How did Pirates of the Carribbean: On Stranger Tides become the most expensive movie ever made?

Question

According to the Wikipedia article for Pirates of the Caribbean: On Stranger Tides, the film is the most expensive ever made to date, despite initially trying to cut costs.

After the joint production of Dead Man's Chest and At World's End cost over $300 million, Disney decided to give a lower budget to the fourth installment. Many costs had to be cut, including moving primary production to Hawaii and London, where tax credits are more favorable, and having a shorter shooting schedule and fewer scenes featuring special effects compared to At World's End. The tighter schedule—according to Bruckheimer, "We had a 22-week post, and for a picture like this, with almost 1,200 visual effects shots, it's usually 40 weeks"—meant that Marshall supervised editing of sequences during filming. The British financial statements of the film revealed total expenditures of £240.7 million ($410.6 million) by 2013, with Disney receiving a rebate of $32.1 million from the British government, making Pirates of the Caribbean: On Stranger Tides the most expensive film ever made to date.

The final production costs were $410.6 million, with Wikipedia citing Forbes. Even counting the $32.1 million rebate bringing the net total down to $378.5 million, it is still the most expensive move ever made, even after adjusting for inflation.

I seem to be missing something here. The film:

• Initially had a budget less than $300 million (the budget given to the previous two movies combined)
• Had primary production relocated to cheaper locations
• Used a shorter shooting schedule
• Had fewer special effects than the previous film
• Required director Rob Marshal to supervise editing during filming
• Received a $32.1 million rebate from the British government

And yet this movie still wound up becoming the most expensive film ever made. Where did the cost come from? How did the film go from a lower budget and cutting corners to the most expensive move ever?

Answer 1

There is a slight oversight in the question, no doubt due to a terminology misuse by Forbes!

Production costs are typically the costs incurred through shooting the film, although are increasingly used to allude to the broad costs of making the film as a product (including, somewhat confusingly, post-production [special effects, editing and sound]).

The Forbes article you have included has the following passage;

Although On Stranger Tides was released in 2011 its financial statements are still being released as they relate to prior periods. The final set was filed earlier this year and shows that between October 2009 and April 2013 the production costs came to a total of $410.6 million (£240.7 million).

The film itself was released in 2011, meaning there is no possible way the total 'production budget' could have been contributing to the production (in the classical sense ) of the film. Forbes have erroneously referred to the total cost of the movie, including Marketing, P&P and legal. The deficit you identified is the cost of those processes, and makes up the shortfall.

It's likely the film accrued such a big budget because Disney pushed it so hard in marketing. It's the inevitable ouroboros of marketing expenditure; the more money a film costs, the more money a studio will commit in marketing to guarantee a return on investment, which makes the film more expensive, which pushes further marketing...

Answer 2

Where did the number came from?

The £240.7 million figures most likely came from financial data of Blackbeard Productions LTD, a UK based production company which has been setup for the. As mentioned on the Forbes article. "The expenses ... are consolidated in a single company .... It makes it easier to work out a movie’s entitlement under the tax credit scheme and it gives great insight into its finances".

Below is the breakdown of those cost, based on multiple reports from 2009 up to 2013. Note that those report doesn't provide detailed breakdown:

Oct 2009 - Sept 2010      111.554.389
Sept 2010 - Nov 2010       61.058.570
Nov 2010 - June 2011       39.695.862
June 2011 - April 2012     22.110.207
April 2012 - April 2013     6.202.109
=====================================
total                     240.621.137

Numbers are taken from Cost of Sales.
All unit in GBP (£) and unadjusted for inflation.

On Stranger Tides was released May 2011. Calculating nearest periods (Oct 2009 - June 2011) give us total of 212.308.821 GBP spent up to/ near release date and 28.312.316 GBP spent post-release.

I didn't bother to look up and verify the amount of tax rebate. But assuming Blackbeard claim maximum rebate (20%, as mentioned in the same article), we can easily calculate their total production costs that eligible for rebate: 94 million GBP/ 170.5 million USD. Given the big difference between those approximation and reported budget, I assume some major spending (actor's contract, for example) was not considered tax-rebatable.

From those figures, we can start to see budget report discrepancy between Blackbeard's reports and the press. Citing two articles referenced by Wikipedia page:

LA Times article dated May 03, 2010 reported:

Although it's still large — north of $200 million — it is at least a third less than the last "Pirates" movie

While Variety article dated May. 19, 2011 reported:

Budgeted at a reported $150 million, considerably less than its previous installments

Presumably the difference was due to different data source available at the time.

Where did the number goes to?

The cast:

• Johnny Depp received around 33 million GBP.
• Production staff received around 10.4 million GBP (from the Forbes article).

There's no number provided for the remaining cast. Some factors to consider: Dead Man's Chest and At World's End was offered as single contract. And by the time they want to start the 4th, Pirates was already an established franchise.

Filming and Post-production

On Stranger Tides was filmed in 3D rather than using post-production conversion (except for one sequence). This increase filming cost considerably, while also complicate the shooting process. Especially in outdoor or underwater scene.

"We really felt like pioneers," he says. "We were taking 3D equipment into these remote locations where you have the possibility of one of two cameras breaking" -- which they did, several times. - The Making of 'Pirates of the Caribbean'

Preparing and moving logistics across multiple premise also increase spending. While primary production was done in England, some had to be done in US (Hawaii, California, and Puerto Rico). This includes transforming The Black Pearl into Queen Anne's Revenge, and shooting Whitecap Bay scenes in Universal Studios. Compare this to the cost of Dead Men Tell No Tales, where filming was done in relatively close proximity, or it's two predecessor, where filming was done back-to-back.

Additionally, shortening schedule does not always translate to cheaper cost, especially in VFX and post-production phase.

Marketing and distribution

Compared to the original trilogy, On Stranger Tides was promoted more extensively. This including multiple tie-ins (lego, clothing, jewelry, etc) and Superbowl ad.

Looking up at IMDb specification page, On Stranger Tides was the most diverse movie in the series in terms of distribution media. It provide 35 mm, 70 mm, and D-Cinema format. Available both in 2-D and 3-D. This was arguably worthwhile investment, compared to another film in the Pirate franchise, On Stranger Tides is the highest-grossing outside US and second highest worldwide. Despite being the worst performer domestically (until the release of 5th movie).

Final Note

As mentioned in John Smith's answer, it's rather unclear how Forbes (or Hollywood) categorise production budget. Given the limited data availability, we might never know for sure how much money Blackbeard spent.