Can someone explain how this makes any sense at all? They burned 70 million on making the movie and they'll recoup 30 million in tax write-offs, but if they released it, it's pretty certain to make way more than 30 million.
And the claim that they're cash strapped after making 1.4 billion on barbie?
The only logic I can see is pretending to cancel the release, but then suddenly having a change of heart in the next fiscal year, when they are projecting to make a loss anyway.
Alternatively, the cynic in me also has a theory - that this is all a marketing ploy to drum up support for this underdog of a movie. But that seems fairly unlikely given that it depends on the CEO voluntarily acting the cartoon villain...
It's the financial equivalent of running off a cliff, hanging there unrealistically for a few seconds, putting a sign that says "Uh oh...", and crashing into the ground.
It basically means they don’t think they’ll make less than that if they would release.
So they’d rather have $30M immediately (since 2023 is almost over) than release and have to perform accounting over the life of the film plus supplemental (streaming, other licenses) that they expect would result in less than $30M when all is said and done.
They'd probably need to spend another $70-$100 million promoting it. So they need to get let's say $170 million returned to the studio to break even. The judgement must be that they won't achieve that.
For example, Indiana Jones and the Dial of Destiny failed commercially at the box office:
Disney spent $300 million making it and will have spent at least $100 million promoting it. And it only generated $381 million of revenue at the box office. The studio doesn't get $381 million back, they get a percentage.
Disney may have made up some of the deficit with home video purchases and streaming subscriptions, but seems likely that they've lost $100+ million on that movie for now:
The main problem was lack of budget discipline. $381 million at the box office would have been a decent result if the production budget was more like $50 million.
It wasn’t budget discipline that was the main problem.
Indiana Jones 4 didn’t need budget discipline.
The main problem was that Indiana Jones 5 was following 4, and both were laughably bad at being quality Indiana Jones-level movies.
The general audience knew in advance what they were getting wasn’t going to be exciting and they didn’t want it.
The hardcore fan audience also knew what they were getting: old-man Indie needs to be replaced by a strong brave female without character flaws, who points out how problematic and useless the old man is, and saves him from himself.
A big chunk of the budget overruns were when the pendulum slightly swung back and the studios did significant rewrites and reshoots (and re-CGI) to tone this type of writing down to something less overt.
It absolutely did. With budget discipline they would have made a better, more Indiana Jones movie. The direct result of having too much money available was that they stuck all manner of pointless garbage in the film and made it worse.
Adjusting for inflation, Indiana Jones 3 had less than half the budget of Indiana Jones 4 and is the better movie with the bigger box office.
This movie would have been a no-brainer home run if it were simply an adventure film starring a crusty Harrison Ford as Indiana Jones, set in more or less the “real world”.
Once you get Indie into space aliens or Representation social politics things dilute until the audience shrugs and stays home to stream The Office for the sixth run-through.
Sad, alienated, lonely, somewhat suicidal Dr. Jones doesn’t put butts in seats. Who could’ve guessed?
Tom Cruise had a great success with Top Gun: Maverick by just pressing the Fan Service Button very hard, over and over and over. If instead he made a movie about the tough young woman fighter jock who rescues sad old Maverick from his complacency, the movie may have done better as a tax write off.
No they wouldn't. Marketing spend it tied to distributor confidence in the film, which is then a lever that the sales department use to book the film on screens.
On an average week there are multiple new films jostling for the same fixed amount of cinema screens.
> which is then a lever that the sales department use to book the film on screens. On an average week there are multiple new films jostling for the same fixed amount of cinema screens.
This sounds like a zero-sum game. Someone's raking it in here.
They'd also have to spend a lot on marketing. Usual estimates put the marketing costs at close to the same as production costs. They might make more money releasing the movie but would also make a larger loss.
I have no way of knowing, but it’s possible they’re doing this so the studio gets to keep as much money as possible instead of having to pay the people involved in making the movie.
The vast majority of movies—let alone the ones worth watching—are not on streaming platforms, so I don't understand why you'd expect this to be the payoff route. Movies are still "sold" (i.e. leased) both directly to consumers and to streaming platforms—presumably for a studio that's still the way they make money.
Someone who knows what they’re talking about can correct me, but I would guess that a $30 million tax write off would “earn” them $6 million given a 20% tax rate. Maybe they believe the movie would earn less than that?
Plus, there's the cost of marketing and other post-release business activity. If they shelve it now those resources are saved, or at least re-appropriated.
Even if they believed they could break even from an accounting and tax perspective, there's still opportunity cost. That is, it might make sense to quit now and move on to something with more upside.
If the movie earned $5 million they'd still get to write off $25 million, for $10 million instead of $6 million. There could be other complex subsidies involved and stuff though.
> but if they released it, it's pretty certain to make way more than 30 million.
