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Warner Bros shelves finished ‘Coyote vs. Acme’, takes $30M tax write-off
- upon_drumhead 3y agoCan 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? I just don't understand this at all. Does anyone?
- svantana 3y agoThe 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...
- TheOtherHobbes 3y agoIt'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.
- lotsofpulp 3y ago> But that seems fairly unlikely given that it depends on the CEO voluntarily acting the cartoon villain... Zaslav has long had the reputation of a cartoon villain, it would cost him nothing.
- b3orn 3y agoThey'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.
- HlessClaudesman 3y agoYou are making an assumption that this film would attract / retain more than 30 million worth of subscriptions.
- QwertyPi 3y agoThe 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.
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- cyanydeez 3y agoif they need a load, inflation and interest rates are probably going to eat that profit horizon. I'd bet you're going to see this more often.
- aqme28 3y agoEven if they only made 1 million on the movie, how would that not still be preferable? It makes no sense to me
- malablaster 3y agoSomeone 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?
- chiefalchemist 3y agoPlus, 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.
- cma 3y agoIf 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.
- prepend 3y agoIt 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.
- cyanydeez 3y agoprobably because they'd need to borrow money and inflation and interest rates probably projected higher than residual income.
- clouddrover 3y agoThey'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: https://www.the-numbers.com/movie/Indiana-Jones-and-the-Dial-of-Destiny-(2023)#tab=summary https://www.the-numbers.com/movie/Indiana-Jones-and-the-Dial... 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: https://variety.com/2023/film/news/indiana-jones-5-mission-impossible-7-box-office-flops-explained-1235690262/ https://variety.com/2023/film/news/indiana-jones-5-mission-i... 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.
- GordonS 3y agoFor an anticipated title like this, I think they could have had the same box office figures if they spent zero on marketing. $100m is ridiculous.
- illwrks 3y agoNo 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.
- illwrks 3y agoI used to work in the marketing end of the industry, while I don't know all the nuts and bolts it's a very interesting business.
- TeMPOraL 3y ago> 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.
- Mindwipe 3y ago> 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.
- rtsil 3y ago> 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.
- Mindwipe 3y ago> 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.
- stavros 3y agoWait, how is advertising 100% of the budget? Surely you need to also make a movie?
- rtsil 3y agoIf you have a $200M movie, you'll need to spend $200M in advertising as well.
- colpabar 3y agoI 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. https://en.m.wikipedia.org/wiki/Hollywood_accounting https://en.m.wikipedia.org/wiki/Hollywood_accounting
- b112 3y agoIt 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?
- altairprime 3y agoIt’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.
- cyanydeez 3y agomovie accounting makes these numbers mostly meaningless. it's possible everyone involved got their money back and the write off amount is the bagholders
- codefeenix 3y agoWriting 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.
- philipov 3y agoIt'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.
- ed_elliott_asc 3y agoI think it is good that someone has said that it is too poor quality to put out - refreshing even.
- Karellen 3y ago> The difference here is that Coyote vs. Acme is a completed movie with very good test scores, 14 points above the family norm.
- rokkitmensch 3y agoAs 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.
- marak830 3y agoI'm struggling to see how their costs for releasing with 0 marketing are that much higher than scrapping.
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- fzeroracer 3y agoFrankly 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.
- adhesive_wombat 3y agoYes. 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.
- djaro 3y agoYou 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.
- adhesive_wombat 3y agoIf 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.
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- Almondsetat 3y agoI can only imagine how the people who made it feel knowing they basically worked for absolutely nothing
- lupire 3y agoThey got paid.
- Almondsetat 3y agoIs that enough to not feel like you’ve wasted your valuable time?
- FFP999 3y agoDepends on who you are and what you did with your time.
- washadjeffmad 3y agoAs 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.
- jzb 3y agoI’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.
- JCharante 3y agoLucky. That’s the benefit of being the worker class and not the owners. You get paid whether it releases or not.
- NoboruWataya 3y agoThe 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.
- lupire 3y agoThe article is reporting the facts, not disagreeing with the decision.
- ramraj07 3y agoLet's not consider the possibility that the CEO might be ego power tripping to piss someone off.
- dang 3y agoYes, and we've changed it now to the original title, or rather a shortened version to fit HN's 80 char limit. (Submitted title was "Warner Bros Shelves Finished Coyote vs. Acme Film as Tax Write-Off")
- beepbooptheory 3y agoCoyote continues to be beaten down by modern consumerism :(
- rbanffy 3y agoWouldn’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?
- pwdisswordfishc 3y agoCisco Certified Network Associate?
- FFP999 3y ago"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.
- rbanffy 3y agoThe best for society. The studio is dodging taxes with it and, therefore, the public is financing the movie in part. Seems only fair. But, obviously, they'd prefer to burn the originals to pay taxes on any profits.
- FFP999 3y agoPretty much moot because "fair" is not a thing the studio is going to take into consideration.
- Koala_ice 3y agoThere is a moral imperative for some of these films to get leaked.
- afn 3y agoI 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?
- rahimnathwani 3y agoIn the US, movie production costs aren't expensed in the period when incurred. They're capitalized, and then amortized over time. So the last sentence of your comment is spot on. Writing off an asset causes a reduction in net assets, which translates into a loss on the income statement.
- tomohawk 3y agoThey 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. Comedy is dead.
- FFP999 3y agoPeople have been whining about "political correctness" for decades. Comedy's still alive.
- thrill 3y agoAs an experiment, put it on BitTorrent and beg for $5 in crypto in the credits. Might be surprised.