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

Question

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

Answer 1

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.