It's pretty unlikely this film will make $30 million, and they would have to spend at least another five to ten million to release it (profit participation from talent, marketing (which is probably contractually obligated), finalising post production, mastering, distribution etc etc.). The effects work is nowhere near done etc.
> And the claim that they're cash strapped after making 1.4 billion on barbie?
Warner has a lot of debt. AT&T dumped all the debt they used to buy the company in with the Warner asset when they sold it to Discovery. That debt is rapidly going to cost a lot to serve interest payments too. Warner needs short term cash, and it needs a lot more than the (good) profits off a single film.
> It's pretty unlikely this film will make $30 million
It would easily have made $30 million worldwide. Almost certainly domestic. You could question whether it would have made its budget back (70 million) on domestic, but for a family film with existing IP there aren’t really any blockers to clearing 30 million.
> The effects work is nowhere near done etc.
The film is finished, some critics had already seen it.
Are you saying that it would have sold $30 million in tickets, or that WB would have gotten $30 million from the theaters after the theaters get their cut?
> and they would have to spend at least another five to ten million to release it
That's very optimistic. P&A (print and advertising, but since movies are now released in digital copies, the print part has become negligible) usually is between half and 100% of the production budget.
> That's very optimistic. P&A (print and advertising, but since movies are now released in digital copies, the print part has become negligible) usually is between half and 100% of the production budget.
I was assuming they would do the absolute bare minimum in advertising tbh, that was mostly print costs and just the basics like providing poster art and standees etc. As you say, if you wanted any effective marketing at all you'd be looking at five to ten times that.
It’s a form of screwing over the creators involved. They make $30mil and they don’t have to pay residuals or revenue/profit shares. Everyone involved gets fucked over except the studio, which can easily afford to ’lose’ $40mil to avoid paying actors.
It may help to consider the biggest movie studios at this scale as VCs; they only care about 10x profits, anything less is pocket change, and if it lets them keep actors dependent on them, all the more reason to bin anything that risks becoming a cult classic and has to pay residuals. If you can picture a VC firm shutting down a startup when a union forms, then this is the same mindset.
It could be, that at pre-screening, someone realised that the animation, or the plot, or the dialog was racist or sexist or some such, in some subtle way.
And the changes are too large to fix easily.
Or the plot is just terrible.
Or hmm. I wonder if the new AI contract or some such, is causing this?
movie accounting makes these numbers mostly meaningless. it's possible everyone involved got their money back and the write off amount is the bagholders
Frankly I'm of the increasing opinion that if you do a tax write off on a creative work that you should be required to put it into the public domain. You've already made it clear that you believe that the value you would gain from it is $0, ergo it doesn't make sense to let companies vault content forever once written off.
For example, a bunch of TV series were written off last year, which means that content has been taken down both from streaming and purchasing. It is effectively completely inaccessible outside of piracy.
Yes. And remember, while this may sound unfair ("why should I be forced to give away X by the gubbermint?!"), the company is also free to not take the tax write-off at all and just shove the whole thing into a wood chipper. If they want society to subsidise their successes, they shouldn't get to hoard the rest. And that's before we get into all the tax breaks, copyright shenanigans and chicanery that also subsidises the industry with taxpayer resources.
You clearly don't understand tax write offs. How would they "not take the tax write off"?? The tax write off is the expenses they made while creating the film. There is no way for them not to write it off, after the expenses have been made.
If they earn $100 and then spend $100, they have to write it off, because they no longer have the money, so they can't pay taxes on it.
If they want to use the expense they made on the (apparently) failed film to reduce their tax burden, they can trade that multimillion reduction in their tax for the (according to them) worthless materials they did end up with.
If those materials have worth, then they shouldn't be writing them off in the first place while also sitting on them. If they don't have worth, it shouldn't be a problem. Except in some zero-sum type thing where they'd rather destroy it then let anyone else benefit, and then there's a question of if society at large should be footing the bill for the destruction of value in order to stymie competitors.
Now, clearly, that's not how the rules actually currently work or we wouldn't be in here at all.
You're wrong. Not all costs incurred in the current year reduce taxes in the current year.
These weren't expenses (which reduce net income in the period when incurred) but investments in a new movie (which create assets which sit on the balance sheet).
The decision to write off the asset in the current year (rather than amortizing it over time) is the result of a business decision.
No, the tax write-off in this situation is the company saying that they will never release or profit off something ever again. This allows them to artificially reduce the value of their asset to 0.
Releasing the movie could have negative value (cannibalism), so they'd need an additional tax write-off to cover their donation
And you really don't want that, because it would be abused to hell and back like Microsoft and other software companies do when they report their "first hit is free" marketing samples as charitable donations to schools.
I understand where you're coming from, but it's just not tenable.
