top of page

Hollywood’s Latest Billion Dollar Venture? Tax Write-Offs

Ella Barry

Coyote vs. Acme seemingly had everything going for it. Already connected to the cherished Warner Bros. Looney Tunes franchise, the movie boasted crowd-drawing favorites such as John Cena and Will Forte starring in leading roles. Test screenings for the film yielded stellar results by scoring in the high 90s, around 14 points higher than the typical average for a family film. With both commercial and critical appeal, Warner Bros. Discovery appeared to have a moderate box office hit on their hands. However, the narrative took a sharp turn in November 2023 when the company decided to drop an “Acme Anvil” onto the project. Head studio executives, who reportedly had never even seen the film, decided to can Coyote vs. Acme and abandon it into the archive, never to be seen again. The rationale behind this abrupt decision? A $30 million tax write-off on the balance sheet from declaring the loss.

 

A Stingy New Trend

Following the closure of the megamerger of Warner Bros. Discovery in April 2022, new CEO David Zaslav was saddled with over $50 billion in debt between the two companies. In response to this financial pressure, Zaslav and other executives announced a commitment to slashing costs through synergistic measures, resulting in harsh strategies such as mass layoffs and content deletion. However, perhaps the most controversial measure arrived in August 2022 when Zaslav and company decided to permanently shelve the films Batgirl and Scoob! Holiday Haunt. The decision was met with angered shock in the industry given that both films had already advanced to post-production - a rarity in the realm of axed films, which typically meet their demise before or during pre-production.

 

The canceled Batgirl carried a $90 million budget while Scoob! Holiday Haunt held a cheaper $40 million. By shelving the two films, Warner Bros. was able to mark down both films as a loss and reduce its taxable income by a combined $130 million. However, to claim the write-off meant that Warner Bros. was not allowed to monetize either film, leaving no possibility for any form of future release. Batgirl directors Adil El Arbi and Bilall Fallah wrote on Instagram how they were “saddened and shocked by the news,” while Scoob! Holiday Haunt director Michael Kurinsky emphasized “to not have it come out is, as you can imagine, incredibly disappointing.”

 

At the start of 2023, CFO Gunnar Wiedenfels confidently proclaimed “we’re done with that chapter” in regard to cutting content for tax purposes, positioning the tax write-off as a one-time-only decision. However, come November, Warner Bros. would show that they very much had not closed the book on axing content. After unceremoniously announcing the cancellation of Coyote vs. Acme on November 9, both industry creatives and the general public loudly condemned the decision. Warner Bros. swiftly reversed course a mere four days later and decided to allow filmmakers to shop Coyote vs. Acme to other distributors, a notable departure from their previous stances.

 

Warner Bros. screened the film to around 12 interested buyers, with Netflix, Paramount, and Amazon all reportedly making offers of around $30-$50 million for the film. Paramount even offered a theatrical release component to their acquisition of the film. However, Warner Bros. decided to decline all offers that were made. Because Coyote vs. Acme held a budget of $70 million, Zaslav and company decided that a deal would require a $75-$80 million offer with no room for negotiations. While the film has not been officially canceled, Warner Bros. Q4 earnings call suggests that the movie has already been quietly written-off. During the call on February 23, the earnings report revealed that the company had taken a $115 million write-off during the quarter from several unnamed projects. Chances are high that Coyote vs. Acme was included within that figure.

 

However, since Warner Bros. was estimated to take around a $30 million write-down in tax deduction, accepting the rumored $30-$50 million offers from potential buyers would have provided a similar range of loss recuperation for the studio. By selling the film instead of canning it, Warner Bros. had the opportunity to regain some goodwill and trust with the creative talents they had previously betrayed. As such, the decision to permanently shelve the film appears to be driven less by financial rationale and more a sense of hubris. If Warner Bros. ended up selling the film to another studio, they ran the risk that the movie would become a commercial or critical success for a rival. That success would end up painting Warner Bros. as foolish, especially since they would have given away one of their most famed IP Looney Tunes. Executives would rather destroy and bury years of artistic effort than face the potential embarrassment.

