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
Warner Bros did not begin those productions with the intention of turning them into some kind of tax scheme. They are surely worse off financially for having produced and cancelled the movies compared to having simply done nothing. A tax write-off of this kind, by construction, reduces your tax bill by only a fraction of what you spent. Warner Bros spent about $70 million to make the movie, and writing it off saves them about $15 million in taxes. That means they’re still out $55 million.
Their decision to cancel the movie was about whether it made sense to take the extra step of releasing the movie. On the one hand, there’s all the money they could make from selling tickets, licensing to streaming services, etc. On the other, there are the costs of marketing and distributing it. Warner Bros decided that the costs likely outweighed the benefits, so they shelved the movie.
Releasing the movie would have led to even further losses, and the tax refund from those losses still would not have been sufficient to offset them. Suppose releasing the movie increased their losses to $100 million. Then they would have gotten a $21 million refund for a net $79 million loss, worse than before. Conversely, if they stood to make *any* money from releasing the movie, they would have. If they could reduce the losses to $50 million and get a $10 million refund, then they’re only out $40 million, better than before.
So the tax treatment of the loss has no bearing on the decision to release the movie. Warner Bros behaves exactly like you’d expect in a world where they somehow couldn’t apply this loss to their net operating revenue: release if and only if it is expected to generate more money than the cost to market and distribute. Granted, tax codes are complicated, so there could be *some* way tax considerations skewed the decision. We’ll likely never know the full story.
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