Free money. Ask me how.
April 25, 2005 6:50 PM   Subscribe

Need cash to make your own blockbuster? Edward Jay Epstein, author of The Big Picture, reveals how they do it: by taking a popular franchise and turning to immediate write-offs in tax shelters such as Germany, so that money starts coming in even before the movie enters production. No wonder we've been seeing so much crap as of late, with poor box office figures not hurting studios the way they really ought to.
posted by Goblindegook (29 comments total)
 
interesting--thanks Goblin (this is the kind of story we won't be seeing on Huffington, methinks)
posted by amberglow at 7:00 PM on April 25, 2005


Thanks for the post. Edward James Epstein has a pretty interesting website that includes whole books. In particular, I like this one on the artificial rise of the diamond.
posted by Staggering Jack at 7:07 PM on April 25, 2005


D'oh. That's Jay, not James.
posted by Staggering Jack at 7:10 PM on April 25, 2005


I once met a film director from Germany, and he explained the loopholes in German tax code that made this possible, and how industrialists would basically fund Hollywood films with their tax write-off, and often make huge returns on investment (win-win). According to him though, most of the tax laws had been closed up and he said the practice would be on the decline, but I still notice loads of German production company trademarks at the very end credits of most major films.
posted by mathowie at 7:13 PM on April 25, 2005


Actually, Dino De Laurentis did this same thing, pre-selling distribution of movies so that they were already profitable before they were even made.
posted by jscott at 7:23 PM on April 25, 2005


Loopholes in Germany's tax code are responsible for a good portion of Paramount's profits—an estimated $70 million to $90 million in 2003 alone. Best of all, there's no risk or cost for the studio (other than legal fees).

I absolutely LOVE how Slate writes that the loopholes are responsible ! Oh them treacherous loopholes. It's not like some movie production ever exploited poor innocent loopholes.

Additionally, one gotta love how free market lets one obtain 70-90 million out of doing _absolutely nothing_ while one of our fellow metafilterians is considering marriage as a way to get health benefits.

Two unrelated events ? Yes, but I can't help not thinking part of that bunch of money could have landed in the pockets of people who actually could use some extra buck..not to buy themselves another house or a SUV.

/vent
posted by elpapacito at 7:39 PM on April 25, 2005


Well, if they're making profits even before putting the movie out, why should we bother to go see any of them? They don't need our 10 bucks+
posted by amberglow at 7:40 PM on April 25, 2005


No wonder we've been seeing so much crap as of late, with poor box office figures not hurting studios the way they really ought to.

Au contraire! My take is, this amazing new risk-spreading technique has resulted in an unprecedented bounty of creative output from the major Hollywood studios.

Really though, from an American perspective, is there anything wrong with this? Of course the Germans and Brits are getting screwed out of tax revenue, and possibly the overseas groups who bought distribution rights sight-unseen. But I mean, the studios want to maximize profits no matter what, right? If you lower the barrier to entry (e.g., make a $100m movie possible for a $7m upfront investment), that should actually make them more likely to produce a risky movie, yes? Are you really suggesting that they would be bolder and take more creative risks if they had to pay a bigger share upfront in order to get there?

Poster's perspective seems to be, "now that the studios get such big margins, they can afford to make a lot of crap," but the flipside is that, with lower margins, they'd be forced to make nothing but sure-fire hits. Now, maybe I just don't buy into the market determinism that big receipts equal great movies, but I think regardless of where you stand on that, more consumer choice is a good thing. And I really don't see how this can result in anything but more movies, at least on this side of the pond.
posted by rkent at 7:41 PM on April 25, 2005


But they won't get the foreign companies to play along unless the movies will sell well there.
posted by amberglow at 7:44 PM on April 25, 2005


Additionally, one gotta love how free market lets one obtain 70-90 million out of doing _absolutely nothing_


Well, what one really gotta love is how some people seem to believe that this is happening within anything even vaguely resembling a free market.


