The idea of saving money on a movie which cost hundreds of millions of dollars to make sounds bizarre to say the least. However that is precisely what Disney says it did on 2019's Star War: The Rise of Skywalker. It isn't exaggerating.
Analysis of recently-filed documents reveals that by March 2019, one month after filming wrapped, Disney said the movie was "in line with the budget". However, post-production cost less than expected and by the end of the year, less than two weeks after the movie debuted, Disney disclosed that it was "below the production budget". That's despite the movie having total costs of $588.2 million (£442.2 million). It isn't actually as bizarre as it sounds.
It is important to stress at the outset that there is a distinct difference between the cost or spending on a movie and its budget. These terms are often used interchangeably, even by trade titles, but that is far from correct.
Contrary to popular belief, the budget isn't the amount that the movie cost to make. If it was, it wouldn't possible for a movie to be over or under budget. In fact, the budget is the amount that the studio allocated to it on its internal forecasts. The movie's cost is the sum that was actually spent on it. If this exceeds the budget then the studio has to adjust its forecasts as further funds need to be allocated to it in order for production to continue.
This is usually due to unforeseen circumstances such as the directors being dropped which is what happened on Solo: A Star Wars Story. In scenarios like this, studios usually have to pay a severance fee to the former director and hire a new one, possibly for a increased fee. Both of which are unexpected costs that can lead to the picture ending up going over the budget as was the case with Solo.
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However, the reverse is also possible as studios can make unexpected savings during production which lead to them spending less than expected. This principle can apply at any level of spending.
For example, if a studio allocates $500 million to a movie in its internal forecasts but only ends up spending $450 million, it comes in under budget even though $450 million is still a staggering sum which may indeed be more than other movies of its kind cost to make.
There are a number of reasons why a picture can come in under budget with two being the emergence of new technologies and economies of scale. As we have reported, LED screens have recently become a viable alternative to shooting on location and if the decision to use them is made during production it can cut costs unexpectedly.
Likewise, if a studio's visual effects division realizes during production that it can re-use character designs from previous films rather than creating new ones, the economies of scale can have the same effect.
Although the reason for The Rise of Skywalker's costs being lower than expected isn't certain, it coincided with the editing of the movie which took less time than usual. This came to light in an interview on The Rough Cut podcast with The Rise of Skywalker's editor Maryann Brandon who admitted that the latter stages of the production schedule were accelerated which "affected everything."
She estimated that the crew had three months less to work on The Rise of Skywalker than The Force Awakens, the first of Disney's Star Wars trilogy. Brandon explained that the reason for the tight timing was that Disney insisted on sticking to the movie's December 2019 release date rather than delaying it which would have increased the post-production time and therefore the cost.
Reshoots are often planned into budgets but J.J. Abrams, director of The Rise of Skywalker, told Entertainment Weekly that the movie ended up needing fewer than The Force Awakens. He explained that because The Force Awakens was the first movie in the series "we didn't know if these characters would work, if the actors would be able to carry a Star Wars movie. There were a lot of things we didn't know. On [The Rise of Skywalker], we knew who and what worked."
The cast of The Rise of Skywalker reads like a roll call for the Oscars. It included original stars Mark Hamill and Carrie Fisher with Ian McDiarmid who played their adversary, the evil Emperor, in the original Star Wars movies nearly 40 years earlier. In The Rise of Skywalker he teams up with Adam Driver's Kylo Ren to take on the remnants of the Resistance, with Daisy Ridley, John Boyega and Oscar Isaac in the leading roles.
For Disney, the reduced reshoots and the accelerated post-production process was a force for good. If the movie had cost more to make, the studio's profit would have been lower and there's no need to speculate about that.
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The budgets of movies made in the United States are 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 Rise of Skywalker was one of them.
The Rise of Skywalker made use of eight soundstages and two backlots at Pinewood Studios just outside London as well as filming on location. A former Royal Air Force hangar, originally built in 1915 to house airships for the First World War, doubled for the deck of a star destroyer in the film's final battle with the Emperor. The hangar was also home to Christopher Nolan’s Batman series as well as Justice League, Inception and Harry Potter spinoff – Fantastic Beasts And Where To Find Them. It was even used to film scenes set on the Resistance planet of Yavin in the original Star Wars movie in 1977.
Shooting in the UK shines a spotlight on the finances of films. Studios which make movies there 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 the names of the productions they are responsible for with Disney's subsidiary Carbonado Industries (UK) being the one behind The Rise of Skywalker.
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 was being made. Five years after The Rise of Skywalker was released, Carbonado 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 by December 31, 2023 the total costs of The Rise of Skywalker had hit $588.2 million but it doesn't stop there. Disney also banked a $102.6 million (£77 million) reimbursement from the UK government bringing its net spending on The Rise of Skywalker down to $485.6 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 $588.2 million (£442.2 million) that Lucasfilm actually spent minus the $102.6 million (£77 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 industry analyst Box Office Mojo.
Guaranteeing the accuracy of the data is just the start. UK law 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 size of the reimbursements on offer. Getting them 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 wizardry.
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 in its theatrical run. 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 Rise of Skywalker.
According to Box Office Mojo, The Rise of Skywalker grossed $1.077 billion but Disney didn't pocket all of it. 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.
This research lends weight to the widely-established 50-50 split which would give Disney $538.5 million from The Rise of Skywalker. Deducting the $485.6 million net spending from Disney's $538.5 million share of the box office gives a profit of $52.9 million. It wasn't enough to make The Rise of Skywalker a force to be reckoned with and Star Wars has stayed off the silver screen since then, instead being relegated to streaming shows with the most popular being The Mandalorian.
In 2026 Star Wars will return to theaters with the release of The Mandalorian & Grogu which follows up the streaming series. Earlier this week it was reported that British film producer Simon Kinberg has been hired by Lucasfilm to develop the next trilogy of films in the Star Wars saga. Time will tell whether he can bring back the magic to the series or whether it is still far, far away.
