For example, film studios often base payments to talent in part on net profits. The calculations necessary to determine net profits, as defined in a typical contract, can be mystifying to those representing the talent. A screenwriter or an actor who receives bonuses or royalties on net profits might be paid little or nothing on a film that has earned hundreds of millions of dollars but is still showing a loss according to the net profits calculation. Net profits clauses have resulted in several high-profile lawsuits, and in 1996, they became the focus of a potential antitrust action against the major film studios. Record companies also use complex contractual formulas to determine royalty payments to their artists.
Companies typically offer seemingly large royalty percentages to artists.
Various clauses in the recording agreements then are used to reduce the royalty percentages, reduce the number of units on which royalties are paid, and delay payment for many months. Although a few small record companies have made some effort to simplify the structure of recording agreements, the major record companies and their smaller affiliates have uniformly fought to maintain the more complex, formula-based agreements. Advances Many entertainment contracts are structured with advances. Advances are payments made to an artist before any actual income is received by the company manufacturing or delivering the artist's products or services. This advance is normally nonrefundable, even if the publisher never earns money from the publication of the author's work.