The great cancellation: why megabucks TV shows are vanishing without a trace

"Content" is uninteresting unless it can be monetised. I mean, why would anyone write a blog post or piece of software, much less a book or a song if there were no money attached?

What do you mean by “new”?

Superman and Batman have been around for almost 80+ years. Pokémon is approaching 30 years.

Hollywood movies made in the 1920s were remade in the 1930s which were remade in the 1940s which were remade in the 1950s and so on.

People have also been writing articles that mention this “new” normal for decades. But when does it stop being “new” lol?

How were those new-ish Game of Thrones and Lord of the Rings shows marketed? (I didn’t watch them.)

The only thing more offensive than calling a book, movie, or TV show "intellectual property" is calling it "content". The former turns creative work into something you buy and sell on Fidelity[0] and the latter turns it into TikTok. Either way, the end result is human culture being made disposable.

[0] As far as I'm aware, nobody has actually tried selling fractionalized derivatives of copyright, patent, or trademark interest on an open market. The closest you can do is buy shares of a media conglomerate. I assume it would at least be legally possible if you could get the SEC to sign off on it and write up a contractual structure for how the fractional owners of the work would agree on licensing it out.

This isn’t new. It’s been happening for decades. Right?

What’s different now?

The write off is based on the cost of creating the show. I think the article is wrong/sloppily phrased in its line about the value of the company. If they remove a show then it will never generate any future revenue so they can write the cost of producing it off as a loss.

The real scandal here is how little viewership streaming shows get and how little revenue they generate off of that viewership. Particularly for how expensive these shows are.

I wrote a couple of comments elsewhere in the thread about some specifics and consequences. But the takeaway is that the last decade+ of super expensive “prestige” shows on streaming has been a huge bubble that isn’t supported by the underlying revenue generated by the shows. In 2022 Netflix spent $16 billion on producing shows [https://variety.com/2023/digital/news/netflix-content-spendi...] to generate shockingly few viewing hours (which is why they will never agree to WGA demands to release viewership numbers in order to pay writers residuals; their stock would go to 0 if those numbers ever became public). The future of streaming is ad-supported cheaply produced reality TV, ie exactly what niche cable looked like in 2008.

I think you can monkey around with “Hollywood accounting” for profit sharing purposes as those are all civil offenses with private citizens suing, etc.

But I suspect that studios play it straight with taxes as the IRS doesn’t mess around, it’s criminal investigations, officers are liable, and there’s whistleblower laws where the snitch gets 15-30% of what the IRS recoups [0].

So I bet the only way we find the true cost of these things is when they write them off and even then we know the true cost of the bundle, not each item. What they probably do is include everything legally allowed.

This is still bad for studios as getting a $210M tax (corporate tax rate is 21%) reduction from a $1B write off is still way worse than breaking even since the write off is basically a $790M loss and break even is a $0 loss.

So the studio doesn’t want to do this, it’s just less bad.

I think it’s an example of optimizing after a mistake and doing this too much is a sign of bad management.

[0] https://www.irs.gov/compliance/whistleblower-office

I don't think a lot of it is actually taxes but that "blame it on the IRS" has been a PR spin win for Hollywood. (Some small amount of it is taxes, which muddies the waters just enough for plausible deniability and PR spin.)

I think some of it is plain old opportunity cost and "vaulting". Streaming a classic on your own streaming network doesn't generate money like selling DVDs/Blu-Rays or another streaming network paying you to license it.

I think a lot of it is probably residuals owed to writers and actors and other staff. Many of the shows being vaulted right now are the sorts of "steady trickle" viewership shows with presumably expensive residuals owed to current creative talent: enough people are watching that the companies see the residuals they are paying on it, but not enough people that they like how much they are paying for it.

Maybe some of that is also how much of the vaulted shows are tied to writers and actors actively striking. It seems a bit unlikely of a coincidence in timing how many of these shows disappearing are happening at various stages in the strike. I would hope the National Labor Relations Board is paying close enough attention and taking notes to try to find out just how much is "coincidence" and how much is retaliatory income cuts.

