Brett Ratner interviews Ryan Kavanaugh

The Magic Of Studio Financing

Last week I was invited to be part of a discussion panel at the Silicon Valley Film Festival. The subject of the panel was new technologies in  independent film making. One of the off topic questions that I am invariably asked at these types of gatherings. Is why do studios persist in making 300 million dollar tent pole films (block busters) They could just as easily make thirty 10 million dollar films or sixty 5 million dollar films? Why bet the studios financial solvency on one roll of the dice?

As paradoxical and absurd as it sounds, it's cheaper for a Hollywood studio to make a big-budget action movie than to make a shoestring art film like Sideways. Consider Paramount's 2001 action flick Lara Croft: Tomb Raider. On paper, Tomb Raider's budget was $94 million. In fact, the entire movie cost Paramount less than $7 million. How did the studio collect over $87 million before cameras started rolling?

First, they used the German tax-shelter gambit. Loopholes in Germany's tax code are responsible for a good portion of Paramount's profits—an estimated $70 million to $90 million in 2003 alone. Best of all, there's no risk or cost for the studio (other than legal fees)

Here's how it works: Germany allows investors in German-owned film ventures to take an immediate tax deduction on their film investments, even if the film they're investing in has not yet gone into production. If a German wants to defer a tax bill to a more convenient time, a good way to do it is by investing in a future movie. The beauty of the German laws as far as Hollywood is concerned is that, unlike the tax laws in other countries, they don't require that films be shot locally or employ local personnel. German law simply requires that the film be produced by a German company that owns its copyright and shares in its future profits. This requisite presents no obstacle for studio lawyers.

The Hollywood studio starts by arranging on paper to sell the film's copyright to a German company. Then, they immediately lease the movie back—with an option to repurchase it later. At this point, a German company appears to own the movie. The Germans then sign a "production service agreement" and a "distribution service agreement" with the studio that limits their responsibility to token—and temporary—ownership.

For the privilege of fake ownership, the Germans pay the studio about 10 percent more than they'll eventually get back in lease and option payments. For the studio, that extra 10 percent is instant profit. It is truly, as one Paramount executive told me, "money for nothing." In the case of Lara Croft: Tomb Raider, Paramount sold the copyright to a group of German investors for $94 million through Tele-München Gruppe, a company headed by German mogul Herbert Kloiber. Paramount then repurchased the film for $83.8 million in lease and option payments. The studio's $10.2 million windfall paid the salaries of star Angelina Jolie ($7.5 million) and the rest of the principal cast. 

Paramount made some more preproduction cash by taking advantage of the British government's largesse. To qualify for Section 48 tax relief in Britain, the movie had to include some scenes filmed in Britain and employ a couple of British actors. Given Lara Croft's peripatetic plot, neither condition presented an artistic problem. Again, Paramount entered into a complex sale-leaseback transaction, this time with Britain's Lombard Bank. Through this legal legerdemain, the studio netted, up front, another $12 million—enough to pay for the director and script.

To pay for most of the rest of the movie, Paramount sold distribution rights in six countries where the Tomb Raider video games were a big hit with teenage boys. These pre-sales in Japan, Britain, France, Germany, Italy, and Spain brought in another $65 million.

Through this triple play, Paramount earned a grand total of $87.2 million. The remaining budget—less than $7 million—would be covered by licensing the film's U.S. pay-television rights to Showtime (a network owned by Paramount's corporate parent, Viacom). At no cost to its treasury, Paramount launched a potential franchise—don't forget that sequels can be financed with the same "risk management" techniques.

Why couldn't Sideways, which cost just $16 million, use these tricks to pay off its much smaller budget? Because the international financing game favors big-budget movies with international appeal. Even if a $16 million production did entice a German tax shelter for some reason, the lawyers' bill for arranging the transaction would eat up most of the leaseback skim. A movie like Sideways, which is artistically grounded in California, would also have a hard time qualifying for the British tax subsidy. And finally, Sideways lacked the advance name recognition that's required to ring up large pre-sales in foreign markets.

