First-dollar-gross deals for old-school talent meant they got a substantial cut of the studio's box-office receipts, regardless of the picture's performance. In the new deals, a break-even amount is established during negotiations so that the star's back-end participation only kicks in once the studio has recouped costs up to that break-even number. In exchange, the talent gets a higher percentage than he would have received in the old model.
For instance, if a star received 5% of first-dollar gross as part of his deal, he would get that money no matter how much revenue the movie made. A $100 million movie that bombs out at $50 million means the star gets $2.5 million off the top while the studio hemorrhages money and everyone gets yelled at but the talent. If that same movie grosses $200 million, the star gets $10 million, and the studio makes some good cash (depending on how much it spent on promotion).
In the break-even model, the star has to wait until the studio collects its $100 million in grosses first, but then he might get, say, 7.5%. So if the movie bombs, the studio still loses money, but it's not handing a bonus to the star for the pleasure. If the movie grosses $200 million, however, the studio makes its money, and the star still gets a $7.5 million bonus -- not insubstantial but less than he would have made in the old model. But if the film crosses $300 million, the star starts making more money than he would have in the old version.
For some, additional gross milestones escalate the after-break-even percentage for having given up the bonus on the downside. James Cameron apparently had a break-even deal on Avatar, but his backend participation after that break-even mark -- which certainly was high -- was astronomically higher than had he cut a deal in the old mold.
"Frankly, it's a really healthy place to be," one tentpole producer says. "If you're going to put your conviction and your career on the line, to be rewarded like that is great."