The Man Who Stopped Disney From Losing Half A Billion Dollars On ‘The Marvels’ And ‘Quantumania’

It's no secret that 2023 was far from a blockbuster year for Marvel Studios. The Disney-owned entertainment giant had to deal with assault charges filed against its up-and-coming star Jonathan Majors, growing discontent from its visual effects staff and the departure of their boss Victoria Alonso. And that was all in the first three months of the year. Surprisingly, the worst was yet to come.

This turmoil was followed by the studio releasing a string of productions which were panned by critics even though they came at a colossal cost. As we recently revealed , The Marvels and Ant-Man threequel, Quantumania, together lost $296.4 million at the box office but it could have been a whole lot worse if it wasn't for the help of an unlikely ally.

Many movie trade titles claim to know how much money films lost at the box office. Although industry analyst Box Office Mojo publishes data about theater takings, which is widely accepted to be accurate, there is no equivalent source for production costs. Studios such as Disney don't comment on the cost of individual productions so trade titles tend to resort to using figures from contacts or estimates and this can lead to wild inaccuracies.

For example, Variety claimed that The Marvels "cost $250 million" when, in fact, more than $350 million was actually spent on it. By doing a bit of detective work it's possible to be bang on the money.

The precise costs of movies made in the United States is usually a closely-guarded secret as studios combine the costs of all of their productions in their overall expenses and their filings don't itemize how much they spent on each one. It is a different story in the United Kingdom which is where The Marvels and Quantumania were made.

As we regularly report, studios filming in the UK often incorporate a subsidiary company to make each picture there and they have to file financial statements showing everything from the total sum spent on it right down to the pension contribution paid to the staff who worked on it. Some even disclose the difference in pay between the men and women they employ and the proportion of the workforce represented by each gender.

The companies usually have code names so that they don't raise attention with fans when filing for permits to film on location and when they are correctly matched to the productions they are making it lifts the curtain on their costs.

This is because the terms governing the UK production companies state that they have to show all of the costs, from pre-production right up to delivery of the finished film. What's more, the terms add that movies made in the UK can only have one production company so studios can't set up others elsewhere and hide some of the spending in them. Crucially, the companies have to warrant that the data in their filings is true and accurate so the cost of the movies they make is indisputable. Studios don't disclose this information out of the goodness of their hearts.

They shoot in the UK to benefit from the government's Audio-Visual Expenditure Credit (AVEC) which gives them a cash reimbursement of up to 25.5% of the money they spend in the country.

To qualify for the reimbursement, at least 10% of the production costs need to relate to activities in the UK. Studios set up separate production companies for each picture so that they can demonstrate the spending to the UK government and the filings for the Disney subsidiaries behind The Marvels and Quantumania show that they cost a total of $762.4 million to make.

The movies generated a combined $682.2 million at the box office with around 50% of it going to Disney leaving the studio with a loss of $421.3 million. That doesn't include the revenue from merchandise and Blu Ray/streaming sales as they go to the studio but it too has to cover the cost of marketing the movies which could drive up its loss. However, that's just the start of the story.

The filings also show that The Marvels and Quantumania received a combined $124.9 million in reimbursements from the UK government bringing Disney's loss down to around 300 million dollars. Getting the reimbursement is far from child's play.

In addition to the 10% minimum UK spending threshold, films must pass a points test based on factors such as whether the film showcases the UK and how many of the lead actors are British. It explains why the cast of many Marvel movies is dominated by British actors and why cultural icons from the country sometimes appear on-screen despite seeming so incongruous that it can distract from the action.

A sign in the background of one of the scenes in Avengers: Infinity War shows a Scottish flag and a reference to deep fried kebabs which are an unusual local delicacy. Likewise, at one point in Doctor Strange in the Multiverse of Madness, a portal opens to reveal a classic British red telephone box.

Neither The Marvels nor Quantumania showcase any British heritage, nor are their ranks filled with British actors. However, the points test also covers aspects such as whether the soundtrack was recorded in the UK and how many of the production team are from the UK. Both movies were made in the UK and passed the points tests as the filings for their production companies confirm that they received final British Film Certificates.

The filings also show that neither The Marvels nor Quantumania used the full 25.5% reimbursement available to them as it only covered 17.8% and 15% of their total costs respectively. As Robby Montoya, an investigative reporter at the Texas Scorecard, astutely observed on X, the platform formerly known as Twitter, "British taxpayers funded box office bombs."

That said, Disney is isn't doing anything wrong by receiving the reimbursements as it is simply taking advantage of the UK's tax laws. It isn't even a new development as Disney has been filming in the UK for decades. Indeed, its first completely live-action film, Treasure Island, was filmed in the UK way back in 1949. under the supervision of Walt himself.

However, Disney's relationship with the UK government has changed over the years and stepped up a gear a decade ago.

It followed Disney's $4 billion buyout of Lucasfilm, creator of the Star Wars series, in 2012. No sooner was the ink dry on the contract than Disney gave the green light to a reboot of the sci-fi saga which began filming two years later. Disney decided to go all-out on it and, as we revealed , Star Wars: The Force Awakens, the first film in its trilogy, became the most expensive movie of all time with total costs of well over $500 million.

In order to recoup some of this staggering sum, Disney made the movie in the UK. With so much money at stake, the studio didn't take any chances and got endorsement from the UK government right from the start.

