They’ve just cancelled their upcoming film “Coyote vs. Acme,” and everyone is calling it a tax write-off, just like they did with the cancelled Batgirl film.
Having spent so much on the production of these films, how is it beneficial to them to cancel the film outright? What is a tax write-off in that sense?
In: Economics
They made Batgirl for, let’s say $5. Before they ramp up the marketing machine, some market research comes back. Everybody is sick of superhero movies, even the MCU doesn’t sell tickets anymore.
Their fancy data analysts say that Batgirl probably only makes $3 at the box office. There’s a very low chance they’ll make any money even if they only spend $2 on marketing, and if they spend more than $3 they’ll almost definitely lose money. At that point, it’s not worth spending the $2. The marketing department could be promoting other movies that will do better. The theaters only have X amount of screens and a better movie might bring more people to watch it. So they just throw it in the vault. They get to write the $5 it took to make the movie as a business loss.
End of the tax year, they make $10 profit on a different movie that replaced Batgirl in the schedule. They tell the government they lost $5 on Batgirl and made $10 on Movie X, they only profited $5 and that’s what they get taxed on.
It can get a little more complicated because sometimes making a project to throw it away on purpose could make sense for the shareholders/industry. For example, they have no movies coming out (pandemic?), but the bigwigs at Warner actually own a lot of smaller production companies that, obviously, get a lot of work from Warner. Those companies can’t just go without work, so maybe an exec at Warner starts a little side project to give Superhero Prop Co. and Gotham Makeup LLC some business. Again, the movie doesn’t make sense to release. Warner will harvest the tax losses to offset some of the profit they made earlier in the year, and the prop company gets some business and makes money for Warner Bigwig #1, and keeps their makeup artist and prop master employed.
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