Disney Reveals Spending On ‘Little Mermaid’ Swelled To $379.8 Million

‘The Little Mermaid’ failed to match some of its predecessors at the box office © 2023 Disney Enterprises, Inc. All Rights Reserved.

DISNEY

Disney has revealed that the cost of its live action remake of The Little Mermaid swelled by 6.8% to $379.8 million last year as further bills came in following its release.

The spending didn’t exceed expectations as Disney noted that “the cost was in line with the production budget.” However, the picture underperformed in theaters plunging it to an estimated $25 million loss at the box office.

The movie is a remake of Disney’s beloved 1989 cartoon which won two Academy Awards for its score and its catchy song ‘Under the Sea’. The 2023 remake starred Halle Bailey in the title role alongside a cast of computer-generated characters which contributed to the movie’s colossal cost.

It didn’t pay off as The Little Mermaid was widely criticized for the eerie appearance of the creatures which inhabit its undersea world. “There’s something about these depictions that triggers an uneasy response,” wrote Vox. “Maybe it’s the prolonged, lingering shots on their ‘smiling’ faces or that their tiny mouths are contorted in unnatural ways. It’s as though there’s almost something sinister hiding underneath the computerized animal skin – and that’s even before they start singing and dancing.”

The opprobrium dragged down the movie’s critics’ score to 67% on review aggregator Rotten Tomatoes though audiences were much more complimentary. They awarded it 93% but the film still failed to make a splash in theaters.

According to Disney it grossed “$570 million at the global box office” which was respectable but a far cry from the $1.7 billion haul of its live action version of The Lion King in 2019 and the $1 billion that Aladdin made in the same year. Studios receive around half of the theater takings giving Disney an estimated $285 million from The Little Mermaid. It wasn’t enough to buoy the production’s bottom line.

The cost of making movies in the United States is a closely-guarded secret as studios typically combine their spending on separate pictures in their overall expenses and don’t itemize them individually. It is a different story for movies made in the United Kingdom like The Little Mermaid.

The aquatic adventure was filmed at Pinewood just outside London following a deal Disney did with the studio in 2019. It reportedly gave the Mouse use of almost all of Pinewood for a decade and The Little Mermaid made the most of it. The movie was shot on nine of its stages as well as the Paddock Lot. The lagoon for musical number ‘Kiss the Girl’ was built on Stage 7 and featured a beach, real boats, a waterfall and a 35-foot-tall willow tree.

Pinewood’s lavish facilities were far from the only benefit for Disney. Studios filming in the U.K. 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. It comes with a catch.

To qualify for the reimbursement, movies must pass a points test based on factors such as how many of the lead actors are from the U.K. and how much of the production work is done there. Furthermore, at least 10% of their core costs need to relate to activities in the U.K. and in order to demonstrate this to the government, studios set up a separate Film Production Company (FPC) there for each picture.

This lifts the curtain on precisely how much it costs to make movies as each FPC has to file annual financial statements. It takes a bit of detective work to get to the bottom of them.

The FPCs usually have code names so that they don’t raise attention with fans when filing permits to film on location. Tallying the code names with the productions they are responsible for requires deep industry knowledge which my colleague and I have built up over nearly 15 years of reporting. We are the only journalists worldwide who specialize in covering the financial statements of U.K. film production companies for national media and we have reported on them for more than 10 leading titles including The Times of London, The Guardian, The Daily Telegraph, The Independent and the London Evening Standard.

Once the code names have been correctly tallied with the films, the financial statements of the relevant FPC can be consulted to reveal how much the movie cost to make. That’s because the terms of the reimbursement state that each FPC must be “responsible for pre-production, principal photography/shooting and post-production of the film; and for delivery of the completed film.” In short, the FPC’s financial statements have to show the production’s entire costs, not just those incurred in the U.K. Studios aren’t allowed to hide costs in other companies as the terms also state “there can only be one FPC in relation to a film.”

