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.
"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?
I was complaining that in public discourse, anything not monetizable is disregarded, despite it making up (IMHO) the bulk of human activities and creation.
How much of this tax reduction is based on convoluted Hollywood accounting? If the tax on the value of the show is higher than the streaming revenues, doesn’t that imply that the valuation is bogus?
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.
"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"
So, Netflix declines to release viewing numbers but you somehow know they're insufficient to their bottom line to support their spend?
> (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)
I wonder what percentage of streaming hours on Netflix is toddler and preschool shows like CoComelon?
I really have wondered who convinced them the strikes were a good idea. It's clear the streaming content bubble has popped. It was a revenue windfall for everyone involved save investors (Disney's stock has lost nearly a decade of gains.)
The AI stuff is a wildcard on top of everything. The worst case scenario for the WGA and SGA is that the more successful they are with their getting their demands, the less likely there will be anything resembling North America's film/tv industry left within 5 years.
> 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.
Yeah, I was going off the article's statement that it was about reducing value of assets. Makes more sense if write-offs are included as well.
> 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
Well, they're not going to have any WGA shows either any time soon, and maybe the WGA will start advocating for an investor lawsuit on this basis?
Why is it the bean counters need to perfectly pair the cost of show A with views of show A? And then cheaper B to B? There’s a synergy in having the whole platform.
Your advice would be telling Apple to ditch the $10 headphone dongle because it has a low ROI, and they should be using the factory to crank out more iphones…
That's not the exercise. The exercise is "make it if and only if it will generate more revenue than it costs[1]". That doesn't have to be because people watch it. A prestige show (Succession, say) can bring people to a platform where they end up watching something less demanding (Friends, say). Even if nobody watches the prestige show, therefore, it can still be worth it. That makes it hard to know what is profitable.
Is there any sort of time limit for writing off the production costs?
I guess it makes some sense when you scrap a project completely and take a loss in exchange for a write-off, but some of these shows have been available for years.
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.
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.
For example. Let’s say the movie costs $100 to make. And they value the movie at $100 based on future sales. And they have $1000 in profit from other stuff they do.
So the cost of$100 and value of $100 offset each other so they pay taxes on the full $1000. Tax rate is 21% so they pay $210 and keep $790.
But if they write off the value to zero that means they have a $100 loss. So you subtract that from the $1000 of profits and pay taxes on $900. Thats $189 in taxes. You subtract that from $1000 and keep $811.
So if they don’t write it off in scenario1 they keep $790, but if they write it off they keep 811.
They still spent $100 and made nothing so that’s bad. But they are able to keep an extra $21 so really only lose $79.
So just like the software industry story https://news.ycombinator.com/item?id=35614313 from a few months ago, is this a case where the accounting illusion of amortization (preventing companies from deducting expenses as they occur, and instead spreading out already-incurred expenses into the future) is creating a short-term incentive to destroy real products and services?
How is this better than simply working on a cash basis, letting companies take the loss in year 1 when they build X, and then, for tax purposes, carry forward those net losses against the future revenues? Sure seems much simpler.
Whatare the implications of these tax write-offs in terms of piracy? If a company decides it'll never air a show again, what claim of ownership do they still have to prevent pirates from spreading the show for them?
I'm sure the studios still be considered the copyright owners, but I don't think there's any ethical reason why they could possibly sue you for releasing something thst they cannot ever release themselves for tax purposes. They binned their shows, so why should the law protect their copyright?
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.
> [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.
Damn, you had me excited for a second.
So there’s no chance I can get one of these from a small claims or administrative law judge? Like maybe even just a little one?
How do these writs interact with other wildlife laws in California? Do I have to check if the individual is a native Californian (thus considered native wildlife) or will the judge do that for me? Does that mean I can capture them in a safari if I build the double layered fence enclosures and get them certified for exotic animals?
