Where do you draw the line? If an artist pays a model and paints her, is the artist to be prohibited from destroying the painting because it sucks, and because the model wants credit? What about a music producer who pays a studio band to record a song that turns out to be terrible -- is the producer prohibited from deleting it?
It's the tax write off for destruction that's fucked up, as @cnees says. Failures are part of the process of creation. If the producer says the market value of the work is zero, they've committed tax fraud if it's not.
The solution to their "attribution" problem was found by directors a long time ago when they didn't want their names on a film: it's directed by "Alan Smithee."
The line is at claiming a loss for tax purposes. Destroy the film if you like, but then you get no tax break.
There's a similarity with the "hobby loss rule". In order to be a valid business who can deduct business expenses like losses, you have to demonstrate that you have a "profit intent". That means that you make at least an attempt to turn a profit on your work. If you don't, it's considered a hobby and you don't get to deduct any expenses.
If Warner Bros is going to make movies just to delete them without even trying to sell them, that sounds like they're just indulging in a movie-making hobby rather than being in the movie business.
I like that idea. Hold an auction. If they still want to delete it, then the maximum deduction is (expenses - highest_bid), since clearly the studio is getting some value out of not releasing the film.
> That’s they spent 10 dollars to save 3 dollars in taxes?
Yes, exactly. You're forgetting Hollywood accounting. Spending 1 dollars to somebody, 9 dollars to your other companies and saving 3 dollars later is netting you 2 dollars.
Those other companies are often either incorporated in tax havens, or they have a ton of companies with various forms of tax breaks/incentives.
So where I live, for example, they get transferrable Georgia tax credits during the making of the film. Doesn't matter if you lose money, go bankrupt, etc.
It's based on expenses.
Because they are transferrable, they sell the tax credits (They sell for 80-90 cents on the dollar, so buying them lowers the cost of paying your taxes).
So to your middle point, they can in fact, pay no taxes but end up with plenty of tax credits to sell.
Before you ask, earning state tax credits is not federally taxable - it is treated as a reduction in your state tax liability, not as income to the companies that earn them.
They're not real losses. They could sell the movie. They could release it. They're deliberately forgoing those options and deleting it. You don't have a loss until you attempt to generate revenue and find that the revenue is less than your expenses. If you just throw your product away, that's not a loss.
Ultimately we write tax policy for the benefit of society, not for Warner Bros. In theory, we could write tax law so that it made financial sense for a factory to produce widgets and send them directly into an incinerator, because they could claim this as a "loss" and offset profits from other activities. But we shouldn't have a tax law that does that, because that's a huge waste of society's resources (materials for the widgets, fuel for the incinerator, people's time and labor). We could use those resources to do something more productive and tax laws should encourage companies to do productive things that improve the world, not spin their wheels for imaginary losses.
If you deliberately burn down your house and try to collect insurance on it, we call that insurance fraud. If you deliberately destroy your product and try to claim a tax loss on it, that should be fraud too.
>They're deliberately forgoing those options and deleting it. You don't have a loss until you attempt to generate revenue and find that the revenue is less than your expenses. If you just throw your product away, that's not a loss.
That is exactly how it works. You already spent X on an asset. If you throw the asset away, then you just have deductible expenses.
Same for the widget factory. You can deduct the material and factory expense of making of making defective widgets. If you trash them, you write down the value of your assets.
>But we shouldn't have a tax law that does that, because that's a huge waste of society's resources (materials for the widgets, fuel for the incinerator, people's time and labor).
This is the crux of things. Those arent society's resources, and never were. They are resources of the warner Bros and the widget factory.
Tax law isnt and shouldn't be about forcing people to do what you want. If someone wants to waste their time and resources, that is their choice.
It seems like this whole thread is people angry that they dont own the property of others, and get to control them.
Nobody is stopping them from wasting their time and resources. They are free to waste them as much as they want. It's just not a tax-deductible business expense to do so. There is a difference between "we won't allow you to do something" vs. "we won't subsidize you to do something". It's one thing to want to waste your resources, it's another thing to demand that everyone else pay you to do so.
What's to stop the CEO from building a mansion with the company's resources and selling it to himself for $1? Then having the company write it off as a loss? Oops! It was just a bad business decision and the company lost money. Oh well! We can't stop them from wasting their resources if they want to!
