"If it can be written, or thought, it can be filmed..." STANLEY KUBRIC

Film financing

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Typical methods of raising finance

Pre-sales

Selling the right to distribute a film in different territories before the film is produced based on the script and cast is the primary means of film financing. Once the deal has been made, the distributor will insist the producers deliver on certain elements of content and cast; if an alteration is made, financing may collapse (as happened on Terry Gilliam's The Man Who Killed Don Quixote when lead actor Jean Rochefort fell ill). Often a distributor will suggest a casting alteration in order gain the “marquee names” essential for drawing in an international audience.

The reliance on pre-sales explains Hollywood's dependence on movie stars and the huge salaries they are paid. Their agents and lawyers - realizing their importance in pre-selling a movie - can ask for fees ranging from $10 million to $30 million, plus perks and a percentage of the gross profits.

German tax shelters

A relatively new tactic for raising finance is through German tax shelters. The tax law of Germany allows investors to take an instant tax deduction even on non-German productions and even if the film has not yet gone into production. The film producers can sell the copyright to one of these tax shelters for the cost of the film's budget, then have them lease it back for a price around 90 % of the original cost. On a $100 million film, a producer could make $10 million, minus fees to lawyers and middlemen.

This tactic favors big-budget films as the profit on more modestly budgeted films would be consumed by the legal and administrative costs.

British tax shelters

The same copyright can be sold again to a British company and a further $10 million could be raised, but UK law insists that part of the film is shot in Britain and that the production employs a fair proportion of British actors and crew. This explains why many American films like to shoot at Britain's major film studios like Pinewood and Shepperton and why a film such as Basic Instinct 2 relocated its action from New York to London.

Television pre-sales

Although it is more usual for a producer to sell the TV rights of his film after it has been made, it is sometimes possible to sell the rights in advance and use the money to pay for the production. In some cases the television station will be a subsidiary of the movie studio's parent company.

Negative pickup deal

A negative pickup deal is a contract entered into by an independent producer and a movie studio wherein the studio agrees to purchase the movie from the producer at a given date and for a fixed sum. Until then, the financing is up to the prodcuer, who must also pay any additional costs if the film goes over-budget. Superman and Never Say Never Again are examples of negative pickups.

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