It sounds like you may need to drink the coolaid about how an endless cycle of debt financing is the only way to survive as a business

They can still make money later and will just pay taxes.

Just because they value it at $0 doesn’t mean it has no potential future value. It just means when they claim they value they won’t have any costs to deduct. So future profit margins are higher.

So, I've never actually been able to determine what kind of tax deduction[0] or credit would apply to a TV show that loses money. There's rules for how you account for copyrights and patents in tax law, and what kind of business losses you can and can't claim as a deduction or credit.

My uneducated guess is that there is no specific law that requires you to mothball a show that's been counted as a loss, but the streaming services do this anyway as a show of good faith. i.e. if the IRS were to audit you, you'd be able to show "see, it really was a loss, we made zero dollars off it!"

Morally, your argument sounds correct. Removing shows that have already been made because the owners didn't get enough profit breaks the copyright bargain. Congress should consider penalizing the deliberate destruction of American culture in this way. I doubt a judge would unilaterally decide to impose a "writ of outlawry[1] for copyright", though.

[0] Translator's note: "write-off" means deduction

[1] A 'writ of outlawry' is an old legal instrument that allowed courts to withdraw the protection of the law to criminals it could not bring to justice. Murdering them would be legally equivalent to killing a wild (non-endangered) animal. As you might imagine from a legal concept that is effectively The Purge IRL, it is not used anymore.

Seems like the economic logic of streaming has changed, and this article failed to explain how, merely hint at it.

They explain that the benefit to the companies is the tax write off. The part they don’t explain is how little money shows like these generate that they’re worth less than the potential write off. The big semi-open secret in streaming right now is that viewership is a lot lower than people think and much less correlated with show “quality” (where by “quality” here I mean production cost). This is why the whole industry is introducing ad-supported tiers. Look for that to be paired with shows that are radically cheaper to make and payout less to talent in residuals, ie. reality TV. The last decade of streaming has been a big bubble. The economics are fundamentally unchanged from 2008 basic cable so as these services try to actually become profitable expect the content to look a lot more like Toddlers And Tiaras than Westworld and expect to watch a lot more ads.

They do explain "why", but not in much detail or context.

> it was axed as a cost-cutting exercise.

>In May, Disney+ announced a content removal plan designed to cut US$1.5bn worth of content, meaning it substantially reduces the company’s value, giving it a lot less tax to pay.

Cost-cutting doesn't make sense if it also cuts your revenue to the same degree. I also don't know of any tax that is based purely on the value of the company. Income tax is based on income -- if you make a profit and pay tax, you are still ahead compared to not doing so.

More importantly, why do the shareholders tolerate this? Why would they want to "substantially reduce the company's value"?

I think the bigger "why" is that there's a huge glut of content: There's waaaaay more TV than I could ever hope to watch.

For awhile, every time I opened Netflix it was promoting a new series with a full season.

Part of the reason why I won't bother with "new" streaming services is that I don't want "yet another subscription," but the other reason is that I simply don't have time to watch all that TV.

In particular, why remove existing shows from streaming services. How does that affect accounting?

The article mentions shows being cancelled after they were made and ready to stream.

Even if nobody is going to watch it, if you already paid for the production and it’s ready, why not put it online?

Perhaps. But the article mentions shows that were made, ready to go, then canceled.

And others might not have had much audience, but once they're available and streaming, how much overhead is there to just leave them there?

>>b) never get a hard copy (e.g. dvd) release<<

maybe not one considered legal.

Let's say you have $1B in profit this year and a really terrible show that cost $1B to make.

You can either write it off and pay no taxes on those profits ($200M saved), or not ($200M squandered) (I'm assuming 20% tax rate just to make math easier.)

Also, many executives have compensation packages tied to financial metrics and they've been known to game those metrics for personal gain.

Reminds me of the Monty Python skit about a bording house resident called Monsieur Hilter

More recently, an entire reality TV series was made before they noticed that one of the contestants had Nazi face tattoos: https://www.theguardian.com/tv-and-radio/2020/oct/30/skys-th...

Ade Edmondson's character in Bottom was named Eddie Hitler and no-one batted an eye

You’re asking the right question here. We need to hear more about that.