Disney has revealed that the total cost of its 2017 blockbuster Star Wars: The Last Jedi “exceeded the budgeted expenditure” as a result of a surge in spending during post production.
This disturbance in the force contributed to the net spending of the sci-fi film ultimately ballooning to $339.7 million which was a staggering 69.9% higher than trade titles had estimated.
The movie had everything going for it as it reunited Star Wars stalwarts Mark Hamill and the late Carrie Fisher with relative newcomers Daisy Ridley, John Boyega and Adam Driver.
Star Wars hype was on a high following the success two years earlier of The Force Awakens which grossed $2.1 billion according to industry analyst Box Office Mojo. The Last Jedi made the most of this as it picked up the story from The Force Awakens and although it didn’t make as much at the box office, it still grossed $1.3344 billion.
The amount that theaters pay to studios is known in the trade as a rental fee and an indication of the typical level comes from film industry consultant Stephen Follows who interviewed 1,235 film professionals in 2014 and concluded that, according to studios, theaters keep 49% of the takings on average.
The research lends weight to the widely-established 50-50 split which would give Disney $667.2 million from The Last Jedi. This is roughly in line with the $610.3 million rental fee estimate from Deadline though the trade title was much further off the mark with its claim that the movie’s net production cost came to $200 million.
The cost of making movies in the United States is usually a closely-guarded secret as studios tend to combine their spending on individual pictures in their overall expenses and don’t itemize the budgets of each one. However, as we have often reported, productions filmed in the United Kingdom are exceptions to this and The Last Jedi was one of them.
It was shot at Pinewood Studios and Longcross Studios outside London as well as at other locations such as a former World War II Royal Air Force base which doubled as the Resistance headquarters on the planet D’Qar where the first sequence of The Last Jedi takes place. Shooting in the UK shines a spotlight on its spending.
Studios filming in the UK benefit from its Audio-Visual Expenditure Credit which gives them a cash reimbursement of up to 25.5% of the money they spend in the country.
To qualify for the reimbursement, movies must pass a points test based on factors such as how many members of the production team are from the UK and how much of the post-production work is done in the UK. Furthermore, at least 10% of the core costs of the production need to relate to activities in the UK and in order to demonstrate this to the government, studios set up a separate Film Production Company (FPC) there for each picture.
The companies usually have code names so that they don’t raise attention with fans when filing for permits to film on location. Through industry research the company names can be tallied with names of the productions they are responsible for with Disney’s subsidiary Space Bear Industries (UK) being the one behind The Last Jedi.
Its name is reportedly a nod to 1994 western Legends of the Fall which starred Brad Pitt and Anthony Hopkins. The epic ends with Pitt’s character heading into the woods where he gets mauled by a bear while The Last Jedi sees the death of Hamill’s iconic Luke Skywalker character after he too goes on retreat. It explains the second part of the production company’s name whilst the first part relates to the setting which is space rather than the wilderness.
The production companies have to file annual financial statements which reveal everything from the total costs of the movie right down to the headcount, salaries and even the social security payments for staff. However, marketing costs are not shown on the financial statements, as they tend to be covered directly by by the studio. Likewise, revenue from theater ticket sales, merchandise and home entertainment also goes directly to the studio.
The financial statements are just for the company which makes the movie and studios file them in stages. This starts during pre-production and goes on long after the premiere to give the company time to ensure it has collected all of its bills and received the money for them.
It can take a great deal of time for the company to ensure that all invoices have been paid. This explains why the 2018 financial statements for the production company behind Star Wars spinoff Rogue One state that “the company was involved in paying the ongoing production costs in relation to the film” even though it was released two years earlier.
This means that the costs of a production can still rise years after release, though not usually by anywhere near as much as when it is being made. Seven years after The Last Jedi was released, Space Bear Industries (UK) is still booking costs on its financial statements and just over a month ago filed its latest results.
Disney and its Lucasfilm division, which owns the rights to Star Wars, did not respond to a request to comment. They don’t need to as the filings do the talking.
The latest financial statements show that in the year to December 31, 2023, Space Bear Industries (UK) spent $3.6 million (£2.8 million) bringing The Last Jedi’s total costs to $410.4 million (£308.6 million).
Looking further back, the financial statements reveal that the production was “within budget” right up to August 2016 – one month after filming wrapped. However, that all changed over the course of the next 16 months when reshoots reportedly took place. The movie had blown its budget by the end of 2017 just a few weeks after the movie had been released. However, it didn’t stop there.
