‘Indiana Jones And The Dial Of Destiny’ Cost $100 Million More Than Estimated

Disney spent $100 million more than recent estimates have suggested on making Indiana Jones and the Dial of Destiny according to the financial statements of the production company behind the movie.

Dial of Destiny was released at the end of June last year and stars Harrison Ford as the ageing adventurer on a quest to track down an ancient artefact before it gets into the hands of the Nazis. The movie was the fifth instalment in the Indiana Jones franchise and whipped up a storm as its $384 million box office was far lower than that of its predecessors when adjusted for inflation.

It came at quite a cost as lengthy scenes in the movie showed a de-aged Ford looking like he did in his prime when he played the character in the 1980s. The eerily lifelike effects were developed by Disney's Industrial Light & Magic division and, as we revealed, a staggering $79 million (£62.6 million) was spent on post production alone. There is little doubt that Disney lost money on the movie but the question is how much.

In a recent report, industry title Deadline tried to grapple with this and concluded that Dial of Destiny lost $143 million. In reality it may have been much higher than that as Deadline's $300 million estimate of its production costs was conservative to say the least.

Movie budgets are usually a closely guarded secret as studios tend to absorb the cost of individual films in their overall expenses and don't itemize the cost of each one. However, films shot in the United Kingdom are exceptions to this rule and Dial of Destiny was one of them.

Although Dial of Destiny is largely set in the United States, it was filmed at Pinewood Studios outside London and on location in Europe and North Africa. London's Hatton Garden jewelry district doubled as New York City and Glasgow in Scotland was the location of a 1969 ticker tape parade celebrating the return of the Apollo 11 astronauts.

Records for the film office in Scotland show that runners and location marshals who worked on the Dial of Destiny shoot in Glasgow were employed by a company called PLT Productions (UK). Its entry in the UK companies registry reveals that it is owned by LFL Productions, a division of Lucasfilm which was bought by Disney for $4 billion in 2012. This explains why the companies register shows that Disney owns LFL Productions.

It is understood that PLT Productions (UK) is named after the Phoenix Little Theater and there is good reason for this. In 1964 the Phoenix Little Theater hosted the premiere of Firelight, the first film made by Steven Spielberg who directed the first four Indiana Jones movies. Giving the Dial of Destiny's production company a code name stopped it from raising attention with fans when it filed for permits to film on location. The UK wasn't just chosen for the shoot because of its stunning scenery.

Studios filming in the UK benefit from the government's Audio-Visual Expenditure Credit which gives studios a cash reimbursement of up to 25.5% of the money they spend in the country.

To qualify for the reimbursement, shows must pass a points test based on factors such as how much of the production took place in the UK, whether the score was recorded in the UK and how many of the lead actors and production team are from the UK.

Bearing that in mind, it's perhaps no surprise that Ford was joined in Dial of Destiny by Brits Phoebe Waller-Bridge and Toby Jones. Points are even awarded if the characters played by the lead actors are UK residents, which also might explain one of the strangest recent decisions in a Disney production. This saw American super-spy Nick Fury living in the UK in last year's Marvel Studios streaming series Secret Invasion which also got a generous reimbursement as we revealed.

Crucially, in order to receive a reimbursement of up to 25.5% of the movie's spending in the UK, at least 10% of its core production costs need to relate to activities there. In order to demonstrate this to the UK government, studios set up a separate Film Production Company (FPC) there for each picture which is why Dial of Destiny was made by PLT Productions.

The UK law states that each FPC must be responsible for everything from "pre-production, principal photography and post-production of the film; and for delivery of the completed film." The FPC even "directly negotiates contracts and pays for rights, goods and services in relation to the film." It isn't possible for studios to hide costs in other companies as the law also states that "there can only be one FPC in relation to a film."

The funding process differs slightly from film to film but generally follows a similar model which begins at the very start of production and can be seen in the graphic below.

The starting point is the studio buying a script from a screenwriter and giving the green light to a film about it. If the studio decides to make the film in the UK it sets up a subsidiary company there which buys the rights to the script.