Truth is, this sort of thing happens because of state intervention in the marketplace.
posted by Ayn Marx at 8:02 PM on April 25, 2005


Good find, Goblindegook, thanks.
posted by fatllama at 8:25 PM on April 25, 2005


Way off topic, but I was an extra in the original Rollerball, filmed in Munich in 1974...JON-A-THAN!...JON-A-THAN...JON-A-THAN!!!!

The BMW headquarters near the Olympic Village was the World Corporate Enterprise or whatever building.

What a crapshit movie!
posted by 1016 at 8:51 PM on April 25, 2005


Are you really suggesting that they would be bolder and take more creative risks if they had to pay a bigger share upfront in order to get there?

Unfortunately, being able to make a risky movie also means that directors and scriptwriters are now more vulnerable to every retarded idea anyone (directors and scriptwriters not excepted) may have. With higher financial risk, they would at least try to be more careful.

I honestly would have liked to believe what you say, but I just don't see it happening. I feel (and this is just a feeling, I haven't been taking count) that the overall quality of so-called major Hollywood motion pictures has been steadily declining in the past few years. It could be I'm setting my standards way too high, or maybe they're really doing something wrong.
posted by Goblindegook at 8:58 PM on April 25, 2005


Well, I was devil's-advocating for the most part, but my serious point is, if Hollywood's full of dreck (which I by and large agree with), such dreck is not necessarily caused by leveraged production techniques. And if it IS, then it's only alongside a greater overall volume, which should result in extra good movies as well as extra bad ones -- more choice.

I think the badness of Hollywood movies has more to do with the felt need to appeal to everyone at once. It's more of a world market now, too, than merely a national one. If studios would cater to a greater number of discrete audiences, each one would probably think movies were better, or that there were better movies, even if the number of movies they didn't like was also increasing.
posted by rkent at 9:10 PM on April 25, 2005


The movie deal is somewhat easier to understand, they're just arbitrating tax-exemptions throughout the world, something made possible by globalization. It is not much different from buying some future option in Chicago and immediately reselling it in Tokyo for a small profit per unit, it just has one or two extra degrees of freedom. Now the municipal lease deal got me confused, since I would think municipalities didn't have to worry about tax-exemptions. I would really love to know where the virtual money comes from and where it goes, and how does someone make a profit.
posted by nkyad at 9:20 PM on April 25, 2005


I'm gonna side with rkent on this one, and in fact, take it a step further; if hollywood (or some portion thereof) wants to pay people like Tara Reid, who are seemingly devoid of talent and charisma, several million dollars to star in a movie that neither I nor anyone I know will see, that's great. It's great for Tara Reid, it's great for the key grip & the gaffer & the best boy who work on the film, it's great for the 2nd manicurist that Tara employs when she has the first one boiled alive for looking at her the wrong way. And it's all funded by a foreign country? I see no downside to this at all...
posted by jonson at 9:21 PM on April 25, 2005


elpapacito : "one of our fellow metafilterians is considering marriage as a way to get health benefits."

Sounds like a loophole.
posted by Bugbread at 9:49 PM on April 25, 2005


Though the tax loophole thing is rare on small films, it's not unusual for "american" films to get their budgets completely from foreign investors who pay before the film's shot. Henry Jaglom has being doing this since the late 70s (and wrote about it at length in The Movie Business Book). I believe Woody Allen's films are also presold to international markets as well.

[original Rollerball] What a crapshit movie!

I disagree. The script is terrific and the film is about as good a movie as Norman Jewison's ever made. If anything, like Network, it's more relevant today than it was when it was made.

I see no downside to this at all...

I think there's a substantial downside but that it's much more subtle (and insidious): the effect on the American film industry. With loopholes / deals like this it is very tempting for studios to make more and more of these movies as they have, in the end, less of their own money to make back.

Essentially, these loopholes are having the same effect on Hollywood that the successes of vapid pictures like Sin City are (will): quietly (and seemingly permenently) eroding away the quality of Hollywood studio pictures.