I don't think writs of outlawry ever existed in American law. The Wikipedia article on it lists a bunch of English examples, but even then, they're all fairly old - like the later examples are in the 1800s.
Native species laws would not interact with writs of outlawry. Capturing outlaws and putting them in a safari would be construed as aiding and abetting, which might get you thrown in jail or outlawed yourself.
I suspect if you tried to convince an English court to actually apply a writ of outlawry to someone, they'd write a scathing and condemning response to your request to have someone Purge'd by the small claims court. If you're absolutely itching to see what happens when someone tries to invoke an ancient and unrecognized function of the legal system, then perhaps you might want to watch this video, in which a lawyer reads and explains a legal filing in Iowa that petitions for trial by combat: https://www.youtube.com/watch?v=LMT9pyilkwA
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.
Well, yes and no. If they reasonably believe they can make future revenue from it, it would be dishonest (and illegal) to value it at $0. I have no doubt that they are playing funny accounting games, but they have to play within the rules set by the IRS.
Dishonest isn’t what’s important. What’s important is legal and generally accepted and allowed accounting principles.
Which I’m pretty sure they are following since they are required to follow these and are audited and checked up on by the SEC and others.
But yeah, everyone is doing as funny accounting as possible. That’s why we have laws and rules to specify what’s allowed. And it would be truly insane to talk about this on investor calls and whatnot if it was illegal.
It's only an asset if viewers can see it. If they never show it, and never put it on media, it's not an asset and has zero value for tax purposes. So poof Westworld disappears and is no longer an asset.
It’s an asset with zero value. They still own it and retain all rights, they just think it’s worth $0.
This is very important for tax purposes as if they ever sell it then they will pay taxes on the full amount sold. If they had a value on books then they would pay the difference of the sales price vs the value on books.
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.
The thing is people learn and if streaming sucks they will just stop watching all together eventually. the algorithms probably don't predict that kind of behavior.
The streaming boom was what, the last decade? Whenever Netflix started spending on House of Cards? Billions spent on prestige TV shows to acquire market share and they all have seemingly no cultural relevance at all. None will be remembered or cherished 10+ years from now I think. Pretty insane.
even the ones that did have cultural relevance (like game of thrones or house of cards) have been pretty well "culturally liquidated" at this point. ain't nobody going back for a rewatch of game of thrones, or at least not past about season 5.
it's funny, a couple years before the show was finished (during the first time when they stalled out for a year) my sister gave me a box set of the blu-rays, at first I was a little bummed because I'd inevitably end up with a couple mismatched DVDs/not in the box set, but it turns out that stallout was also the point where the show started imploding.
I like to joke that after she gave me the set they never finished the show, haha what are the odds!? /s
My guess is that it's only going to get worse as each streaming service builds up their exclusive library.
As prices and interest rates go up, people will become more concerned about getting value for their money. Having 5 different streaming services will be an increasingly difficult sell.
> "viewership is a lot lower than people think and much less correlated with show quality"
That doesn't surprise me. Many are probably just turning on the TV due old habits, and keep it on in the background while staring at their phones.
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 article phrased it sloppily. I think what’s happening is that the studios write off the cost of the production as a loss and they can only do that if they don’t have them available to stream where they could in theory generate revenue in the future. The phrase about “the company’s value” is just sloppy/mistaken here.
The reason it makes sense for the studios to remove these shows for the minimal benefit represented by a lowered tax burden is that the shows generate shockingly little viewership let alone revenue. The mechanism for the relationship between those things is pretty fuzzy in a subscription-based world in the first place, Did a single viewer signup for Netflix or decide not to cancel their subscription because of The Irishman, for example? That movie cost Netflix something upwards of $160 million. It made $8 million in its theatrical release. Is there any world where the remaining cost was made up for by new or retained streaming customers? I highly doubt it.