Of course, it's not only Paramount that employs these devices—every studio uses them to minimize risk. Remember all those stories about how New Line was betting its entire future on the Lord of the Rings trilogy? Not quite. New Line covered almost the entire cost by using German tax shelters, New Zealand subsidies, and pre-sales. If studio executives don't crow in public about such coups, it's probably out of fear that such publicity will induce governments to stiffen their rules—as, for example, Germany periodically does mess around with its tax code. When you've got a golden goose, you don't want to kill it while it's still laying eggs. Unfortunately,  the German tax shelter turned out to be a golden goose for Hollywood studios, it didn't lay golden eggs for the German filmmakers. American movies have increased their share of the German box office, accounting for more than 85 percent of it last year. So politicians find little justification to keep this loophole in the tax code. Hollywood, alas, will now have to find other equally imaginative ways to supplement its earnings.

On Directing Part One

1: THE STUDY OF HUMAN BEHAVIOR

Human nature is the concept that there is a set of inherent
distinguishing characteristics, including ways of thinking,
feeling and acting, that humans tend to have.”

a. What makes people tick?

b. Why do we do things?

Once you know the answers to these questions, you will have a
better idea of how the characters in your script should
interact with each other, as well as having the proper
“psychological tools” to direct actors on the set.

The good thing about human behavior is that it is observable,
and as storytellers, we must first observe the way people
react to different situations and circumstances in order to
understand How and Why their behavior changes.

As a film director, you must be a “witness” to human behavior.
You need to get into the habit of observing people going about
their daily lives, so you can find out what motivates them to
take action.

Once you know what motivates a person to achieve their daily
needs, you will have the knowledge to better understand the
story you are telling, and you will feel more confident
helping your actors achieve believable performances.

 2: STORY

There are many facets of a Director’s prep on any film or TV
show. The first, and most important job for a Director is
to understand every detail about the story: where it takes
place; who the characters are; and what happens to them.

When you begin to read a script,  some of the 
questions you will need to answer to identify and solve
potential problems:

a. What is the story about?

b. Does the story make sense?

c. What problem is to be resolved?

d. What event hooks the audience?

e. What is the plot? (the action)

f. What is the subplot? (the theme)

Understanding the story requires work on your part.
You need to take dig deep into the story and
it’s structure. Analyzing each individual scene. Find out what it is about. What works and what doesn’t 

a. What is the intention of the scene?

b. What are the story points?

c. Where are the scene beats?

d. Where is the climax?

e. What is the resolution?

f. What are the important lines of dialogue?

Your script breakdown will be a never-ending process. Each
time you read the script, you will find something else you
didn’t know about the story or the characters.

 The script will  constantly evolve. It will change
because of your creative notes, writer changes, actor changes,
producer changes, studio changes and location availability.

 As long as you know what the story is about, and where the
story is going. You will be able to adjust to all the changes.

 3: PERFORMANCE

 Almost everything you need to know about
directing actors is in these three words:

MOTIVE DETERMINES BEHAVIOR

When we break these words down, we see that:

MOTIVE (our inner world)
DETERMINES (controls)
BEHAVIOR (our outer world)

And if we break them down even further, we see that:

What our needs are (MOTIVE)
Will decide (DETERMINES)
What actions we will take (BEHAVIOR)

One of the main responsibilities of a Director is to help
actors achieve a realistic performance, and a good director
does this by “listening for the truth” and by always asking:

a. Do I believe them?

b. Do the words make sense?

c. Are the characters believable?

The key to getting a realistic performance from an actor,
is by first understanding a character’s objectives.

a. There should be one main objective per character per scene:
What do they want in the scene?

b. Objectives should be clear, concise and stated in one
simple sentence: “To discover where the gun is hidden.”