Disney also banked a $70.7 million (£53.3 million) reimbursement from the UK government bringing its net spending on The Last Jedi down to $339.7 million. It is important to stress that this figure isn’t an accounting sum, a forecast or an estimate. It’s a precise figure based on the $410.4 million (£308.6 million) that Lucasfilm actually spent minus the $70.7 million (£53.3 million) cash reimbursement that was actually received.
The certainty of the data is why our reports focus on the production costs of movies rather than their marketing costs or merchandise and home entertainment revenues. Any data about those costs and revenue streams can only be an estimate at best and there is not even an independent archive of them as there is with theater ticket sales thanks to Box Office Mojo.
Studios are legally obliged to ensure that the data contained in the financial statements for their production companies is true and accurate. The data in our reports is taken directly from the filings to ensure that they too are true and accurate as can be seen by comparing the table below with these key pages from the Space Bear Industries (UK) filings which can be found on this UK government website.
Guaranteeing the accuracy of the data is just the start. Point 1179DP of the UK’s Finance Act states that the production company must be “responsible for pre-production, principal photography and post-production of the film or programme, and delivery of the film or programme in completed form.” It adds that the company “directly negotiates, contracts and pays for rights, goods and services in relation to the film or programme.” In short, UK law requires the production company to bear the complete costs of the production so its financial statements legally cannot just give part of the picture and also have to be true and accurate.
Accordingly, any indication that the data justifying our reports is inaccurate or incomplete could cause serious legal problems for studios and there is no suggestion here that they have anything to worry about. The legal requirement for truth and accuracy in the financial statements gives the movie costs a seal of approval as the studio cannot deny them.
Studios put up with this level of disclosure due to the scale of the reimbursement on offer. Getting it requires some financial wizardry which begins at the very start of production.
The first step usually sees the Hollywood studio buying a script from a screenwriter and giving the green light to a movie about it. If the studio decides to make the movie in the UK it then sets up a subsidiary company there which acquires the script from its US-based parent.
Acquiring the script gives the UK company the right to the make a movie about it and the Hollywood studio usually pays it a small production services fee. As the law says, the UK company must be responsible for everything from pre-production and principal photography to post-production, delivery of the finished film and payment of goods and services in relation to it. Next comes the financial sorcery.
If the UK company makes a profit, the benefit from the UK government comes in the form of a reduction to its tax bill. However, if it makes a loss, it receives a cash reimbursement so studios fund the companies in a way which engineers this.
As shown in the diagram below, the studio buys the rights to the film from the UK company but only gives it up to 74.5% of the projected production cost. The remaining 25.5% is provided by the studio in the form of a loan. The loan and the revenue from the sale of the rights gives the UK company 100% of the production budget for the movie and this sets the scene for the cash reimbursement.
Loans are not counted as revenue because they need to be repaid. The UK production company therefore makes a loss equivalent to around 25.5% of the movie’s budget. That is when the UK government steps in as it reimburses this loss. As the amount of the reimbursement is equivalent to the loan that the company owes its parent, the cash can be passed to the Hollywood studio as repayment. Thanks to these twists and turns, the UK government covers 25.5% of a film’s costs, thereby reducing the studio’s net spending.
The cash that the studio pays for the rights to the movie is the revenue shown in the UK company’s financial statements and, crucially, its expenses are the film’s total costs. The biggest component of the production costs is usually shown in the financial statements under the category of cost of sales whilst the administrative expenses largely represent fees to auditors as well as a loss or gain from currency conversions. These maneuvers leave the UK company with a small net profit which is usually equivalent to the production services fee from the studio.
It isn’t a profit in the conventional sense as it isn’t generated by external revenue. The UK company is entirely owned by the Hollywood studio so the profit is simply equivalent to some of its money which remains in its right hand rather than the left.
It is important to stress that this profit is booked by the production company which bears the costs of making the movie but does not receive the revenue from theater ticket sales. If that revenue doesn’t cover the net spending by the production company then the movie makes a loss. If the revenue from theater ticket sales exceeds the production company’s net spending then the movie makes a profit, which is precisely what happened with The Last Jedi.
Deducting the production company’s $339.7 million net spending from Disney’s $667.2 million share of the box office gives a profit of $327.5 million making The Last Jedi a force to be reckoned with.
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