Warner Bros shelves finished ‘Coyote vs. Acme’, takes $30M tax write-off
deadline.com
deadline.com
And the claim that they're cash strapped after making 1.4 billion on barbie?
I just don't understand this at all. Does anyone?
Alternatively, the cynic in me also has a theory - that this is all a marketing ploy to drum up support for this underdog of a movie. But that seems fairly unlikely given that it depends on the CEO voluntarily acting the cartoon villain...
Zaslav has long had the reputation of a cartoon villain, it would cost him nothing.
I'd bet you're going to see this more often.
Even if they believed they could break even from an accounting and tax perspective, there's still opportunity cost. That is, it might make sense to quit now and move on to something with more upside.
So they’d rather have $30M immediately (since 2023 is almost over) than release and have to perform accounting over the life of the film plus supplemental (streaming, other licenses) that they expect would result in less than $30M when all is said and done.
For example, Indiana Jones and the Dial of Destiny failed commercially at the box office:
https://www.the-numbers.com/movie/Indiana-Jones-and-the-Dial...
Disney spent $300 million making it and will have spent at least $100 million promoting it. And it only generated $381 million of revenue at the box office. The studio doesn't get $381 million back, they get a percentage.
Disney may have made up some of the deficit with home video purchases and streaming subscriptions, but seems likely that they've lost $100+ million on that movie for now:
https://variety.com/2023/film/news/indiana-jones-5-mission-i...
The main problem was lack of budget discipline. $381 million at the box office would have been a decent result if the production budget was more like $50 million.
This sounds like a zero-sum game. Someone's raking it in here.
https://stephenfollows.com/how-are-movie-advertising-budgets...
TV got most of it 5 years ago in the UK.
Indiana Jones 4 didn’t need budget discipline.
The main problem was that Indiana Jones 5 was following 4, and both were laughably bad at being quality Indiana Jones-level movies.
The general audience knew in advance what they were getting wasn’t going to be exciting and they didn’t want it.
The hardcore fan audience also knew what they were getting: old-man Indie needs to be replaced by a strong brave female without character flaws, who points out how problematic and useless the old man is, and saves him from himself.
A big chunk of the budget overruns were when the pendulum slightly swung back and the studios did significant rewrites and reshoots (and re-CGI) to tone this type of writing down to something less overt.
This movie would have been a no-brainer home run if it were simply an adventure film starring a crusty Harrison Ford as Indiana Jones, set in more or less the “real world”.
Once you get Indie into space aliens or Representation social politics things dilute until the audience shrugs and stays home to stream The Office for the sixth run-through.
Sad, alienated, lonely, somewhat suicidal Dr. Jones doesn’t put butts in seats. Who could’ve guessed?
It absolutely did. With budget discipline they would have made a better, more Indiana Jones movie. The direct result of having too much money available was that they stuck all manner of pointless garbage in the film and made it worse.
Adjusting for inflation, Indiana Jones 3 had less than half the budget of Indiana Jones 4 and is the better movie with the bigger box office.
It's pretty unlikely this film will make $30 million, and they would have to spend at least another five to ten million to release it (profit participation from talent, marketing (which is probably contractually obligated), finalising post production, mastering, distribution etc etc.). The effects work is nowhere near done etc.
> And the claim that they're cash strapped after making 1.4 billion on barbie?
Warner has a lot of debt. AT&T dumped all the debt they used to buy the company in with the Warner asset when they sold it to Discovery. That debt is rapidly going to cost a lot to serve interest payments too. Warner needs short term cash, and it needs a lot more than the (good) profits off a single film.
That's very optimistic. P&A (print and advertising, but since movies are now released in digital copies, the print part has become negligible) usually is between half and 100% of the production budget.
I was assuming they would do the absolute bare minimum in advertising tbh, that was mostly print costs and just the basics like providing poster art and standees etc. As you say, if you wanted any effective marketing at all you'd be looking at five to ten times that.
It would easily have made $30 million worldwide. Almost certainly domestic. You could question whether it would have made its budget back (70 million) on domestic, but for a family film with existing IP there aren’t really any blockers to clearing 30 million.
