Blockbuster Budgets: A Review of Why the Movie "Inception" Cost So Much

If you haven't seen "Inception" yet, you should--because it rules.  One of the surprises about the movie is that it cost $200 million dollars to make.  Not too long ago $200 million was the absolute top budget for movies--actually, considered fairly obscene.  Now it's the norm.  "Van Helsing" was one of the first of this breed.  Though there's CGI in "Inception" it's not a film based entirely on CGI, such as a movie like the "Star Wars" prequels, so where does all that money go?

First, a bit about how these movies are financed.

During the economic boom of the mid-2000s, Hollywood was flush with cash -- other people's cash, that is. Wall Street hedge funds partnered with big investment banks like Lehman Brothers and Goldman Sachs to pump $15 billion into Hollywood films between 2005 and 2008.

Outside investors rushed to Hollywood largely because of a new payment structure that gave them a cut of a film's total profits over its product lifetime. These profits include box office sales, as well as video on demand, DVDs, domestic and foreign TV licensing, in-flight movies, product placement and toy licensing. In the early 2000s, the average rate of return on a studio movie was a whopping 15 percent. Breakout hits repaid 23 to 28 percent.

Wall Street treated Hollywood movies the same way it treated mortgage assets during the real estate boom. Firms packaged packages, or slates, of studio movies into securities that they resold to investors. When mortgage-backed assets began to lose value in the mid-2000s, hedge funds funneled even more money into movies.

That might suggest that Hollywood is now hurting--in the same way that mortgage firms are hurting --due to the economic downturn.  That much is true.  Though there are still gigantic big blockbuster movies being made, there are fewer movies made overall.  So Hollywood execs are putting most of their eggs into the superhero basket and not funding smaller movies.  It's a great time to be a CGI technician, but not as great for dramatic actors.

But why do these movies cost so much?  CGI does away with raw materials--such as building small-scale models--so it would seem to streamline the process.  Well, first you have salaries: actors take a huge chunk, $20 million at a time, as do the rest of the crew. Also, marketing is a huge expense--though that's often a "silent" cost.  For example, the marketing for "Inception" is rumored to be another $100 million, for a grand total of $300.  Yep, and you wonder why studios are making lots of movies like "Spiderman" that have a huge built-in audience.  "Inception" at least took a chance on an original story. Interestingly, "Avatar" is the highest-grossing movie of all time, though it's an original story.

So why did "Inception" cost so much?

The psychological sci-fi thriller starring Leonardo DiCaprio will be filming in six different countries; Canada being one of them. According to the Sun report, "[Nolan] has already been to Calgary twice to look at possible locations. [He] scouted nearby foothills and mountainous areas by helicopter and is said to have chosen Fortress Mountain as the main Alberta location.

"The production will make its way to Alberta, Canada in November. Other filming locations will Los Angeles, London, Tokyo, Paris, and in Tangiers, Morocco. Filming on the big-budget movie is said to last until December. Christopher Nolan's follow-up to the record-breaking The Dark Knight is scheduled to hit theaters July 16, 2010. Read Lisa's full report at CalgarySun.com.

So, yeah, it takes place in six different countries.  Of course, there would be a way to film in six different countries without spending all that money--but when money is no object, then money...is no object.  They don't worry when they have to blow up a fortress more than once.  There is no cutting corners.  So: locations, CGI, Leonardo DiCaprio's salary, Christopher Nolan's salary, an insanely large crew, and so on can head towards $200 million pretty easily.  The cost of craft services (Hollywood speak for catering) was likely more than most other movies.

Fortunately for Christopher Nolan, "Inception" is bound to make back its money.

Have you seen "Inception"?  Like it?  Think it was worth your $15 ticket, let alone $200 million?