Profit‐Sharing Contracts in Hollywood: Evolution and Analysis

This article examines the development of profit‐ or revenue‐sharing contracts in the motion picture industry. Contrary to much popular belief, such contracts have been in use since the start of the studio era. However, early contracts differed from those seen today. The evolution of the current contract is traced, and evidence regarding the increased use of sharing contracts after 1948 is examined. I examine competing theories of the economic function served by these contracts. I suggest that it is unlikely that these contracts are the result of a standard principal‐agent problem.