> The effects work is nowhere near done etc.
The film is finished, some critics had already seen it.
That's absolutely not true, especially internationally.
And the changes are too large to fix easily.
Or the plot is just terrible.
Or hmm. I wonder if the new AI contract or some such, is causing this?
It may help to consider the biggest movie studios at this scale as VCs; they only care about 10x profits, anything less is pocket change, and if it lets them keep actors dependent on them, all the more reason to bin anything that risks becoming a cult classic and has to pay residuals. If you can picture a VC firm shutting down a startup when a union forms, then this is the same mindset.
For example, a bunch of TV series were written off last year, which means that content has been taken down both from streaming and purchasing. It is effectively completely inaccessible outside of piracy.
If they earn $100 and then spend $100, they have to write it off, because they no longer have the money, so they can't pay taxes on it.
If those materials have worth, then they shouldn't be writing them off in the first place while also sitting on them. If they don't have worth, it shouldn't be a problem. Except in some zero-sum type thing where they'd rather destroy it then let anyone else benefit, and then there's a question of if society at large should be footing the bill for the destruction of value in order to stymie competitors.
Now, clearly, that's not how the rules actually currently work or we wouldn't be in here at all.
These weren't expenses (which reduce net income in the period when incurred) but investments in a new movie (which create assets which sit on the balance sheet).
The decision to write off the asset in the current year (rather than amortizing it over time) is the result of a business decision.
First of all, a lot of these creative works are ultimately unfinished. Are you really supposed to release the superhero movie without half the CGI, with some of the scenes in front of green screens? Without a soundtrack? What's the point?
And secondly, even when they are finished, what about when they're just bad? If something simply doesn't work creatively, despite everyone's best efforts, why force them to expose their failure to the world? There are well-known cases where directors and screenwriters have demanded that their names be taken off a finished movie because they don't want to be associated with the final product, because they think it's just bad.
The idea that bad work is forced to be released, if you want to count the effort on them as business expenses, seems like it would be a net negative for artists. Isn't part of artistic control deciding what you do and don't want the world to see?
In this scenario, companies are permanently shelving work that has value. Infinity Train for example was made a tax write-off, which means the creator can never continue it and people can never watch it. The negatives of some bad work being released is not outweighed by the amount of good work that has been destroyed by the current system.
If you want to argue about artistic control, then you need to come up with a solution to the above. The status quo is unacceptable, so let's see what you got.
Please don't be snarky or have attitude like that.
Anyways, if you'd like to know, the specific Infinity Train example (as well as Westworld etc.) have to do with a very specific write-off opportunity that occurs in a limited time frame when a corporate merger occurs -- in this case, HBO with Discovery. I'm not familiar with the specifics, but if you want to fix something, I'd suggest looking at this particular merger tax write-off loophole (?).
It would seem to be a result/problem of that very specific accounting move in merger situations only. It's not a problem with write-offs in general.
And the Infinity Train example has nothing to do with a specific loophole, it is how tax write-offs work. It was done because the merger saddled Warner Bros with debt which it sought to rectify by reducing its tax burden as much as possible through devaluation of assets. The only 'loophole' is that companies have to pay taxes on assets gained during a merger. So to avoid this companies write off their assets to say their value is $0, reducing their total tax burden. But the core problem is still the fact that they can say that their asset is worth $0 and shelve it forever.
> ‘Coyote Vs. Acme’: Warner Bros Shelves Finished Live-Action/Animated Pic Completely As Studio Takes $30M Tax Write-off
Like other commenters, I don't understand the logic of shelving a finished and likely profitable movie just to obtain a tax write-off on the investment. I suspect the article is strongly discounting the additional costs involved in actually bringing the movie to theatres, and/or the risk that it will be a flop.
(Submitted title was "Warner Bros Shelves Finished Coyote vs. Acme Film as Tax Write-Off")
Why did they spend the money to finish it? Are there some tax regulations that incentivize it? or is this just bad management?
