Key strategic money models

Complex times demand bigger budgets, incentives

In an increasingly complex financial environment, Variety profiles fiscal strategies of four films:

The Mexican axis and Hispano-pudding: “The Zone”

First-time director Rodrigo Pla’s “The Zone” delivers an early-warning signal about Mexico’s new movie muscle.

A key step was framing the E3 million ($5.4 million) thriller, about rich residential-zone dwellers hunting intruders, as an international co-production.

Pla’s label Buenaventura and Christian Valdelievre’s Cine Pantera took 35% equity; Morena leads a 65% participation from Spain.

The co-production allowed “Zone,” previously parked at Mexico’s Columbia TriStar, to re-energize.

Strengthening “Zone’s” cache, French sales agent Wild Bunch put up a significant minimum guarantee.

“Zone” drew 70 million pesos ($636,000) from Mexico’s state-backed Fidecine Film Fund, a significant tranche from top indie distributor Gussi, and pioneering Section 226 tax coin from liquor company Tequila Cuervo.

Morena leveraged Spain’s impressive regional funding. Producers from Catalonia (Estrategia), Andalusia (Jaleo), Galicia (Vaca), the Basque country (Orio) and Valencia (Grupo Joan Andreu) all took equity, prompting a free-to-air sale to regional pubcaster association Forta.

Mexico clarified film tax break regs on March 15. It offers tax credits equaling 100% writeoffs of film investment on up to 10% of general tax liability, an attractive incentive.

The Spanish-Mexican axis will consolidate, says Morena producer Alvaro Longoria.

“Mexico can now bring $2 million-plus to a project. And it’s artistically arresting. As Luis Bunuel said, the surrealism is on the streets.”

The Godfather and the script: “The Orphanage”

Guillermo del Toro’s enthusiasm was vital in accelerating buyer interest and confidence in Juan Antonio Bayona’s debut, the gothic chiller “The Orphanage.” But Wild Bunch would not have made $3.2 million in sales at Berlin, including a Picturehouse pickup for the U.S., if it hadn’t been for the strength of the film’s screenplay.

Screenwriter Sergi Sanchez put the $4.8 million “Orphanage” through more than a dozen drafts over three years for producers Mar Targarona and Joaquin Padro at Barcelona’s Rodar y Rodar. The screenplay also seduced Spanish actress Belen Rueda. Her attachment to the pic brought in Telecinco Cine, which co-produced in a 50/50 split with Rodar.

Meanwhile, Bayona brought in del Toro, who served as a creative adviser.

Bayona and del Toro had connected years before at Spanish genre hothouse, the Sitges Film Festival.

“Guillermo loved the script, and Bayona is talented. And Guillermo and Rodar are enthusiastic about nursing new talent,” says Targarona.

“Guillermo focused on priming tension and smoothing out weaknesses,” Padro adds.

The Mexican’s involvement attracted sales agent Wild Bunch. Warner Bros. has entered as a financial co-producer.

Del Toro’s high praise for “Orphanage” in Wild Bunch promotional material at Berlin was “highly important,” says Padro. “It was a quality guarantee.”

And Berlin took place just days before the Academy Awards, where del Toro’s “Pan’s Labyrinth” was up for a brace of awards. But Wild Bunch also sold “Orphanage” off its screenplay and footage, which confirm psychological depth and emotion in the film not found in simpler chillers.

“Orphanage” world-preems in Cannes Critics Week. It may not be the last time del Toro and Rodar work together.

Auteur express: Upping the budget on Brad Anderson’s “Trans-Siberian”

Barcelona-based mini-major Filmax has two high-end pic production strategies, says chairman Julio Fernandez: “talent-driven productions,” and “international co-productions, playing off stable production alliances.”

“Perfume” and Mexican thriller “KM.31” are prime examples of the second; Brad Anderson’s “Trans-Siberian” illustrates the first.

Anderson had already made “The Machinist” with Filmax. “Trans-Siberian” reps a step-up in scale — it shot in locations as diverse as China and Lithuania — and stars — it toplines Woody Harrelson, Emily Mortimer and Ben Kingsley. It also tackles new themes. After two grimy psychological dramas, the new pic is positioned by Filmax Intl. as a crime thriller.

“You have to study screenplays, get them right. And it’s best to produce a little less, but move up slightly in budget. Of 10 or 15 bows each weekend, audiences only focus on three or four,” Fernandez says.

In a deal announced at Cannes 2006, Germany’s Universum Film, owned by media giant Bertelsmann, boarded “Trans-Siberian,” taking 20% and German-speaking territory rights.

London’s Future Films has also taken 10%. The move marks the evolution of U.K. tax breaks.

Before the new U.K. tax credit system, “Trans-Siberian” would have qualified as a U.K. co-production because it has so many British actors,” says Future’s Carola Ash. But the new credit system does not count British actors working abroad as U.K. spend.

So Future’s 10% is straight equity, not tax-driven spend. In the past, Spanish producers often tapped some 20% of budget in mixed equity and tax coin from Future and raised 20% of budget from another country, an arrangement that worked very well.

Studio rebates: La Ciudad de la Luz and “Garden of Eden”

Produced by London’s Berwick Street Films, and directed by John Irvin from Ernest Hemingway’s novel, “Garden of Eden” is lush: budding novelist David marries a flighty bisexual heiress. They settle on the Cote D’Azur. Soon she’s bedding an Italian beauty. Unsurprisingly, David can’t put pen to paper.

Although set in France, it will shoot in Valencia in Spain. One reason is the rebate system just launched by Alicante’s new Ciudad de la Luz studios.

The Valencian government offers up to $7.3 million per film in straight non-returnable rebates. To qualify, productions must shoot at least two weeks at the Ciudad. All films get back an automatic 12% of regional spend.

Some may tap up to a further discretionary 6%, which hinges on local crewing, production scale and economic impact.

The rebate is channeled through a Valencian company, in “Eden’s” case Freeform Spain, set up in late 2006.

“Eden’s” regional spend is around $6.4 million. On “Eden” at least, the rebate is a straight subsidy channeled into the production, not equity, says Freeform CEO Tim Baish.

Producers get money back as they spend it. “When we’ve spent the equivalent of half of our rebate, we get that half back,” Baish says.

Ciudad, which will host Roman Polanski’s “Pompei” this summer, lacks a large local technical base. But, says Baish, English technicians, some with holiday homes in Valencia, are asking about crewing at the Ciudad. And Freeform aims to bring on local technicians fast.

Also, says Baish, Ciudad’s studio facilities are second to none. Crew and construction are 25%-30% cheaper than U.K. rates. Local authorities facilitate free-of-charge location shoots. On “Eden,” which shoots in June and July, a resort will put up most crew for just $51 a night.

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