Fundamental to the whole premise of taxes is that they are applied to net profit. If a company spends $1 to make $10, they get taxed on $9. If they spend $8 to make $10, they get taxed on $2.
Nobody is giving warner bros money. They arent getting a cash tax refund. They just spent more money and made less profit. If they wanted to make zero profit, and pay zero taxes, that is their choice!
If a commpany wants to sell houses at a loss, that is legal, and happens all the time. If they are self dealing, the shareholders could have an issue with it, or the IRS if the CEO doesn't report it.
Guess what, Companies DO give CEOs many millions of dollars of salary and stock. Every bit of that is tax deductible expense for the company.
>Oh well! We can't stop them from wasting their resources if they want to!
It is literally none of your business because they aren't your resources! It is like complaining your neighbors have fun on Sunday instead of working and paying more taxes.
> Fundamental to the whole premise of taxes is that they are applied to net profit. If a company spends $1 to make $10, they get taxed on $9. If they spend $8 to make $10, they get taxed on $2.
Yes, the key word there is net profit, and the ways to calculate net profit for tax purposes are prescribed by law. Not every single penny a company spends is automatically a deductible business expense. Some things are, some things partially are, some have to be amortized over time, some are not deductible at all. There's thousands of pages of tax law delineating this and it is not in the slightest without precedent to declare a particular expense non-deductible.
So there is a moral argument for what an ideal world should be like, and legal argument for what the rules are.
From the moral perspective, it is clear that WB clearly had real expenses. They spent money, bought rights, and tons of workers were paid good money.
Now you pivot to the legal argument. The current law clearly supports what Warner Bros is doing, so that doesnt help you either.
like I said before. It seems like this entire thing boils down to a control issue. you dont like how WB is running their company and doing with their property.
It isnt you business, both figuratively and literally.
> From the moral perspective, it is clear that WB clearly had real expenses. They spent money, bought rights, and tons of workers were paid good money.
Yes, they had expenses. You seem to have a very very rudimentary understanding of accounting and have conflated expenses with losses. An expense is not a loss. If you buy a factory for $1 million, you didn't lose $1 million dollars. You now have an asset, a factory, that is worth approximately $1 million. You don't get to go to the IRS and say "I lost $1 million dollars this year because I bought a factory". The IRS will tell you, no you didn't. You still have your $1 million, it's just now in the form of a factory instead of cash.
Likewise, WB spent money and created an asset, a film. That film has a market value. Maybe they don't like the film, but that doesn't change the reality that it's worth something. We know approximately how much it's worth because several other companies made offers to buy it.
Instead WB wants to lie and say it isn't worth anything. So, no I don't like how they are running their company when they want to lie and cheat to get out of paying the taxes they owe. You can't buy a factory for $1 million and then turn around and say "yeah, it's not worth anything anymore", and you shouldn't be able to say a movie isn't worth anything when it very clearly is. We do not gain anything by enabling companies or anyone to deny reality.
No it’s not. If someone offered $10 million for the movie and they chose to destroy it instead, then destroying the movie had a value > $10 million to them because they chose that over the money. If it were worth zero, then why wouldn’t they take $10 million in exchange for something they believe is worth $0?
I already answered that. Because the value of doing so is greater than $10 million. Hence, the value of the movie is NOT $0, even when it is deleted they still retain the exclusive rights and that has value. So to say the value is $0 is a lie. When the movie studio claims “Oh boo hoo our movie is worth $0 we need to write it all off” They are lying and the IRS should call it for the bullshit it is and make them take a smaller reduction for the expenses minus the residual value of the movie.
I think you fundamentally misunderstand what's being written down to zero. The movie is being written down to zero, not all of these extended rights and IP you're talking about.
That's how a company can lose more money on a $10 million sale then deleting it. If you have to include more than $10 worth of IP or obligations with the sale is a negative return. Alternatively, selling a movie could cost you more than $10 million in losses on a different movie.
These are all legitimate reasons to destroy instead of sell it. Avoiding costs are fundamentally different than increased Revenue for the purpose of taxes, even if they're monetary value is the same. Cost avoidance is not taxable value creation.
I can save $20 in laundry fees by not shitting in my bed, but I don't pay taxes on the value I saved. This is for two reasons. First, I'm no richer off after not shitting in my bed then I was before. Second, the alternative is I would have to pay taxes on every second of every day I chose not to shit in my bed.
