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1.
A favored term of filmmakers who create films based on or around a historical event/person/era that holds little historical accuracy, usually for the sake of making the film seem more interesting than the reality it's based on, and by extension, possibly drawing in larger crowds and making more money at the box office.
Such extensive artistic liberties were taken with Sofia Coppola's "Marie Antoinette" that it was booed at Cannes.

When George Hickenlooper was questioned as to why his '06 film, "Factory Girl", had been panned so severely by Warhol scholars, he spoke of his artistic liberties taken with the film.
by slinkychang September 13, 2008
 
2.
An exuse for the mangling of something where it no longer resembles the orignal piece that it was based on. Common in flim making and books when the author or director changes the story line, characters, setting etc. to try and draw in more viewers/readers. A derogative term in all senses.
West Side Story took artistic liberties with Romeo and Juliet, changing the characters and setting, but keeping the basic plot line. This is why no one likes West Side Story, has or hasn't heard of it.
by Sun-Rise August 03, 2009