How UK Tax Credits Saved Disney From A Massive Loss On Two Box Office Bombs

Caroline Reid with Forbes has a new piece about in 2023, Disney faced one of its toughest years yet, particularly for its Marvel Studios division. Among the many challenges were high-profile legal issues involving star Jonathan Majors, leadership shake-ups, and production troubles. But perhaps the most glaring issue was the financial performance of two of Disney’s major releases: Ant-Man and the Wasp: Quantumania and The Marvels. These films collectively racked up staggering losses at the box office—nearly $300 million—but thanks to a lesser-known financial strategy, Disney was able to avoid even greater disaster.

The Costly Misfire of Disney's 2023 Marvel Movies

Marvel movies have long been a reliable moneymaker for Disney, but 2023 was a turning point. Both Quantumania and The Marvels came with hefty price tags, costing a combined $762.4 million to produce. Despite the franchise's historical success, these films struggled mightily at the box office, collectively grossing $682.2 million worldwide. With nearly half of that revenue taken by theaters, Disney faced a total loss of over $421 million. Yet, Disney's actual losses were reduced thanks to a strategic decision to film both projects in the UK.

The Role of the UK’s Film Tax Credits

A key factor that helped Disney soften the financial blow was the United Kingdom’s Audio-Visual Expenditure Credit (AVEC), a tax credit designed to attract film productions to the UK. The tax credit reimburses studios up to 25.5% of the money spent on qualifying expenses within the country, effectively lowering production costs.

For Quantumania and The Marvels, Disney was able to claim a total of $124.9 million in reimbursements from the UK government, slashing the company’s net loss to around $300 million. While this might seem like a significant loss, it could have been much worse if Disney had filmed elsewhere without the benefit of such incentives.

How the UK Film Tax Credit System Works

The UK’s tax credit system is not automatic. Films must meet certain criteria to qualify, including spending at least 10% of their production budget in the UK. Furthermore, productions must pass a points test that assesses factors like how many lead actors or production staff are British, whether the film promotes British culture, and how much of the soundtrack is recorded in the UK.

Interestingly, neither Quantumania nor The Marvels overtly feature British culture or a cast of British actors, yet they qualified for significant tax credits. This was largely due to the behind-the-scenes work—such as recording the soundtrack and hiring a UK-based production team—that allowed the films to meet the points test and qualify for tax incentives.

Disney’s History with UK Film Incentives

Disney’s relationship with the UK government has been mutually beneficial for decades, dating back to the 1949 production of Treasure Island, Disney’s first fully live-action film. However, the studio's use of the UK for major productions ramped up in recent years. This was especially true after Disney’s 2012 acquisition of Lucasfilm, which brought the Star Wars franchise back to life. Under the guidance of George Osborne, then the UK Treasury Secretary, Disney began to shoot its new Star Wars films and a host of Marvel productions in the UK, leveraging the country’s tax credits to reduce costs on massive-budget films.

Osborne’s support for Disney didn’t go unnoticed. He was even thanked in the credits of Star Wars: The Force Awakens and was invited to visit the set during filming. The UK government’s fiscal incentives have continued to be a magnet for Disney, ensuring that major productions, from Star Wars to Marvel, remain rooted in the UK.

The Economic Benefits of Filming in the UK

While critics argue that the UK film tax credits unfairly subsidize Hollywood, the economic data tells a different story. According to the British Film Institute (BFI), every $1.31 spent on tax credits in 2019 generated $10.88 in Gross Value Added (GVA) for the UK economy. That same year, film productions directly contributed $10.1 billion to the UK economy and created nearly 50,000 jobs.

These figures highlight how film tax credits don’t just benefit the studios; they also inject substantial spending into the broader UK economy, including sectors like construction, hospitality, and transportation. Productions with budgets over $65.6 million spend large portions of their budget—up to 60%—on non-film sectors like travel, construction, and catering. This ripple effect creates jobs, generates tax revenue, and keeps the UK competitive in the global film industry.

The Debate: Are Film Incentives Worth It?

Despite the clear economic benefits, not everyone is convinced that film tax credits are the best use of public funds. Critics argue that these incentives only benefit a niche sector and that the UK could still attract big-budget productions without offering such lucrative rebates. Others, like Neil Griffiths, CEO of youth charity Arts Emergency, feel that more should be done to support grassroots arts organizations instead of giant studios like Disney.

However, supporters of the tax credit system argue that the benefits far outweigh the costs. The UK’s combination of world-class film talent, facilities, and landscapes is a significant draw for filmmakers, but tax credits sweeten the deal and ensure that Hollywood continues to invest billions in the UK economy.

Conclusion: Disney’s Savvy Strategy in a Challenging Year

2023 might have been a rocky year for Disney, especially with two major Marvel films underperforming at the box office, but the company's decision to film in the UK helped mitigate some of the financial damage. The UK's tax credits saved Disney nearly $125 million, proving that strategic filming locations can be as important as the films themselves. As Disney continues to expand its presence in the UK with plans for further investment, the partnership between the studio and the UK government is likely to strengthen, benefiting both parties for years to come.

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Source: Forbes

Photo Credit: Marvel