Acquiring the rights to the script gives the UK company the rights to the movie it makes. That company must be responsible for pre-production and principal photography to post-production, delivery of the finished film and paying for goods and services in relation to it. Then comes some financial wizardry.

If the UK company makes a profit, the financial benefit from the government comes in the form of a reduction to its tax bill. However, if it makes a loss, it receives a cash reimbursement in the form of a tax credit so studios fund the companies in a way which engineers this.

The studio buys the rights to the movie from the UK company but only gives it 74.5% of the projected production cost. The remaining 25.5% is provided by the studio in the form of a loan. This gives the UK company 100% of the production budget for the movie and it sets the scene for the cash reimbursement.

Loans are not counted as revenue for accounting purposes because they need to be repaid. As a result of this, the UK company makes a loss equivalent to 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 on to the studio as repayment and, voila, the UK government covers 25.5% of a movie's costs.

The UK production companies have to file publicly-available financial statements and this lifts the curtain on precisely how much it costs to make the movies. The filings show everything from the headcount and salaries to the level of cash reimbursement. The cash that the studio pays for the rights to the movie is shown as the revenue in the UK company's financial statements and, crucially, its expenses are the movie's total costs.

The images below show the production costs of Dial of Destiny from the very start of pre-production to the end of April last year. The costs are denominated in UK Pounds and come to a total of £306.7 million as we revealed. Converting the total to US Dollars using the exchange rate at the time of writing gives $387.2 million but if the rate on the date of each set of financial statements is used it yields $402.3 million which is $102.3 million more than Deadline claimed.

Reflecting the UK law, the financial statements confirm that PLT Productions' principal activity is "motion picture production" and its staff all work in production as can be seen from the following pages.

As Disney bought the rights to Dial of Destiny from PLT Productions, it receives the share of its box office and pays the distribution costs and residuals to actors, which Deadline claims come to $36 million. It also puts a $60 million price on the overhead and interest from financing the film. Often studios will get a loan (which incurs interest) in order to fund the purchase of the rights but, again, that is not a cost for the production company so it is not a production cost.

The same goes for marketing. As the studio owns the rights to the movie and sells it to theaters, it pays for the prints and advertising to promote it. Deadline claims that $120 million was spent on this and it may or may not be right. One of the biggest costs in any division of any corporation is staff and the publicity teams at studios work across multiple movies, often concurrently. Accordingly, it isn't always possible to attribute their costs to specific pictures and although staffing may not be the biggest costs in the prints and ads category, it shows that the total can only be theoretical.

In contrast, UK companies have a legal obligation to ensure that their filings are accurate which is why there is no doubt that Deadline's production costs for Dial of Destiny are $100 million short. There is no need to estimate the production costs when a studio files legally-binding documents revealing them. Its share of the box office is a different story.

The amount that theaters pay to studios is known in the trade as a rental fee and it differs by territory and even by film. Filings from theater chain AMC state that "rental fees are based on the box office performance of each film, though in certain circumstances and less frequently, our rental fees are based on a mutually agreed settlement rate that is fixed.

"In some European territories, film rental fees are established on a weekly basis and some licenses use a per capita agreement instead of a revenue share, paying a flat amount per ticket."

However, it wouldn't be representative to base the worldwide box office percentage on data from just one theater chain as they all have different levels of exposure to different markets.

An overall indication 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. It lends weight to a 50-50 typical split which would give Disney $192 million from Dial of Destiny based on its takings according to industry analyst Box Office Mojo.

A $64.3 million (£57.7 million) reimbursement from the UK government brought the net spending on the movie down to $338 million yielding a net loss of $146 million at the box office. Then comes the other costs such as residuals, prints and ads. These amounts can only be speculation whereas the production costs are contained in official filings so it would be wrong to produce different estimates.

This flaw may afflict more of Deadline's production cost estimates for other movies but it isn't possible to tell at this stage as their latest financial statements have yet to be filed. In contrast, the latest results for Dial of Destiny cover the period right up to two months before the movie's premiere so they give an almost entirely complete picture of how much it cost to make. Given that it failed to make a profit at the box office it is far from a happy ending.