Film Accounting Glossary
Off-production costs
What are off-production costs?
Also called off-production charges.
Off-production costs are amounts charged to a production's books that did not arise from the physical making of the picture, such as corporate overhead allocations, financing fees, or legal costs on unrelated matters.
They matter because they inflate the reported negative cost that participations and, in some cases, incentive claims are measured against. Financiers negotiate hard over which off-production charges are permitted and at what cap.
Example
A studio charges 12.5% overhead plus legal fees on an unrelated matter to the picture's books, adding $1.1M to the reported negative cost. Participants are then measured against a bigger number than the picture actually spent.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Negotiated hard in financing and participation agreements, usually with caps on what may be charged and at what rate.
Common mistake
Accepting uncapped off-production charges in a participation deal. They inflate the negative cost participants are measured against without adding anything to the picture.
Related questions
- How are off-production charges controlled?
- By capping them in the financing and participation agreements: a stated percentage, a defined list of what may be charged, and an audit right to test what actually was.
- Why do off-production costs matter to participants?
- Because they increase the reported negative cost, which has to be recovered before net profits exist, so they push break-even further away.