Amid 20% return, smaller pics sometimes delivered best
LONDON – Without any fanfare, the UK Film Council released figures for films it backed between April 2006 and its closure in March 2011. There was no surprise in seeing that “The King’s Speech” returned 100% of its $1.55 million investment, or that many of the already-forgotten films returned 0%.
But the figures were actually eye-opening. The report shed light on the entire business of film financing, and offers useful lessons to any government that fosters the film business — or any filmmaker who deals in the world of indie funding.
For one thing, the numbers show how misleading raw box office data can be. More crucially, they highlight the importance of deal structure in the future of film profitability.
“Dorian Gray,” for example, grossed $24 million worldwide, but recouped nothing, whereas “St. Trinian’s” paid back in full from a global gross of $29 million.
The Simon Pegg comedy “How to Lose Friends and Alienate People” was rewarded with $2.4 million in lottery coin; despite earning a respectable $6.5 million in U.K. cinemas, it returned just $16,000, or less than 1% of its UKFC investment, among the worst results of the tally.
Clearly, budget is a big factor. The Film Council calculated that, on average, its films reached net profits if the gross hit double the production cost. Many of the films showing zero return cost $15 million or above.
But equally important in explaining why the Film Council recouped more strongly from some films than others is the difference in the underlying deal structures.
The report, culture minister Ed Vaizey’s written answer to a parliamentary question, showed, for instance, that Julian Jarrold’s “Brideshead Revisited” recouped $34,000 from its $2.3 million investment. Michael Caine starrer “Harry Brown,” one of the top 10 British indie movies at the U.K. box office in 2009, has so far managed to recoup just $36,000 from its $1.63 million Film Council investment.
But at least these films have started to pay something back. Excluding pics backed in 2010, which are too fresh to count, 25 projects that received at least $500,000 between 2006-09 have so far recouped a big fat zero.
Aside from helmer Tom Hooper’s “King’s Speech,” the only other pics to have thus far returned 100% have been “St. Trinian’s” (which recouped $2.34 million) and the documenrtary “Man on Wire” ($636,000).
These tallies date from the end of March. The British Film Institute, which took over from the Film Council in April, is expected to receive extra income from these films, and from many other Film Council pics, for a number of years.
But the devil is in the deal structures. Some of the Film Council’s biggest losers occurred during the brief period when it co-funded pics with debt financier Aramid. Aramid arrived to fill the gap caused when the U.K. government outlawed the so-called GAAP tax funds pioneered by the likes of Ingenious, which shared their recoupment position with the Film Council.
But Aramid’s huge package of debt, sometimes covering up to 75% of budget, took first position ahead of the Film Council’s equity. Film Council execs knew that meant the org was unlikely ever to see a return, but accepted that risk to keep the cameras rolling at a time when U.K. production was in danger of grinding to a halt.
“Dorian Gray,” “Cheri,” “In the Loop,” “Franklyn,” “How to Lose Friends and Alienate People” and “Genova” were all Aramid pics. Their combined return to the Film Council was a paltry $89,000 from an investment of $7.55 million.
“How to Lose Friends and Alienate People” was a case in point. Its $20 million budget included more than $15 million from Aramid. Everything hinged on securing a North American sale for at least half of that sum, but MGM paid just $2 million.
With “In the Loop,” the financiers were relying on the transatlantic storyline to drum up a North American deal of more than $2 million, but IFC paid less than $500,000.
A year or two later, with budgets down to more realistic levels and presales coming back, the picture began to look rosier.
For “Made in Dagenham,” sources say debt financier BMS put up around $2.5 million, but HanWay tallied three times that figure in presales, including more than $2 million from Sony Pictures Classics in North America. The pic grossed $15 million worldwide.
HanWay’s strength in the foreign sales game is also illustrated by “Nowhere Boy,” which was co-financed by a loan of some $4 million from Canada’s Aver, but notched over $10 million in sales, including $3.25 million from the Weinstein Co. The pic made $8 million worldwide.
“Man on Wire” represents a different path to profit. The $1.6 million budget was funded by TV deals with the BBC and Discovery, leaving the Film Council to recoup its equity rapidly in first position from strong international sales.
On the other hand, “Adulthood,” “St. Trinian’s” and “Streetdance 3D” are all pics that recouped primarily from a strong U.K. performance.
Over the period of production awards from 2006-09, the UKFC earned $13 million from investments of $65 million, for an average recoupment rate of 20%.
That’s a relatively modest figure, given that the Film Council’s old Premiere Fund had a 50% target, and even the artsy New Cinema Fund was supposed to hit 25%. But the rate will increase significantly as the most recent films continue through their cycle of exploitation, particularly once the net profits from “The King’s Speech” start to flow.
Other strong performers include “Nowhere Boy,” which has recouped 87% of its $1.96 million investment; “Bright Star” (81% of $920,000); “Made in Dagenham” (80% of $1.5 million); “Adulthood” (62% of $930,000); “Streetdance 3D” (58% of $1.63 million) and “Centurion” (53% of $1.92 million).
Some films, such as “Nowhere Boy” and “Bright Star,” have much healthier returns than their raw grosses would suggest, largely thanks to strong international sales.
More than just paying back its funding, “King’s Speech” is projected to deliver net profits of several million dollars, while “Streetdance 3D” is also expected to join the select 100% recoupment club.
Thanks to “St. Trinian’s” and “The King’s Speech,” Colin Firth was the most profitable star for the Film Council in its last five years.
But he was also its biggest loss-maker, appearing in three films — “Dorian Gray,” “And When Did You Last See Your Father?” and “Genova” — that failed to pay back a single penny of the Film Council’s investment.
Aside from the Firth flops, which lost the Film Council a combined $2.6 million, other washouts include Stephen Frears’ “Cheri” ($1.63 million), Armando Iannucci’s “In The Loop” ($840,000); Stephen Poliakoff’s “1939” ($1.55 million); Gillian Armstrong’s “Death Defying Acts” ($1.3 million) and Gabor Csupo’s “The Secret of Moonacre” ($2 million).
More recent pics that have yet to recoup, but might do so in the future, include Mike Leigh’s “Another Year” ($2 million), Frears’ “Tamara Drewe” ($1.43 million), Richard Ayoade’s “Submarine” ($1.5 million) and James Marsh’s “Project Nim” ($960,000).
In fact, sources say that “Project Nim” has a good chance of 100% payback because of its hefty U.S. sale to HBO, which has yet to be banked. Alongside his “Man on Wire,” that makes Marsh the Film Council’s most commercial director.
The Vaizey figures show that Hooper’s multi-Oscar winner had paid back 95% of the Film Council investment by the end of March, a remarkably rapid return. That 95% actually equates to full recoupment because the Film Council carved out a 5% corridor for the producers. Net profits will take longer to come.
Internally, the BFI is estimating that it will receive another $3 million to $4 million from “The King’s Speech” over the next two to three years, a conservative figure reflecting a pragmatic view of how difficult it might prove to lay hands on those overages. The Film Council’s tenacious former royalties manager Amanda Pyne has been tapped by both the BFI and the producers to pursue the money.
But with “St. Trinian’s” also about to start paying net returns, even th
e most pessimistic predictions of the “King’s Speech” profits will be enough to ensure that Firth’s lottery balance sheet ends up several million dollars in the black.