In the late 60s to mid 70s, the most profitable movies were usually the most compelling, intelligent, or thought provoking. Today, it's the opposite. Those films are dificult to get financed and distributed (the screens are clogged with the big budget shit). Though I'm not trying to say Hollywood was ever in favor or Art over Money, studios would be considerably more reluctant to finance these films if it was truly their cash. Remove these loopholes and make it less attractive for foreign investors and the quality of films (imo) would increase, star salaries would drop, and distribution models would have to be re-evaluated. These are all good things if you ask me.

Canada's film industry is still reeling from the fuckups of the loopholes in its funding system from two decades ago.
posted by dobbs at 10:01 PM on April 25, 2005


An example of the kind of thing I'm talking about is Cat Woman. The budget was about $85M--how much of that WB covered I don't know but I suspect it's in a similar boat as Lara Croft (ie, not much). It only brought in $40M. If Hollywood had to finance that themselves and lost the $45M, they'd be a lot more reluctant to repeat it.

Napoleon Dynamite cost $400,000 and brought in $5M MORE than Cat Woman ($45M). Sideways cost $16M and brought in $71M.

Sideways and Napoleon D were both financed solely by American companies. Their ROI kills even the majority of American big budget blockbusters.

Of course, I'm picking and choosing--no need to tell me that. :) My point, however, is that there is a market for these smaller films and (based on those two titles) it's a substantial one. Hollywood just has to be forced to work within that framework. More than likely that will eventually come from the closing of the loopholes rather than them waking up and smelling the coffee, so to speak.
posted by dobbs at 10:22 PM on April 25, 2005


I feel (and this is just a feeling, I haven't been taking count) that the overall quality of so-called major Hollywood motion pictures has been steadily declining in the past few years.

I'm not quite sure they're "declining" so much, like a lot of these big franchise films such as Lord of the Rings, the Spider-Man films, Pirates of the Caribbean have been better than I would have expected (and I've heard positive stuff about the Harry Potter and Shrek franchises).

In the late 60s to mid 70s, the most profitable movies were usually the most compelling, intelligent, or thought provoking. Today, it's the opposite. Those films are dificult to get financed and distributed (the screens are clogged with the big budget shit).

Personally I'm having trouble keeping up with all the intellegent art films. It seems like every other week there's some big hollywood star doing some edgy, critically acclaimed art film.

Canada's film industry is still reeling from the fuckups of the loopholes in its funding system from two decades ago.

Resident Evil:Apocalypse was the highest grossing "Canadian" film last year, is that what you're talking about?
posted by bobo123 at 10:29 PM on April 25, 2005


I never knew any of this.

Thank you for posting it.
posted by Mean Mr. Bucket at 2:18 AM on April 26, 2005


Can someone explain the economics of this to me like I was a 5-year-old? Am I totally wrong thinking all this money is from the German government?
posted by zardoz at 2:53 AM on April 26, 2005


There's nothing strange about pre-sales for raising a films budget, it's been standard practice for many years. As jscott points out, Dino De Laurentis first started using this and now it's pretty much common practice.

Tax loopholes are nothing new either, just as in any other business, and are often the only way for a film to go into production. That's why a film like Waking Ned, the (appaling) story of lottery winners set in Ireland, was shot in the Isle of Man, or the fact that so much production includes Luxemburg, who have amazing tax breaks. And these days, when worldwide gross can be equal to, and in many cases significantly higher than (see Alexander) domestic gross, I don't see a problem with a studio offsetting it's costs with international tax breaks. I'd love to link this to some of the recent articles in Screen International but I'm not at work and don't have access to it without my subscription password.

Of course you have to leave it to the French to find a way of witholding subsidies from a film with a local star, a local director and shot in the local language, but generally the variety of tax breaks on offer have lead to an enormous increase in production which can only be a good thing.

If you want less crappy films in the multiplex then it's quite simple, don't go and see the crappy films. Go support the good films. I was speaking to a distributor in London a few weeks ago and he told me that he was a huge fan of Ken Loach, but even when they tried a really careful platform release (where you start off in a couple of cinemas to get word of mouth and spread out from there), the box office was terrible. The only reason, finacially, he could continue to support them was that they did well in France (see, the French aren't that bad).