 

The Great Streaming Purge

While Warner Bros. finds itself embroiled in a deluge of negative press over their deletion of completed films, the crux of their cost-cutting strategy actually lies in purging content from their streaming platforms. In 2022, amidst the axing of Batgirl and Scoob, Warner Bros. Discovery claimed losses of $2.8-$3.5 billion from content impairment and development write-offs to remove from their taxable income. The maneuver not only entailed cancellations but also the removal and archival of numerous shows from HBO Max, including titles such as Westworld, Minx, The Nevers, Love Life, and more.

 

However, Warner Bros. is not alone in the strategy of deleting content in order to earn back money through tax write-offs. Back in June 2023, Disney disclosed a $1.5 billion write-down attributed to the removal of streaming programming from Disney+ and Hulu. Some of the purged titles include Willow, Big Shot, Y: The Last Man, Dollface, and more. This trend persists into 2024 and the post-strike era with Disney removing over 20 titles from the apps this February alone. Similarly, on February 28, Paramount claimed a $700-$900 million write-down from content being yanked from Paramount platforms as well as development projects being scrapped.

 

When studios claim these write-offs, they present two seemingly contradictory narratives. On one hand, they assert that the content being removed generates negligible value, making it more cost-effective to discard these projects rather than retain it on the platform. Simultaneously however, these same studios claim that these projects should be valued in the billions for tax purposes. This dual assertion presents an almost nefarious, double advantage for the studios. By removing different shows and films from their streaming catalogue, companies can sidestep paying residuals to the actors, directors, writers, and other creatives involved with their formation. At the same time, come tax season, these studios are able to remove billions of dollars from their taxable income by categorizing the deleted content as losses.

 

When the Writer’s Guild of America (WGA) went on strike last May with Screen Actors Guild (SAG-AFTRA) closely following suit in July, one of the key focuses of the strike was residuals, especially in the streaming era. Traditionally, for broadcast cable, residual payments are based on the number of times that an episode or movie is played, leading to higher payouts for more successful, popular programs. In contrast, streaming residuals are based on the number of subscribers the platform has, meaning the popularity of a show has no effect on the residual payout. 

 

The conclusion of the WGA strike after 146 days resulted in a new residual deal that paid writers of a program a 50% bonus on the fixed residual if the equivalent of 20% or more of a streaming service’s U.S. subscribers watched it within three months of release. Soon after, SAG-AFTRA closed a mostly similar deal, where a 100% bonus on the fixed residual was paid out after reaching the 20% viewership threshold, with 75% allocated to the program’s actors and 25% to other union members whose programs fell short of the threshold.

 

However, months of picketing to increase residual payouts rings hollow if the content no longer even exists on a streaming platform. Residual bonuses are the least of actors and writers' concerns when there exists no program to even receive a fixed payment for. As studios continue to demonstrate with recent behavior however, cost-cutting remains a much higher priority than the livelihoods of their creatives. As painful as the lack of payment is, for artists, the entire erasure of years of hard work is likely what stings the most. For original content created for streaming, once deleted from platforms, all legal access to the movies and tv shows are often lost into the abyss. Future job prospects are also affected as crew members now lack tangible projects to showcase to future employers. 

 

While the film industry has always historically been profit-driven, this recent spree of content deletions for tax write-offs seems to hint at a deeper resentment and disinterest that modern studios hold towards their art.

 

References

 

  1. Ruimy, Jordan. “‘Coyote vs Acme’ Had Very Good Test Scores, in the ‘High 90s.’” World of Reel, November 12, 2023. https://www.worldofreel.com/blog/2023/11/11/gtz9qlkdlzv0qslo2jtf3kryphf7oe#:~:text=Here’s%20where%20it%20gets%20even,was%20in%20the%20high%2090s. 

  2. Ruimy, Jordan. “‘Coyote vs Acme’ Is Now Expected to Be Shelved and Deleted Forever - Zaslav Never Actually Watched the Film!” World of Reel, February 9, 2024. https://www.worldofreel.com/blog/2024/2/9/sxi9j4myx8230mdmmb9lzmw505ucm5. 