The Disney subsidiary behind The Little Mermaid is called Sand Castle Pictures in a nod to its seaside theme. As with all U.K. companies, its financial statements are released in stages long after the period they relate to. This starts during pre-production and continues after the premiere to give the production team time to ensure that all the bills are paid.

It explains why the cost of the movie continued to rise in the latest set of filings for the year to August 31, 2024 even though the movie was released 15 months before then. The filings show that Sand Castle Pictures spent $24 million (£18.3 million) during that period bringing the total cost to $379.8 million (£288.9 million). However, that’s not the end of the story as the government reimbursement had a magic touch on the picture’s bottom line.

The reimbursement is capped at 80% of core expenditure so in order to get back the maximum 25.5% of the money they spend in the U.K., production companies need to ensure that at least 20% of their core costs are spent outside the country. Disney made the most of this as it also filmed The Little Mermaid at breathtakingly-beautiful beaches on the Italian island of Sardinia.

The U.K. hasn’t only become a popular filming location because of the high level of its reimbursement but also because there is no limit to the amount that can be paid out. That’s not all.

In addition to claiming on direct spending in the U.K., studios can also get a pro rata reimbursement on what are known as neutral costs throughout the production such as insurance and payment to senior producers, writers and directors.

These costs can be claimed in proportion to the amount of the activity in the U.K. so, for example, if the spending there only represents 22% of the total budget then 22% of the neutral costs will also qualify for reimbursement. Accordingly, the level of reimbursement can rise close to a third of the total costs which is a staggering sum.

The earnings report for Sand Castle Pictures shows that it had banked a total reimbursement of $69.8 million (£52.9 million) by August 31, 2024. This comes to 18.3% of the total costs and brings Disney’s net spending on The Little Mermaid down to $310 million. It still wasn’t enough to give it a happy ending in theaters.

The amount that theaters pay to studios is known in the trade as a rental fee and an indication of the typical level comes from film industry consultant Stephen Follows who interviewed 1,235 film professionals in 2014 and concluded that, according to studios, theaters keep 49% of the takings on average.

This research lends weight to the widely-established 50-50 split which would give Disney $285 million from The Little Mermaid and a $25 million loss after deducting the $310 million net spending on the movie.

The share of the box office isn’t the studio’s only return from a movie so offsetting it from the costs in the financial statements does not show whether it made a profit or a loss overall. As a Disney spokesperson told this author last year, “there will be other income generated by the production (such as DVD/Blu Ray sales, merchandising, etc.). It’s not reflecting a true account of whether the film was overall profitable.”

However, just as the production generates other income, it also incurs other costs, chief of which are the marketing expenses. Accordingly, if the home entertainment and merchandise sales should be added to the theater takings, the marketing cost should be deducted from them. It is believed that the marketing spend on The Little Mermaid far outweighs the home entertainment and merchandise income but Disney doesn’t disclose either so this can only be an estimate which may not be reliable.

However, there is no doubt that the additional income stream is hampered by the commercial model of streaming which dominates the home entertainment landscape. According to Disney, The Little Mermaid has been hugely popular on its Disney+ streaming platform with 16 million views in its first five days alone. However, subscribers to Disney+ don’t pay per film. They are billed monthly or annually and get access to the studio’s entire library, along with any new content released during their subscription period, which means it isn’t possible to attribute subscriber fees to specific movies.

In contrast, the $25 million loss at the box office is calculated directly using data from Disney. The $379.8 million production costs of The Little Mermaid come from Disney’s filings and so does the $69.8 million cash reimbursement whilst the $570 million box office total is contained in its press release.

The Little Mermaid also got a helping hand due to its timing as the filings show that its income was topped up with $10.4 million (£9.8 million) of other operating income, including a $4.4 million (£3.2 million) grant from the UK government to help Disney deal with the effect of the pandemic.

However, even this couldn’t stop the movie sinking into the red which explains why Disney’s chief executive Bob Iger said in 2023 that the studio needs to “reduce costs on everything that we make because, while we’re extremely proud of what’s on the screen, it’s gotten to a point where it’s extraordinarily expensive.” The Little Mermaid is proof of that.