Hollywood studios find ways to use OPM
(Other People's Money), including government subsidies
and tax-credit deals, to pay for a large part of the
production cost. Consider Paramount's Lara
Croft: Tomb Raider. It cost a staggering
$94 million on paper to make. But after Paramount applied
the arcane art of studio financing, of which
the deal is a minor masterpiece, the studio's outlay
was only $8.7 million.
it got $65 million from Intermedia Films in Germany
in exchange for distribution rights for six countries:
Britain, France, Germany, Italy, Spain, and Japan.
These "pre-sales" left Paramount with the
rights to market its film to the rest of the world.
it arranged to have part of the film shot in Britain
so that it would qualify for Section 48 tax relief.
This allowed it to make a sale-leaseback transaction
with the British Lombard bank through which (on paper
only) Lara Croft was sold to British investors,
who collected a multimillion subsidy from the British
government, and then sold it back to Paramount via
a lease and option for less than Paramount paid (in
effect, giving it a share of the tax-relief subsidy.)
Through this financial alchemy in Britain, Paramount
netted, up front, a cool $12 million.
sold the copyright through. Herbert Kloiber's Tele-München
Gruppe, to a German tax
shelter. Because German law did not require the
movie to be shot in Germany, and the copyright transfer
was only a temporary artifice, the money paid to Paramount
in this complex transaction was truly, as one executive
put it, "money-for-nothing."
Through this maneuver, Paramount made another $10
million in Germany.
cameras even started rolling, then, Paramount had
earned, risk-free, $87 million. To be sure, for arranging
this financial legerdemain, Paramount paid about $1.7
million in commissions and fees to middlemen, but
that left it with over $85.3 million in the bank.
So, its total out-of-pocket cost for the $94-million
movie was only $8.7 million.
of Lara Croft: Tomb Raider is that things
in Hollywood--and especially numbers--are not what
they appear to be. According to the published reports,
it cost $94 million to make a movie that earned only
$62.8 million in rentals in North America. That equation
changes radically when the $85 million that Paramount
netted from its nonpublic "risk management"
is factored in, proving, yet again, that in Hollywood,
the real art of movies is the art of the deal.
Even if a studio makes a movie
at little or no cost, can it still lose money on it?