Why Disney is still paying for the 2016 Star Wars film Rogue One

Rogue One: A Star Wars Story is one of the most important films Disney has ever made. It premiered in 2016 and was the media giant’s first star Wars spin-off film and grossed an incredible $1.1 billion at the box office, proving the earning potential for a broader universe of films and shows. Surprisingly, Disney is still paying it out.

A direct prequel to 1977 star Wars, Villain One follows a group of resistance fighters who band together to steal plans for the Death Star, the planet-sized space station that plays a large role in the follow-up film. Villain One The film stars Felicity Jones and Diego Luna as rebel leaders, joined by many of the actors from the original film.

Anthony Daniels and James Earl Jones returned to voice the iconic characters C-3PO and Darth Vader, respectively. Digital likenesses of the late Carrie Fisher and Peter Cushing were also used, with the latter leading to legal action against the Disney production company behind them Villain One. It was sued by Tyburn Film Productions, which claims it entered into an agreement with Cushing that prevented special effects reproduction of his performance without their consent.

Disney is objecting to the lawsuit because it entered into an agreement with Cushing’s estate executors granting permission to use his image for a fee. Disney attempted to dismiss the lawsuit, but was denied by a judge, leading to Disney appealing the decision. However, this was dismissed last month when the judge ruled that the case should be tried in the UK, where the film was filmed. The location puts his expenses in the spotlight.

The cost of producing films is typically a closely guarded secret, as studios tend to aggregate spending on individual pictures into their total expenditures rather than breaking down budgets for each individual picture. However, as we have often reported, the exception to this is productions filmed in the UK Villain One was one of them.

The film was shot at Pinewood Studios and on location in Jordan, the Maldives and across the UK, where one of its futuristic subway stations served as a chase scene in an enemy base.

Studios filming in the UK will benefit from the Audiovisual Expenditure Credit, which allows them to receive a cash refund of up to 25.5% of money spent in the country.

To qualify for reimbursement, films must pass a points test based on factors such as the number of UK production team members and the extent of post-production work in the UK. In addition, at least 10% of core production costs must relate to UK activities. In order to prove this to the government, the studios there set up their own film production company (FPC) for each film.

The terms of the reimbursement process state that each FPC must be “responsible for the pre-production, filming and post-production of the film and for the delivery of the finished film” and must also pay for “the rights, goods and services associated therewith”. Film.” Studios can’t even hide other companies’ costs because the terms also state: “There can only be one FPC with respect to a film.”

The financing mechanism differs slightly from film to film, but in general they all follow a similar model, starting early in production.

A Hollywood studio buys a screenplay from a screenwriter and greenlights a film based on it. If the studio decides to shoot the film in the UK, it sets up a subsidiary there that acquires the script from its US-based parent company.

By purchasing the script, the British company gains the right to make a film based on it, and the Hollywood studio typically pays it a small production services fee. Under the regulations, the UK company must be responsible for everything from pre-production and filming through to post-production, delivery of the finished film and payment for associated goods and services. Then comes some financial magic.

If the UK company makes a profit, the financial benefit to the UK government comes in the form of a tax break. However, if it makes a loss, it receives a cash refund, so the studios fund the companies in a way that makes this possible.

As shown in the image below, the studio buys the rights to the film from the British company, but only gives them about 74.5% of the planned production costs. The studio provides the remaining 25.5% in the form of a loan. Through the loan and the proceeds from the sale of the rights, the British company receives 100% of the production budget for the film, forming the basis for the cash reimbursement.

Loans are not counted as income because they must be repaid. The British company therefore makes a loss of around 25.5% of the film budget. Then the British government steps in and compensates for this loss. Since the amount of the repayment is equal to the loan the company owes to its parent company, the money can be passed on to the Hollywood studio as repayment. Thanks to these twists, the British government covers 25.5% of the cost of a film, reducing the studio’s net expenses. It takes some detective work to get to the bottom of the matter.

The British companies usually have code names so that fans don’t notice them when they apply for permission to film on location. Through industry research, the company names can be linked to the names of the productions they are responsible for, with Disney’s subsidiary Lunak Heavy Industries (UK) being behind them Villain One.

It is named after an alien who was only seen once in a sketch The Art of Rogue One: A Star Wars Story. The cute creature has dark brown fur, large eyes and pointed ears. It was intended to serve the Rebel Alliance, but didn’t make it into the final cut of the film.

Nevertheless, Lunak’s legacy lives on through the name of the production company, which is required to submit financial statements. They reveal everything from the total cost of the film to the number of employees, salaries and even social security contributions for the staff.

However, marketing costs are not shown in the annual financial statements as they are usually borne directly by the studio. Likewise, revenue from sales of theater tickets, merchandise and home entertainment, including streaming subscriptions, flow directly to the studio.

The financial reports apply only to the company producing the film and are archived in stages. This begins during pre-production and continues long after the premiere to give the company time to ensure that it has collected all of its invoices and received the money for them. As stated in Lunak Heavy Industries’ 2018 financial statements, “the company was involved in paying ongoing production costs related to the film.”

It may take a very long time for the FPC to ensure that all invoices have been paid and only then can the company be closed. For example, Pym Particles Productions UK, named after the technology that allows Disney’s Ant-Man character to be shrunk, only closed in March this year, nine years after the release of its film about the pint-sized hero.

This means that the costs of a production can continue to rise years after release, although usually not nearly as much as at the time of production. Because Lunak Heavy Industries is a defendant in the image rights dispute, the company did not close and is still recording costs in its financial reports eight years later Villain One was released.

Disney does not address the cost of specific productions and did not respond to an opportunity to comment. However, Lunak Heavy Industries’ latest filings show the company spent $2.8 million (£2.2 million) in the year to December 31, 2023, bringing the film’s total cost to $325.8 million. Dollars (238.7 million pounds) increased. The financial reports show that “the final costs were higher than the agreed budget,” but that’s not all.

As shown in the chart below, the company also received a $56.2 million (£40.7 million) reimbursement from the British government, increasing Disney’s net expenses Villain One decreased to $269.6 million.

The amount of money that the studio pays for the rights to the film is recorded in the British company’s financial statements as revenue, and most importantly, its expenses are the total cost of the film. The majority of production costs are typically reported in the financial statements under the cost of sales category, while administrative costs largely represent auditors’ fees and losses or gains from currency translations.

These maneuvers give the British company a small net profit, usually equal to the studio’s production services fee. It is not a profit in the traditional sense because it is not generated by external income. The British company is wholly owned by the Hollywood studio, so the profit is merely a portion of its money that remains in its right hand, not its left.

Blockbuster film revenue comes from ticket sales, with theaters typically keeping around 50% of the revenue. The rest is paid directly to the studio and when it offsets the net expenses, the film makes a profit at the box office. It is the magic formula that created it Villain One a force to be reckoned with.