How to choose objectives:

a. Ask yourself “What does the character want in this
situation?”

b. A character’s objective should create obstacles for the
character.

c. Look at what the character does (his behavior) rather than
what he says.

d. Look at what happens in the scene, and how it ends.

e. Look at what people want out of life: what are the things
we will sacrifice everything for?

On the set, actors want to work with directors who understand
their vulnerability, so it’s incredibly important to create a
good relationship with every actor on your film.

And what do actors want more than anything from this
relationship with the director? TRUST!

If actors feel they cannot trust the director to know a good
performance from a bad performance, they will begin to monitor
their own performances and  begin to direct themselves: they
will become “Director Proof!”

Remember, to find the character they are playing, actors must
surrender completely to feelings and impulses, and a good
director understands an actor’s vulnerability and creates a
safe place for them to perform.

 4: THE PRINCIPLES OF MONTAGE

One of the key elements of being a good director, is to
understand the “principles of montage” – the juxtaposition of
images to tell a story.

In 1918, The Russian filmmaker Lev Kuleshov conducted an
experiment where he shot and edited a short film in which the
face of a famous Russian matinee idol was intercut with three
other shots: a plate of soup; a girl playing ball; an old
woman in a coffin.

And Kuleshov made sure that the shot of the actor was
identical (and expressionless) every time he cut back to him.

The film was then shown to audiences who totally believed that
the expression on the actor’s face was different each time he
appeared – depending on whether he was “looking at” the plate
of soup, the little girl, or the old woman’s coffin; showing
an expression of hunger, happiness or grief respectively.

So what does this experiment tell us?

By carefully using the juxtaposition of images, filmmakers
were able to produce certain emotions from the audience by
manipulating an actor’s performance.

As a film director, understanding the principles of montage
will help you to: create a more visual script; to decide your
camera placement; to block your scenes; and to get layered
performances from actors.

 5: THE PSYCHOLOGY OF THE CAMERA

 The Psychology of the Camera are the visual
meanings of shots and angles. In other words, where you put
the camera can either enhance or detract the audience’s
understanding of what the scene is really about, and what the
characters are feeling. For example:

There are three angles of view for the camera:

a. Objective: The audience point of view. (The camera is
placed outside the action.)

b. Subjective: The camera acts as the viewer’s eyes. (The
camera is placed inside the action.)

c. Point of View: What the character is seeing. (The camera is
the action.)

Audiences will assume that every shot or word of dialogue in a
film is there to further the central idea, therefore, each
shot you use should contribute to the story or the idea you
are trying to convey.

Since viewer emotion is the ultimate goal of each scene, where
you place the camera involves knowing what emotion you want
the audience to experience, at any given moment in the scene.

 6: BASIC BLOCKING AND STAGING TECHNIQUES

 Blocking is the relationship of the actors to the
camera.  

I suggest you start thinking of blocking as the choreography
of a dance or ballet: all the elements on the set (actors,
extras, vehicles, crew, equipment) should move in harmony with each other.

Before you start  your blocking plan, you must
know these five things:

a. When, and where, were the characters last seen?

b. What is the last shot of the previous scene?

c. What is the first shot of the scene you are working on?

d. What is the last shot of the scene you are working on?

e. What is the first shot of the next scene?

Your blocking plan will also be determined by:

a. Whose POV is being expressed at the time? (Is it the
writer’s, the character or the director?)

b. What distance are you from the subject? (What is the size
of shot: close or far?)

c. What is your relationship to the subject? (What is the
angle of view – your choice of lenses?)

Blocking takes practice, and the more times you do it, the
more comfortable you will become.

 7: TECHNICAL

 Technical, everything else it takes to make a movie!
(Locations, Cinematography, Editing, Sound, Costumes, Stunts…)

 quote from the legendary director, Frank Capra: 

“There are no rules in filmmaking. Only sins! 

And the cardinal sin is dullness.”