Bullshit. You can't write off "lost profits". The US corporate income tax code contains no such provision. Don't believe anything you read in the entertainment press, it's mostly fake news or at least not fact checked. Go ask your own income tax accountant if you don't believe me.
Using the correct accounting method (value based method) the value of an asset (the movie) includes its future profit value. If you then choose not to release the movie, the future profit goes to 0, and you can write off the loss of the asset value.
What basis do you have for that method? Your basis for capital losses is the amount you put into it. If you're writing it off, the value of the asset is by definition zero. The only way you could write off based on the value would be if you already paid capital gains on the value.
Ok, well then why didn't they release the movie? Why did they say it would be more profitable to not release it? You're either smarter than the entirety of Warner Brother's finance department, or wrong.
Because it was gonna bomb, and make less money than it would cost to market. It really is that simple. Warner/Discovery is mega-cash strapped right now. They may literally value $100m now more than $200m a year from now, as they have a massive debt to service.
Possibly because Zaslav, the new boss, hates cartoons (not hyperbole, he's said things to that effect himself) and that colored any judgment on the release of the film.
I hate Hallmark holiday movies (I don’t, but let’s be hypothetical for a second — i.e. not real), but if that were a way to make profits and I was the Hallmark CEO I would be releasing them daily during holiday season. It seems a little silly to think that the boss Zaslav would forego profit because he personally “hates cartoons.”
That is true, but nobody knows for sure how much a movie will make. Generally you know the more you invest into advertising the more people will want to see it, but how much return exactly every dollar spent on advertising will generate won’t be known beforehand.
The job of studio executives is to estimate this, and based on that make choices. This is based on some amount of objectiveish data (such as market research and comparative trends) but also has a large component of guesswork. And this guesswork is where his personal preferences can colour his decision making.
In other words if he would know it will make a lot of money he would release it for sure. You are right on that. But it is not known, and perhaps the objective indicators are ambigous or borderline, that is where his personal preferences might make a difference.
This is not a matter of who is smarter. The US tax code is very clear on that point and is not open for debate.
If the studio decided not to release the movie it was most likely because the expected marketing and distribution costs exceeded the expected revenue. Or maybe they didn't want a crap movie to damage the long term brand of a valuable character that they plan to leverage in other products.
> The US tax code is very clear on that point and is not open for debate.
Anyone who has ever worked with an accountant knows this isn't true. The law is a series of gray areas at best. You can have three accountants do your taxes and get three results, because each applies different interpretations to the laws. And going in front of a judge won't get extra clarity -- three judges would give you three different opinions.
> If the studio decided not to release the movie it was most likely because the expected marketing and distribution costs exceeded the expected revenue.
Maybe, but it tested better with test audiences than any other movie they release this year, so that's highly unlikely. Also, they specifically said they were doing it for the write down.
There are some gray areas in the tax code, but this isn't one of them. You write off your basis in a capital loss. There's no legal justification for writing off "lost profits". Trying to do so would just be tax fraud.
Even if that were a thing, the fact that it would cost more to release it than not shows that the profit value is negative.
>> The US tax code is very clear on that point and is not open for debate.
> Anyone who has ever worked with an accountant knows this isn't true.
The point being referred to here is that you can't take a deduction for profits you would have made in some hypothetical world where things had worked out better for you. It's not all gray areas, and this particular point is entirely un-gray. Nor does the article that you "tl;dr"'ed into this quip support you here. It just says that the studio decided not to risk any further losses.
Usually cash flow is the benefit, and perhaps a tax-year thing. Better to realize your losses next to your gains. Because if you can realize losses on profits you can estimate, you should start a startup that does this for LLCs.
While I do think it is unlikely that you can deduct “lost profits” by not releasing film, there are some interesting ways expenses of a film can be depreciated. See this form:
It is the only thing on the IRS website I could find about this and it does not tell the whole picture of the special depreciation method for films. The fact that this form can have you pay interest to the IRS if you incorrectly predict income reinforces the idea that you can’t deduct “lost profits”.