As awful as the movie sounds to me, I want to see it now.
Max costs an average of $12.99/month. $30 million / $12.99 = 2.3 million. Max has over 95 million monthly subscribers, and one has to imagine that ~2% of the subscribers would pay for a single month of Max in order to see this movie. After that one month, the movie's made its budget back without having to market it at all. Like, come on, it's the age of the internet -- if you really don't want to market the film at all, just Tweet out "Hey this movie is out now on Max, go watch it" and you're sure to reach a decent amount of people.
I'm sure there's an argument against what I just said that it creates the perception of their original content made for Max being low quality or something, but that can't be worse than the now extremely accurate perception that creatives can't trust that their work will be released by WD, and thus would prefer to work for other studios. I myself work in Hollywood and have absolutely zero desire to work on a WB project after Batgirl and now this.
But what already-paying subscribers /would/ do buys you no beans. You need to find 2% of the current subscriber base who would cancel except for this movie being released, or 2% new subscribers from this release. Which besides being implausibly large to begin with, isn’t going to happen without massive marketing investment — the non-customers who value this at $13 are already less likely than the average person to know it exists, being non-customers.
The last couple of times I went to the cinema were for when they'd do an English release of a popular anime film (One Piece Film Red and the Slime Isekai film). Those are not getting mainstream promotion. I don't think a couple of banner ads on animenewsnetwork.com count as meaningful. But they were in the "normal" multiplex with modest schedules. I feel like before the pandemic, those would exclusively get a one-week run in the art-house cinema by the college.
I wonder if it's a bit of a "flailing" response from an industry that 1) seems to have lost their cadence a bit after pandemics and labour stoppages, and 2) is still trying to figure out what's a viable draw when so much is heading straight to streaming.
The second-run cinema in town seems to be about a 50-50 split now between "second run of newish films" and a random assortment of classics and things obviously meant as family-friendly.
You seem to feel like this is a completed master sat on the shelf, but it's likely not more than 60% complete to something that could be released.
[0] https://en.wikipedia.org/wiki/Coyote_vs._Acme#Cancellation
Some of the reporting today is suggesting that the film is a lot closer to being completed than previously reported, so fair enough if so.
But for what it's worth it is very common for test viewings to include extremely unfinished animated work, including pencil storyboards with some voice acting over it.
Not every product ships or is a commercial success, and not every effort makes the final cut. While it's nice when we have external validation for our contributions, that doesn't diminish the quality, aplomb, or professionalism of the work that went into it. Plus, it still goes on your CV, and you get a story to tell.
Note that all the crew and actors involved not only lose the joy of seeing their work on the screen: it’s a gap in their portfolio, too. The FX folks, animators, lower tier actors, all miss out on having a credit and work to show in order to build their careers.
It's strange to frame the situation as if the lower class workers are lucky compared to those in the owner class.
And honestly there isn't much of a difference of working on something that gets shelved, vs. something that gets released and is a total flop -- something that doesn't even make back 20% of its costs, and gets 17% of Rotten Tomatoes.
Anyone who works in any artistic field knows that probably 80% of your total effort never sees the light of day -- whether you're a band trying to record songs, a novelist throwing away chapters and subplots and whole half-finished books, or yes -- scriptwriters and animators and actors.
(Just think about how the majority of filmed TV pilots are never shown, because the majority of them don't get picked up. If you're an actor/writer/crew hired for a TV pilot, you know going into it that there's a better than 50% chance nobody will ever see it.)
But, obviously, they'd prefer to burn the originals to pay taxes on any profits.
Wouldn’t the actual expenses of production reduce tax liability immediately when they are incurred, regardless of whether or not the corporation later is able to make a profit off of the product? Or do they treat the production of a film as net-zero from a tax perspective because they had $X million in expenses and gained $X million in assets in the form of the finished film?
So the last sentence of your comment is spot on.
Writing off an asset causes a reduction in net assets, which translates into a loss on the income statement.
In this day and age of political correctness it is probably not considered worth the risk to release a film that might be considered subversive in some sense.
Comedy is dead.