True Art of HollywoodHollywood studios have two different types of budgets. The official budget is available to trade papers such as The Hollywood Reporter and Variety. This budget shows an unrealistic amount of how much the production will supposedly cost. The closely-held production cost budget contains the actual cost of production. This budget is hardly ever seen by anyone who is not an insider. This true production cost budget includes money the studio receives from product placement, tax shelter deals, government subsidies and any other sources used to fund the film.

A vice president at Paramount used Paramount’s film Laura Croft: Tomb Raider to show how all of this comes together. In 2001, the official budget for this film was $94 million (the press reported this number to be even higher), but the actual outlay of the cost was only $8.7 million. You may wonder how this could be possible.

Paramount received $65 million for pre-sales to Germany’s Intermedia Films. This gave Intermedia Films distribution rights to the film for six countries including Germany, Britain, Japan, Spain, Italy and France. Paramount was left with the freedom to market this film anywhere else in the world.

Next, the studio made arrangements for part of the film to be shot in Britain, qualifying it for Section 48 tax relief. This allowed for a sale-lease-back transaction which sold the movie to British investors. After collecting a multimillion subsidy from the British government, the investors sold it back to Paramount for less than what Paramount paid.

Through this process, Paramount gained $12 million. Paramount then sold the copyright to a German tax shelter through Herbert Kloiber’s Tele Munchen Gruppe. The movie was not required to be shot in Germany, and the transfer of the copyright was temporary. This basically made the revenue from the transaction money-for-nothing. By doing this, Paramount made $10.2 million in Germany which allowed them to pay the principal cast and Angelina Jolie’s $7.5 million salary.

Paramount had already pulled in $87 million before production even began. Paramount paid approximately $1.7 million to middlemen in fees and commissions. This left them with an excess of more than $85.3 million. Therefore, the total cost for production of this film was only $8.7 million.

Paramount also had the assurance of selling the Pay-TV rights to Showtime, its sister company. Laura Croft: Tomb Raider brought Paramount more than $100 million from theaters, television, DVDs and other rights.

Paramount is not the only studio that uses these procedures. All studios do this to help lower their risk of production. This just goes to show that the true art of the movies lies within the deal makers.