment on that, thus affirming their assumptions. The Vice President of Publishing, John Feldmeyer, had stated, ”He has made himself a fortune that most people can only dream of—and at an impressively young age of 18, no less. I hope he'll cherish his wealth and his success, and I wish him good luck on his future endeavors!”

”America's Youngest Multi-Millionaire.” That had been the new title given to Wang Yang by The Los Angeles Times. The media company had even sought the opinion of a professional analyst in its article, who'd pegged Wang Yang's net worth at over 20 million dollars. According to him, once Paranormal Activity was to hit the international market and begin expanding its distribution pipeline, his net worth might very well exceed 30 million dollars.

The tabloids did not affect Wang Yang the slightest. When people asked him what he thought of his newfound title, he was noncommittal. But in truth, he much preferred ”America's Youngest Director” to ”America's Youngest Multi-Millionaire”.

Despite all the fame and fortune, Wang Yang's life remained relatively unchanged. He still lived in the same old, rented apartment, except that all the old, dilapidated furniture had been replaced with new ones. The living room had been equipped with a high-end home entertainment system to match his ambition in life. Scores of newly-purchased DVDs lined his newly-purchased shelves, ready to be enjoyed. To top it off, he had also bought a two-door Chevrolet coup so that he could travel around easier.

As the days went by, the media gradually lost their interest in him, partly due to his reluctance to entertain them. On an occasion, Vanity Fair invited him for a photoshoot and an interview, but he declined. He would rather stay in the comfort of his home and read books and watch movies instead of having his photos taken. He was not the type of person who would enjoy the attention. He had no desire to pose in front of a camera; in fact, he had no desire for being in the limelight at all.

He had resolved not to get carried away by things like magazine interviews and celebrity parties. He had his whole life ahead of him, and he was certain that he should focus on improving himself, not wasting his time and energy on unnecessary temptations. He knew he could easily become irrelevant if he did not stay on top of his game. He reminded himself constantly, ”Yang, you're still an amateur. You're nothing. Don't you remember what happened to the creators of The Blair Witch Project? Do you want to end up like them? Remember your dream! Be a director. Don't stop making films.”

And so, Wang Yang turned down the invitation to Vanity Fair's interview, along with all the other party invitations. He knew that a movie's success ultimately depended on the movie itself, not how many parties its director had attended or how many magazine covers his face had graced.

After Wang Yang had seen through the post-release promotional events for Paranormal Activity, he faded from the public's view. He had retired into a simple and quiet life which consisted mostly of reading and watching movies at home, occasionally chatting with Jessica and his other friends through the phone and going out for some fun from time to rime. During that time, he also joined the Director's Guild of America (DGA). But despite his low-key lifestyle, he still could not evade the prowling gaze of the tabloid. In the last two days of September, his name appeared in the papers once more.

The media's renewed interest was spurred by an announcement made by Lionsgate regarding a new project. They were planning to produce Paranormal Activity 2 and had acquired the sequel rights from Wang Yang at a price of five million dollars.

True to the rumors, Wang Yang's coffers grew again. This time by five million dollars. At first, Lionsgate had offered Wang Yang a million dollars, but he had not even batted an eye. Playing hardball, he dropped a hint to John Feldmeyer. ”New Line Cinema, Artisan Entertainment, and many others have contacted me. They know I still have the rights to the sequels and they're lining up for the chance to acquire it.” It was true. New Line Cinema, Artisan Entertainment, Dimension Films, and all the film companies had now been the ones coming to Wang Yang's door, hat-in-hand, begging for a chance to get in on his movie franchise. But Wang Yang had turned them down, one by one.

Wang Yang had, by no means, been saving himself for Lionsgate. He was grateful to them for giving him his big break, but it was not as if they had done it out of charity. They had profited handsomely from the deal, and he had not felt indebted to the company. He was prepared to sell his sequel rights to the first company that met his terms.

Lionsgate had raised their offer from one million straight to five million. But Artisan Entertainment, determined to secure the rights, had raised their offer to seven million. To sweeten the deal, they'd even thrown a 20 percent dividend on box office income on top of it. But in the end, Wang Yang had gone with Lionsgate at a price of five million with a 20 percent dividend on box office income. Wang Yang had chosen Lionsgate for a couple of reasons. First, he'd had a good relationship with the company. Second, he'd worried that Artisan Entertainment might renege on his dividend. Third, he'd known from his visions that Lionsgate had had a knack for producing horror movie sequels. Although the market had still been saturated with Paranormal Activity at the time, they should have no problem introducing a sequel a year later and turn a profit from it. That said, Wang Yang had been more concerned about protecting the Paranormal Activity franchise than taking his 20 percent dividend.

By their generous offer, it had been quite evident that Lionsgate had had high hopes for Paranormal Activity 2. No sooner had they paid for the rights than they trumpeted their new acquisition. At the same time, they had announced that Paranormal Activity 2 would not be directed by Wang Yang. John Feldmeyer, now the star of Lionsgate, had told the media, ”We've decided not to let Wang Yang direct this one because we wanted to take the movie in a new direction. The sequel would be set in an office environment, which is not something an 18-year-old man is used to.”

The news did not come as a surprise to movie fans. Apart from a vocal minority, who had proclaimed they would not watch a Paranormal Activity movie unless Wang Yang directed it, the majority of the public had taken a wait-and-see approach. Members of the media expressed their views on Wang Yang's dismissal from the franchise in their respective articles. The Los Angeles Times wrote, ”While the talented young man has added five million to his net worth, his career had taken a big hit. Having been cruelly cast aside by his former publisher, he is now a director without a voice. It seems unlikely that any film company would give him a chance to shine again.”

The Chicago Sun-Times quoted something Wang Yang had said on The Oprah Winfrey Show. ”No, I don't think I'll be making horror movies any time soon.” Making sport of the director, the Chicago Sun-Times wrote, ”Perhaps Yang had known all along he wouldn't be hired to direct Paranormal Activity 2. A colleague of mine once asked me why he didn't choose to produce the sequel himself with his own money and make another 100 million dollars. But that's the genius of it; he went for the cold hard cash, he's set for life, and he doesn't have to worry about the movie. Then again, what can Yang make besides DV horror movies? Will we ever see another movie coming out from him?”