In 2014 the UK's then-Treasury Secretary George Osborne proudly announced that the historic Pinewood Studios would not just be home to The Force Awakens but also to its two sequels. It was a dream ticket for the self-confessed Star Wars fan though there is no suggestion that Osborne did anything improper or gave Disney any special treatment. In fact, at the time, the UK was part of the European Union and its state aid rules prevent the governments of its members from cutting such deals with companies.

According to the Daily Mail Osborne worked closely with Lucasfilm's president Kathleen Kennedy to ensure the new slate of films, directed by JJ Abrams, were made in the UK, snatching them away from rivals including Canada. Osborne's support was so valued by Disney that it thanked him in the credits of The Force Awakens and gave him several replica Lightsabers.

Disney even invited him on to the highly-secretive set of The Force Awakens for a behind the scenes tour during filming which he described as "one of the most exciting days in the job." He added that "I did walk on the Millennium Falcon and meet Chewbacca. It's like walking back into your childhood. I couldn't actually believe I was meeting these characters."

He kickstarted a relationship that stands strong to this day. Disney didn't just make its trilogy of Star Wars films in the UK but their two spinoffs, two streaming series and 17 Marvel productions including The Marvels and Quantumania. There is more to come as Disney announced in August that it plans to invest $5 billion over the next five years in films, television and streaming shows made in the UK and Europe.

Osborne, who is now chairman of the British Museum, didn't support Disney because he is a Star Wars aficionado but because of the financial benefit it brings to the UK. Testimony to this, the latest data from the British Film Institute (BFI) shows that in 2019, every $1.31 (£1) of reimbursement handed to studios generated $10.88 (£8.30) of additional Gross Value Added (GVA) benefit for the UK economy. It led to a total of $10.1 billion (£7.7 billion) in GVA being generated by the fiscal incentives for film in 2019.

Released in December 2021, the BFI's triennial Screen Business report showed that between 2017 and 2019, the fiscal incentives to studios generated a record $17.7 billion (£13.5 billion) of return on investment to the UK economy and created more jobs than ever before. Filming in the UK doesn't just generate jobs for locals, it also drives spending on services such as security, equipment hire, transport and catering.

The report found that, in general, between 40% and 60% of production expenditure was spent in the general economy in sectors such as travel and transport, construction, hospitality and catering. In specific, productions with a budget of more than $65.6 million (£50 million) spend 11.7% on construction; 9.8% on travel and transport; 9.7% on locations; 6.5% on hospitality and catering; 4.2% on business supplies; 3.1% on local labor; 2.3% on music and performing arts; 2.2% on fashion and beauty; and 2.1% on digital services.

In 2019, this spend generated 37,685 jobs in London and 7,775 throughout the rest of the UK. The report added that when the wider impacts of the film content value chain are taken into consideration, 49,845 jobs were created in London in 2019 and 19,085 throughout the rest of the UK.

The UK economy is still getting a magic touch from the fiscal incentives. Despite Hollywood being gripped by strikes for more than six months last year, foreign studios contributed around 77% of the $1.8 billion (£1.4 billion) spent on making films in UK according to the BFI.

Critics claim that the impact isn't felt outside the film industry which is still a niche sector in the UK. There is some evidence for this from the government itself. When it introduced its high-end television reimbursement scheme in 2013 it noted that "this measure is expected to have a positive impact on the high-end television industry, but is not expected to have significant wider macroeconomic impacts."

However, a senior industry source points out that the UK doesn't just benefit from job creation and the studios spending money on local businesses but also from the increased tax paid by these companies. Furthermore, as the reimbursement is paid to studios after the spending has occurred, the UK government collects the tax before the money is paid out.

"The amount of taxes on the spend makes it pretty cash neutral to start," says the source. "Even better, the spend happens and taxes are paid a year at least before the government writes a cheque in return." He adds that the film industry workers then spend the money they have been paid which in turn generates more tax receipts for the government. "If you follow the actual tax collection against the impact of this onward money it vastly exceeds the payout."

Testimony to this, the Screen Business report estimated that the fiscal incentives for film caused UK tax revenues to surge by 27% from $3.7 billion (£2.8 billion) in 2017 to $4.7 billion (£3.6 billion) in 2019. The source adds that the government puts this to good use as it "results in our technologies helping cut the trial times for drugs by 50% and my new knee operation time. Direct from R&D done by people like us in film."

He adds that the fiscal incentives are "not at the expense of spending on hospitals etc. Without the inward money the payroll and other taxes on the £7 billion plus would not be generated."

Despite these statistics, some observers feel that efforts might have been better focussed elsewhere in the arts industry. According to Neil Griffiths, CEO of youth charity Arts Emergency, "austerity politics has been cataclysmic for the long term health of our nation's cultural life and creative industries. It may work as a short term incentive for global corporations to bring business here, but they won't keep coming when the talent pipeline runs dry due to the short term thinking and small minded educational and cultural policies of successive Conservative governments. Community arts and state funded comprehensive education are the bedrock of the UK's global pre-eminence in cultural production and creativity."

Another counter argument is that the UK's facilities, talent and landscape are strong enough to attract studios to film anyway so the country could reap the benefits from their spending without the government needing to pay out the reimbursements. If the UK had not offered such attractive fiscal incentives to movie-makers it remains to be seen whether The Marvels or Quantumania would have been filmed there anyway and whether their costs would have come down if so. However, there is no doubt that as long as the incentives remain in place, it isn't likely that the curtain will come down on film making in the UK.