First of all, a lot of these creative works are ultimately unfinished. Are you really supposed to release the superhero movie without half the CGI, with some of the scenes in front of green screens? Without a soundtrack? What's the point?
And secondly, even when they are finished, what about when they're just bad? If something simply doesn't work creatively, despite everyone's best efforts, why force them to expose their failure to the world? There are well-known cases where directors and screenwriters have demanded that their names be taken off a finished movie because they don't want to be associated with the final product, because they think it's just bad.
The idea that bad work is forced to be released, if you want to count the effort on them as business expenses, seems like it would be a net negative for artists. Isn't part of artistic control deciding what you do and don't want the world to see?
I don't really care about bad work being released; there are plenty of awful works that were released to the public domain.
In this scenario, companies are permanently shelving work that has value. Infinity Train for example was made a tax write-off, which means the creator can never continue it and people can never watch it. The negatives of some bad work being released is not outweighed by the amount of good work that has been destroyed by the current system.
If you want to argue about artistic control, then you need to come up with a solution to the above. The status quo is unacceptable, so let's see what you got.
> The status quo is unacceptable, so let's see what you got.
Please don't be snarky or have attitude like that.
Anyways, if you'd like to know, the specific Infinity Train example (as well as Westworld etc.) have to do with a very specific write-off opportunity that occurs in a limited time frame when a corporate merger occurs -- in this case, HBO with Discovery. I'm not familiar with the specifics, but if you want to fix something, I'd suggest looking at this particular merger tax write-off loophole (?).
It would seem to be a result/problem of that very specific accounting move in merger situations only. It's not a problem with write-offs in general.
I proposed a solution and your best argument was 'what if it was bad'. Your argument had no substance to it. You're arguing about artistic control when the artists are literally not the one in control, it's the businesses making a decision to take away art from them.
And the Infinity Train example has nothing to do with a specific loophole, it is how tax write-offs work. It was done because the merger saddled Warner Bros with debt which it sought to rectify by reducing its tax burden as much as possible through devaluation of assets. The only 'loophole' is that companies have to pay taxes on assets gained during a merger. So to avoid this companies write off their assets to say their value is $0, reducing their total tax burden. But the core problem is still the fact that they can say that their asset is worth $0 and shelve it forever.
The article headline is not as strong as the HN title in its suggestion that shelving the movie is motivated solely or primarily by the tax write-off:
> ‘Coyote Vs. Acme’: Warner Bros Shelves Finished Live-Action/Animated Pic Completely As Studio Takes $30M Tax Write-off
Like other commenters, I don't understand the logic of shelving a finished and likely profitable movie just to obtain a tax write-off on the investment. I suspect the article is strongly discounting the additional costs involved in actually bringing the movie to theatres, and/or the risk that it will be a flop.
Writing off a business expenditure just reduces your tax liability. It is similar to putting money into R&D for a potential product and then not producing the product. Yeah you tried, paid consultants, paid for hardware, labor, etc.. but realized that it wouldn’t workout as planned or wouldn’t end up being profitable.
It's more like doing the R&D and producing the product, but then deciding not to sell it. In fact, it's literally that. You make it sound more reasonable than it should because you stops things at the research phase rather than after producing the entire movie.
As noted elsewhere in this thread, production is barely half the cost of returns. Marketing is the other half. What you see here is a rejection of the sunk-cost fallacy.
I agree with you. The article even mentions that streaming services were interested in buying it. I do not understand why trash it rather than sell it to someone for a modest amount.
Why did they spend the money to finish it? Are there some tax regulations that incentivize it? or is this just bad management?
As awful as the movie sounds to me, I want to see it now.
I think there's probably some room for more diverse options.
The last couple of times I went to the cinema were for when they'd do an English release of a popular anime film (One Piece Film Red and the Slime Isekai film). Those are not getting mainstream promotion. I don't think a couple of banner ads on animenewsnetwork.com count as meaningful. But they were in the "normal" multiplex with modest schedules. I feel like before the pandemic, those would exclusively get a one-week run in the art-house cinema by the college.
I wonder if it's a bit of a "flailing" response from an industry that 1) seems to have lost their cadence a bit after pandemics and labour stoppages, and 2) is still trying to figure out what's a viable draw when so much is heading straight to streaming.
The second-run cinema in town seems to be about a 50-50 split now between "second run of newish films" and a random assortment of classics and things obviously meant as family-friendly.
This just seems to obvious to me, even when doing the math:
Max costs an average of $12.99/month. $30 million / $12.99 = 2.3 million. Max has over 95 million monthly subscribers, and one has to imagine that ~2% of the subscribers would pay for a single month of Max in order to see this movie. After that one month, the movie's made its budget back without having to market it at all. Like, come on, it's the age of the internet -- if you really don't want to market the film at all, just Tweet out "Hey this movie is out now on Max, go watch it" and you're sure to reach a decent amount of people.
