Why do streaming platforms get a tax writeoff for pulling titles from their platform?


This is something I’ve heard about a few times now as a sort of controversy about popular or highly anticipated shows being pulled from streaming, sometimes due to the tax benefits that this grants companies. I think it only applies to original programs by that platform but I could be wrong.

What is the purpose of this and can someone please ELI5?

This article mentions some recent cases but it doesn’t say why or how this leads to a huge tax break: https://comicbook.com/movies/news/warner-bros-discovery-tax-write-down-recent-content-cancellations-tnt-tbs-dc/

In: 8

Because they lost money on the production. A majority of the canceled projects never made it to the screen, but they incurred costs in their production and development. Some that did make it to the screen didn’t do well at all. It would take too long for them to be profitable (if ever) to leave them up. It’s financially better to cancel it and take the earnings hit to get a little of that money back via a reduction of taxable income.

You only pay tax on profits that you make.

So, if you have a business making films and you sell $100 million tickets/streaming/TV deals, but you paid your production staff and actors $63 million, the that is $37 million in profit.

So, the company only pays tax on the $37 million. They don’t pay taxes on the full $100 million of ticket sales.

Let’s take an example a company makes 2 films in 1 year and spends $10 million on each. They sell rights to 1 for $25 million, the other is a turkey and gets $1 million in a streaming deal before getting pulled. The Compnay got $26 million in but spent $20 million – so they are tax calculation goes off tur $6 million profit.

Some of your confusion comes from this article, where the journalist obviously doesn’t understand what they are writing about. Basically if you have a company with stock, you have to give regular updates to the shareholders about how you are doing and how much money you expect to make. So if you spend $10 million making a film, but realise that it it trash and no one will watch, you have to own up and make an announcement to your shareholders saying “oops. We wasted $10 million of your money.”

The person writing this article has seen one of these shareholder announcements, doesn’t know what is going on, and thinks it is some kind of tax dodge.

Companies are taxed on their profits, not their revenues.

This means that companies get to take out the expenses they have from their revenues in order to determine their taxable income.

But what happens if an expense produces an asset with a certain lifespan? For example, if you buy some office chairs, you’ve spent some cash for them, but in a few years they will all be broken and you’ll need to buy new ones.

So when do you get to take out those expenses from your revenue to determine the taxable revenue?

If companies had what they wanted, they would simply immediately take all of that out the moment the cash leaves their bank accounts, so those 100$ you spent on chairs would immediately be taken out of your revenue and you wouldn’t pay as much taxes.

But the expense did produce an asset that lasts some time, so it doesn’t make sense to take all of the expense out immediately, right? After all you will have the chair and the benefits it provides.

So the state comes up with “depreciation schedules” that essentially say “You can’t take out all of the expense immediately, you have to do it over time as the asset you bought loses value and becomes worthless”.

So that chair you bought which has a 2 year lifespan doesn’t mean you can take out 100$ from your income this year. It means you take out 50$ this year, and another 50$ next year, at which point the chair is worthless.

Now you just need to replace the chair with “TV Show” and you’ll see how that applies to netflix and their titles.