This is why the whole streaming industry is moving to ad-supported and low cost reality content. And why the services are fighting the WGA demands to release streaming viewership numbers as part of paying writers residuals. It’s not the cost of the residuals. It’s the numbers. If streaming viewership numbers were public Netflix stock would go to 0 the next day.
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.
The economic logic of streaming never changed, it's just that it never made sense. All of the decision making for what shows get made require, at a minimum, some kind of attribution for what people actually want to see, and remuneration commensurate with that attribution. That attribution and remuneration also needs to be transparent so that everyone involved in the production can negotiate their value.
In movies, the attribution was ticket sales, later home video rentals and sales. TV was attributed with Nielsen numbers and ad spend. Streaming doesn't work this way: they don't sell ads[0], and they don't charge per view, they just charge a flat fee. How that flat fee gets remunerated to the producers of the shows and movies on their platform is a complicated mess. Attribution could be done with view counts, except streaming services have been very notoriously cagey with those numbers.
In fact, part of the reason why SAG-AFTRA is getting stonewalled on streaming is that nobody in the industry wants those numbers to be public.
What happens if you don't get attribution is that the actual creative work gets devalued. You can see this in the wording that the streaming services use: they no longer show movies or TV shows, but "content" - i.e. entertainment slurry. The value of their service is not in the creative work it can provide to you but the delivery mechanism used to get it there. It's a weird parallel to the net neutrality arguments of yesterdecade, where ISPs didn't want to be 'dumb pipes', but instead actively managing the traffic of their users. And to be clear, streaming services do a lot of active management.
I suspect that if SAG-AFTRA wins, a lot of really embarrassing reports will come out suggesting that all these streaming exclusive shows were actually pulling in terrible numbers and that streaming is not nearly as much of a growth market as people thought.
I think the streaming accounting isn’t as directly attributable so it probably means that costs are allocated over long periods because the single show is a very small percentage of the overall library.
So you spend $5B on shows and lump them into your library and some are watched and some aren’t, but they all pay out sort of the same. So you amortize that $5B equally over the whole schedule.
By removing shows you think won’t get you viewers you amortize the whole cost immediately.
But in the olden days revenue was more clearly attributed. So if you payed $5B for 100 shows each and the costs were equal (not really but let’s say) then each show has $50M in costs. You can run them all and when you don’t sell ads then you know they suck and can close those ones down. There’s no risk to run and see because you have revenue for each show.
And with old cable, shows paid out based on plays. So you could just not play those old shows.
But with streaming, just to have them available for streaming, even if no one views them, they make revenue for tax purposes.
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.
In their list of examples of historical cancellations-before-airing, they missed one of the most baffling. "Heil Honey I'm Home!" was a 1990 British sitcom, stylistically parodying 1970s US sitcoms (over-the-top canned laughter, applause whenever characters enter the room, etc), about Adolf Hitler and Eva Braun as a suburban couple, along with their Jewish neighbours. Somehow, eight episodes of this were made (though not shown), and a pilot was actually _screened_, by a proper company (one of the predecessor companies to what's now Sky).
It's very difficult to understand how anyone thought this was a reasonable thing to make.
Oh, sure, this _can_ work (particularly as a throwaway joke, as in Bottom - "Any relation?" "Yes!"). However, in the case of the above show, it... didn't. The pilot's available on Youtube, or at least used to be. It is Not Good.
Hitler in sitcoms is a bit like brain surgery. When done carefully, judiciously, sparingly, by highly skilled professionals, it can work well, but the haphazard amateur approach is quite undesirable.
"...2021’s Ultimate Slip ’N Slide was cancelled after the crew all came down with a highly infectious variant of explosive diarrhoea that can be spread through tainted water."
You know, if they had worked this properly, the delay/shutdown could have just stoked interest, and they would have ended up with a much bigger audience. On the other hand, if the people involved aren't willing to return, that's understandable.
I’d have said ´ book´ instead, but IP and the associated business idea seems to be the new normal for culture. I find it a bit sad.