  3. “David Zaslav Defends Warner Bros.. Discovery Cuts: ‘We Did Not Get Rid of Any Show That Was Helping Us.’” Los Angeles Times, November 3, 2022. https://www.latimes.com/entertainment-arts/business/story/2022-11-03/david-zaslav-on-warner-bros-discovery-cuts-we-are-fundamentally-rethinking-the-company. 

  4. Couch, Aaron. “‘Batgirl’ and ‘Scoob!: Holiday Haunt’ Scrapped at Warner Bros.. amid Cost-Savings Push.” The Hollywood Reporter, August 3, 2022. https://www.hollywoodreporter.com/movies/movie-news/batgirl-shelved-at-warner-bros-hbo-max-1235191371/. 

  5. Burton, Carson. “‘Scoob! Holiday Haunt’ Was Axed Three Months Ago. Its Director Explains Why He Finished It Anyway.” Variety, November 11, 2022. https://variety.com/2022/film/news/scoob-holiday-haunt-michael-kurinsky-scooby-doo-shelved-1235429928/. 

  6. Hayes, Dade, and Peter White. “Tax Write-Offs for Content Are over at Warner Bros Discovery as CFO Once Again Scolds Entertainment Biz for ‘Spending Frenzy.’” Deadline, January 5, 2023. https://deadline.com/2023/01/warner-bros-discovery-content-writeoffs-cfo-scolds-entertainment-for-spending-frenzy-1235212199/#comments. 

  7. Taylor, Drew. “The Final Days of ‘Coyote vs. Acme’: Offers, Rejections and a Roadrunner Race against Time: Exclusive.” TheWrap, February 11, 2024. https://www.thewrap.com/coyote-vs-acme-update-offers-warner-bros/. 

  8. Couch, Aaron. “As ‘Coyote vs. Acme’ Hangs in the Balance, Warner Bros.. Discovery Takes $115m Write-down on Mystery Projects.” The Hollywood Reporter, February 24, 2024. https://www.hollywoodreporter.com/movies/movie-news/coyote-vs-acme-warner-bros-discovery-115m-write-down-mystery-projects-1235832120/. 

  9. Goldsmith, Jill. “Warner Bros.. Discovery Now Sees up to $3.5 Billion in Content Write-Downs, $1 Billion More than Previously Anticipated.” Deadline, December 14, 2022. https://deadline.com/2022/12/warner-bros-discovery-content-write-downs-1235199446/. 

  10. Hayes, Dade. “Disney Officially Discloses $1.5B in Write-Downs for Yanked Streaming Content, as It Signaled It Would on Its May Earnings Call.” Deadline, June 2, 2023. https://deadline.com/2023/06/disney-takes-billion-writedowns-streaming-content-1235399321/comment-page-2/#comments. 

  11. Andreeva, Nellie. “Disney+ Removes Original Movies & Series in EMEA.” Deadline, February 3, 2024. https://deadline.com/2024/02/disney-original-movies-series-content-removal-emea-1235813461/. 

  12. Littleton, Cynthia. “Paramount Global Is ‘leaning in’ to Content Cost Cuts and ‘Hollywood Hits’ as Leaders Chart a Course for Survival.” Variety, February 29, 2024. https://variety.com/2024/tv/news/paramount-q4-2023-1-billion-write-down-content-cut-1235925973/. 

  13. “What Are Residuals for Actors, Writers? A Major Part of the Hollywood Strike. - The Washington Post.” Washington Post, July 15, 2023. https://www.washingtonpost.com/lifestyle/2023/07/15/actors-strike-what-are-residuals/. 

  14. Porter, Rick. “How the Writers Guild’s New Streaming Residual Will Work.” The Hollywood Reporter, September 28, 2023. https://www.hollywoodreporter.com/business/business-news/how-wga-streaming-residual-will-work-1235602660/. 

  15. Porter, Rick. “How Sag-AFTRA’s Streaming Bonus Compares to Other Guild Deals.” The Hollywood Reporter, November 13, 2023. https://www.hollywoodreporter.com/business/business-news/sag-aftra-streaming-bonus-compare-wga-dga-1235615790/. 

Follow us and stay updated!

  • Instagram
  • LinkedIn
  • X

©2023 by The Economic Tribune. Proudly created with Wix.com

bottom of page