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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 rel

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? I just don't understand this at all. Does anyone?

svantana 3y ago
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...
- TheOtherHobbes 3y ago
  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.
- 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 ago
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.
HlessClaudesman 3y ago
You are making an assumption that this film would attract / retain more than 30 million worth of subscriptions.
- QwertyPi 3y ago
  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.
  - deleted 3y ago
    [deleted]
  - cyanydeez 3y ago
    if 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 ago
Even if they only made 1 million on the movie, how would that not still be preferable? It makes no sense to me
- malablaster 3y ago
  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?
  - chiefalchemist 3y ago
    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.
  - cma 3y ago
    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.
prepend 3y ago
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.
- cyanydeez 3y ago
  probably because they'd need to borrow money and inflation and interest rates probably projected higher than residual income.
clouddrover 3y ago
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: 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 ago
  For 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 ago
    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.
    - illwrks 3y ago
      I 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 ago
    Wait, how is advertising 100% of the budget? Surely you need to also make a movie?
    - rtsil 3y ago
      If you have a $200M movie, you'll need to spend $200M in advertising as well.
colpabar 3y ago
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. https://en.m.wikipedia.org/wiki/Hollywood_accounting https://en.m.wikipedia.org/wiki/Hollywood_accounting
b112 3y ago
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?
altairprime 3y ago
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.
cyanydeez 3y ago
movie accounting makes these numbers mostly meaningless. it's possible everyone involved got their money back and the write off amount is the bagholders

svantana 3y ago

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...

TheOtherHobbes 3y ago
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.
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 ago

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.

HlessClaudesman 3y ago

You are making an assumption that this film would attract / retain more than 30 million worth of subscriptions.

QwertyPi 3y ago
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.
- deleted 3y ago
  [deleted]
- cyanydeez 3y ago
  if 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 ago

Even if they only made 1 million on the movie, how would that not still be preferable? It makes no sense to me

malablaster 3y ago
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?
- chiefalchemist 3y ago
  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.
- cma 3y ago
  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.

prepend 3y ago

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.

cyanydeez 3y ago
probably because they'd need to borrow money and inflation and interest rates probably projected higher than residual income.

clouddrover 3y ago

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: 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 ago
For 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 ago
  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.
  - illwrks 3y ago
    I 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 ago
  Wait, how is advertising 100% of the budget? Surely you need to also make a movie?
  - rtsil 3y ago
    If you have a $200M movie, you'll need to spend $200M in advertising as well.

colpabar 3y ago

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. https://en.m.wikipedia.org/wiki/Hollywood_accounting https://en.m.wikipedia.org/wiki/Hollywood_accounting

b112 3y ago

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?

altairprime 3y ago

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.

cyanydeez 3y ago

movie accounting makes these numbers mostly meaningless. it's possible everyone involved got their money back and the write off amount is the bagholders