I'm sure there's an argument against what I just said that it creates the perception of their original content made for Max being low quality or something, but that can't be worse than the now extremely accurate perception that creatives can't trust that their work will be released by WD, and thus would prefer to work for other studios. I myself work in Hollywood and have absolutely zero desire to work on a WB project after Batgirl and now this.
> Max has over 95 million monthly subscribers, and one has to imagine that ~2% of the subscribers would pay for a single month of Max in order to see this movie.
But what already-paying subscribers /would/ do buys you no beans. You need to find 2% of the current subscriber base who would cancel except for this movie being released, or 2% new subscribers from this release. Which besides being implausibly large to begin with, isn’t going to happen without massive marketing investment — the non-customers who value this at $13 are already less likely than the average person to know it exists, being non-customers.
That is releasing in Hollywood. Due to the nature of the industry and the jobs everyone works, simply publishing it is an unthinkable thought. I get that "it should be as easy as uploading a repo to GitHub", but just for starters imagine the incurred cost of residuals tracking. Yes it's amortized over the whole enterprise's catalog, but that's work that still has to be done.
Principle photography is done for this film, but it's effects heavy and there's nothing to suggest the effects work is anywhere near done, and releasing stuff also costs money.
You seem to feel like this is a completed master sat on the shelf, but it's likely not more than 60% complete to something that could be released.
I'd assume that it's at least almost complete, as the article states that there have been test viewings. Also, the Wikipedia page [0] says that the the film had been completed, so I'd assume that at least a preliminary fully edited version exists. Maybe my definition of "completed" isn't entirely accurate here, though.
> I'd assume that it's at least almost complete, as the article states that there have been test viewings.
Some of the reporting today is suggesting that the film is a lot closer to being completed than previously reported, so fair enough if so.
But for what it's worth it is very common for test viewings to include extremely unfinished animated work, including pencil storyboards with some voice acting over it.
And honestly there isn't much of a difference of working on something that gets shelved, vs. something that gets released and is a total flop -- something that doesn't even make back 20% of its costs, and gets 17% of Rotten Tomatoes.
Anyone who works in any artistic field knows that probably 80% of your total effort never sees the light of day -- whether you're a band trying to record songs, a novelist throwing away chapters and subplots and whole half-finished books, or yes -- scriptwriters and animators and actors.
(Just think about how the majority of filmed TV pilots are never shown, because the majority of them don't get picked up. If you're an actor/writer/crew hired for a TV pilot, you know going into it that there's a better than 50% chance nobody will ever see it.)
Not according to what I've seen from artists and animators on my Twitter feed. Being "working class" doesn't mean you only care about the paycheck. Seeing something they put years of effort and talent into simply tossed into the bin never to be seen hurts.
I mean that's fair, not being able to see your finished work is a bummer. Like creating a video game only for the publisher to cancel it right before finishing it.
I’ve been paid to work on things that succeed and a few things that didn’t pan out/weren’t released. It’s demoralizing when you spend months on something that gets shitcanned - even when it’s the right call.
Note that all the crew and actors involved not only lose the joy of seeing their work on the screen: it’s a gap in their portfolio, too. The FX folks, animators, lower tier actors, all miss out on having a credit and work to show in order to build their careers.
As a matter of business, yes. Few can rely on celebrity for income, and self-important people aren't generally popular to work with.
Not every product ships or is a commercial success, and not every effort makes the final cut. While it's nice when we have external validation for our contributions, that doesn't diminish the quality, aplomb, or professionalism of the work that went into it. Plus, it still goes on your CV, and you get a story to tell.
Wouldn’t the best solution to this to trigger the release into public domain, or a CC-NA licence, within a short “cooling off” period so they could try to release it the following year?
"The best solution" for who? The studio? They're not going to do that, because if they do, they lose the option to change their minds later and release the movie in the usual way.
I feel like I’m missing something, so perhaps there’s an aspect of corporate taxes here that I don’t understand. I would expect a write-off like this to reduce the assets of the firm on paper, perhaps having an impact on the market valuation, but don’t see how it would impact taxes.
Wouldn’t the actual expenses of production reduce tax liability immediately when they are incurred, regardless of whether or not the corporation later is able to make a profit off of the product? Or do they treat the production of a film as net-zero from a tax perspective because they had $X million in expenses and gained $X million in assets in the form of the finished film?
They actually put warning labels on the original Wile E Coyote v Roadrunner material.
In this day and age of political correctness it is probably not considered worth the risk to release a film that might be considered subversive in some sense.
And the claim that they're cash strapped after making 1.4 billion on barbie?
I just don't understand this at all. Does anyone?