Taking Back Tinseltown: How the Money Works -- Part 2

Lara Croft: Tomb Raider” is only really known for one thing: Angelina Jolie in short-shorts. Not that there’s anything wrong with that, but let’s face it, if you knew what Hollywood knew about Lara Croft, you’d appreciate it for more than just its sex appeal. As author Edward Jay Epstein writes in part three of his book, “The Hollywood Economist,” a studio “has both an official budget, which is often leaked to trade papers … to show how much money it is supposedly costing to produce [a film], and a closely-held production cost budget that shows how much money the movie is actually costing to produce.”

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What few people realize is the tightly held budget reveals a little-known fact of Hollywood: No film costs a studio as much as the studio lets on. We will use “Lara Croft: Tomb Raider” as our example.

“Tomb Raider” cost $94 million to produce. But of that amount, Paramount forked out $8.7 million.

First, Intermedia Films in Germany paid Paramount $65 million for distribution rights in key European countries, and Japan. Next, part of the film was shot in Britain in order to qualify for tax relief there. Paramount worked with British Lombard Bank to sell the film to British investors. These investors received a significant subsidy from the British government, then sold the movie back to Paramount for less than it was bought for, which gave Paramount a share of the tax-relief subsidy. Paramount earned another $12 million through this process.

Next, “Paramount sold the [film’s] copyright through Herbert Kloiber’s Tele Munchen Gruppe, to a German tax shelter.” The German law required nothing of the company – no in-country filming whatsoever – and the transfer was temporary, so Paramount truly received $10.2 million for doing nothing except filing paperwork.

Thus, before Paramount began to shoot, they had already earned $87 million toward the film’s budget. After some commission fees, the company ended up investing only $8.7 million of its own money into the film.

This is just one example of the brilliant financing work that goes on behind the scenes of the movies Hollywood churns out each year.

The biggest thing to remember here is that while a movie or a production company might lean left, money is money, and financing is financing, and both good movies and bad ones receive this kind of outside funding. The funding comes not necessarily because of the product, but because of relationships and simply knowledge of the back stage game that production companies know how to play. It’s a game most people don’t even realize exists. Waking to the reality of Hollywood finances is a major first step.

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