In the mid-1920s, Ufa signed a loan agreement with Paramount and Metro-Goldwyn-Mayer to stave off financial collapse: In December 1925, Hollywood pumped four million dollars (roughly 17 million Reichsmarks) into the ailing group. But the contractual obligations linked to the founding of Parufamet – the joint distribution company for Ufa, Paramount and Metro-Goldwyn-Mayer – had long-lasting consequences. As was stipulated in state quota regulations, Ufa had to produce 40 German films for every 40 American films it imported. In addition, Ufa had agreed to grant Parufamet films at least 75% of the screening slots in its cinemas. Its US partners had promised, in return, to show Ufa films in the United States, but they reserved the right to refuse productions. And, indeed, only a few Neubabelsberg films ever made it to American cinemas. Instead of making inroads into a new market, Ufa – as a result of these obligations – blocked its own productions’ access to the domestic market while opening up this market to the competition. The contractual terms were so unfavorable that they considerably worsened Ufa’s crisis.

Source: SDK

Robert Herlth"s design for a special-effects sequence in "Faust" (1926)

The disadvantageous contract was a consequence, not the cause, of the astronomic losses, whose precise scale was kept secret for a long time. At fault for the years of mismanagement was Ufa’s ambition to compete with Hollywood. No attempt was made to contain costs when a figure such as Friedrich Wilhelm Murnau set out to realize his artistic vision at the Babelsberg studio. Murnau’s "Faust" (1926) doubtlessly gave Ufa added prestige, but it cost two million marks to make and incurred foreseeable losses. Even the internationally acclaimed "Der letzte Mann" (The Last Laugh, 1924) only managed to earn half its production costs. Ufa was not the place for sober cost calculations. The studio’s megalomania was exemplified by Fritz Lang and "Metropolis", a production launched in the midst of Ufa’s financial crisis. It was produced in 17 months or, to be more specific, in 310 days and 60 nights of shooting. Lang went through enormous amounts of material: 620,000 meters of negative and 1,300,000 meters of positive film. "Metropolis" was, after all, to be a "film of titanic proportions." The monumental production was originally budgeted at 1.5 million Reichsmarks but ultimately cost four times as much. Ufa’s management, who felt blackmailed by Fritz Lang and his constant demands to top up the budget, distanced themselves from the director. Lang produced his next two films himself, with Ufa acting only as distributor.The final figures for "Metropolis" reveal the scale of the financial debacle: the anticipated box office success in America failed to materialize, and in the German market the mammoth project did not even take in the six million Reichsmarks it had cost to make. The 1926/27 business report had to concede a "rapid increase in debt levels on our balance sheet"—the company now had liabilities of over 36 million Reichsmarks.