So while there is significantly more money to be made from Resident Evil:Apocalypse rather than Land and Freedom, people will continue to make the crap.

So it's my fault. Sorry.
posted by ciderwoman at 4:26 AM on April 26, 2005


ciderwoman : I don't see a problem with a studio offsetting it's costs with international tax breaks

I do. Each monetary unit of profit obtained this way doesn't contribute to pay for healthcare, military expenses, social security and those government program who seek to relief some of citizen problems that the private market doesn't seem to find interesting enough or too risky ..and that for strategical reasons are best not left to people that would sell a country for a dime under the logic of 1 is better then 0 (very common among finance people)

Take health insurance ..the best interest of insurance company is in paying the insured LESS then he/she demands because the excess become extraprofit for said company. The pressure they can exercise on other companies is limited so what happens next is trying to take advantage of the weakest, humanly and financially ...the insured.

Bingo , they forget your surgery they're likely to delay the procedure as much as possible in the hope you die !! So they don't have to pay insurace, which is profiteable...too bad for you and if you hope reading the contract accurately is enough you're daydreaming.

Obviously a public health system doesn't have to be profiteable, it only needs to become more and more efficient and require less resources..which can be done with rigorous (not necessarily rigid) management.

That's not going to happen if the majority of people keep seeing Paramount as "smart" and "deserving" their bounty..all they produced what yet another useless movie nobody really demanded and partially at the expense of the taxpayers..even if the taxpayers don't see it because they think "we didn't pay a dime for the movie" ..they don't see they paid by not getting their precious state services financed.

I wouldn't place all blame on people (just blaming ignorance isn't constructive as we are all ignorant), because it requires a relatively high instructions and a motive to how law and economy really work..and most people is offered only the baby-version story of demand-offer meeting at one point...and a lot of people don't have the money to pay for a really good education and don't have the time to keep themselves updated..provided that anyone is so foolish to update them instead of just scamming them.
posted by elpapacito at 9:28 AM on April 26, 2005


Post Preview : bugbread ..no the marriage one isn't a loophole simply because some company offers extenstion of health benefits to spouse...probably also because it's very cheap recruiting ..I guess the extension doesn't come for free.

Consider that the marriage contract in its most generic version extablishes (if my memory serves) a mutual rescue obligation , in which each party obliges self to help the other in exchange of the same service...so to me it seems very obvious (at least in the spirit of the contract) that one spouse should do everything to help the other, including extending the benefits one recevies to the other.
posted by elpapacito at 9:56 AM on April 26, 2005


What Ayn Marx said.
posted by sonofsamiam at 10:21 AM on April 26, 2005


"ROME - Italian prosecutors asked a judge Tuesday to charge Premier Silvio Berlusconi and 12 others with tax fraud and embezzlement stemming from a deal by his broadcast company to purchase television rights for U.S. movies, a prosecutor said.

"Prosecutors in Milan allege that Berlusconi-owned Mediaset purchased the TV rights for U.S. movies before 1999 through two offshore companies and falsely declared the purchase costs to Italian tax authorities to lower the company's taxes."

Heh, indeed.
posted by UKnowForKids at 10:27 AM on April 26, 2005


Aw, fuck you all. Resident Evil: Apocalypse was awesome. (I tried to add a few sentences about how it was awesome...but it's really hard to describe crap in detail.) It was a fun movie though. More fun than the original. Much better than Alone in the Dark.

C'mon. Mentioning RE:A in the same sentence as a Uwe Boll film is a sin. Mentioning ANY OTHER MOVIE in the same sentence as a Uwe Boll film is a sin. Bastard.
posted by graventy at 2:29 PM on April 26, 2005


I haven't seen RE:A, but I remember thinking along the same lines: sure, it's probably a horrible crap movie, but putting it next to a Uwe Boll movie is like putting some random murderer next to Hitler or Pol Pot.
posted by Bugbread at 8:52 PM on April 26, 2005


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