I don't think that any retained rights are being valued at zero, besides the distribution rights to a a movie that doesn't exist.
If they keep the rights to develop a script, for example, that would have some tiny residual value.
They’re not avoiding any costs by selling the movie. They would just have a smaller loss than if they didn’t sell it. They don’t have to sell the entire rights to the underlying IP, just the one movie. Nobody is taxing anyone for avoiding losses.
You clearly have some kind of philosophical objection to taxes in general and a very confused notion that companies are allowed to just deduct anything they want without any restrictions and that is not how this works in the slightest.
This isn’t complicated. If you make a movie and release it and nobody goes to see, ok you lost money, write it off. If you make a movie and it’s not working out and you sell the rights to someone else to cut your losses, ok you lost money, write it off. If you make a movie and then you’re like “jk lol I just want tax deductionz plz.” No, screw you. You’re just playing games with the tax system instead of making movies, so fuck off.
Individuals certainly aren't taxed on their net profit, so I don't see how that could be "fundamental to the whole premise". If the tax code has effects that are noxious to the public, it's a public matter to revise the tax code.
Maybe at some size corporations _should_ become public entities to avoid dragon disease and only those corporations having the means of production. After all, they did grow enormously big by consuming public resources and labor.
So these companies exist in a different reality where they draw their resources and labor from somewhere else? Where else would labor come from if not the public?
Neither are the things in question, the resources for movie making are not public, crew isn't public, actors aren't public. It's not a public resource in any way.
Taxation is literally and entirely about wresting resources from individuals to serve the larger needs of a society that individuals are unlikely to address.
It's literally there to serve infrastructure and rebalancing needs without which the individuals end up sitting in ruined playpens, drowning in their own filth and unable to do commerce with anybody else.
Never mind about when the 'individual' is a corporate entity that rightly or wrongly thinks itself obligated to chase the most ruinous short-term strategy it can find, as a matter of fiduciary duty. That just exaggerates what already happens with ambitious human individuals.
Tax law is only and solely about forcing people to do what you want, starting with the very concept that people will never want long term thinking or cooperation in any significant way. (in fact, people will want cooperation, but sociopaths, human or corporate, will tend to stomp all over the cooperation-wanting people, wreck their stuff, then want a tax write-off because the stuff they wrecked is now broken)
That is easy. If they claim the contract-encumbered work is worth 0 dollars for tax reasons, then anybody (who does not intend to commit breach of contract) should be allowed to buy the fully encumbered work for 0 dollars and the original owner can take the loss/write-off.
That should get like the central 90% of cases. Probably need some fine-tuning to get the rest and reduce opportunities for abuse (maybe some minimums, deposits for legally complex products, etc.), but the core concept should be sufficient to develop a robust solution.
I create multiple movies, one works well and I think to myself I pay too much taxes this year. I sell the next one for 0 dollars to my cousin so I can write it off immediately. If the movie works, money stays in the family, if it doesn't I already got deductions and it was a no-op for my cousin.
Oh no, you are presenting a simple problem that would take you, cryptonym, all of 30 seconds to figure out a solution to since you are obviously smart enough to think things through. In fact, you could even cheat by looking at the other responder who responded before you suggesting a public auction which is what I was alluding to by saying "anybody" as in you must allow all people (within reason) to compete to purchase, not choose a specific person.
Can you try to spend 30 seconds countering whatever problems you came up with and only then propose non-trivial problems? I promise I gave the idea more than 30 seconds of thought and did think of the obvious problems, it is just tiring to exhaustively list out and pedantically enumerate a complete proposal instantiated for this specific domain. That is also why I explicitly said it solves the central 90% and would require tuning and mechanisms to reduce abuse since I do, in fact, know the proposal is incomplete, just that the problems I am aware of with this class of solution generally appear to be quite amenable to solutions that should be at least as robust as the status quo.
Many people believe that banning disliked things is not what laws are for. If it was you’d see the powerful banning everything they didn’t like, making the law tyranny, and the powerless banning everything they didn’t like, and you get the French Revolution.
This is again "slippery slope" thinking. Just because it's possible to go to an extreme - and this is possible in everything humans do - that doesn't mean we don't go somewhere along the line.
We have laws to ban poisons from food, but we don't ban junk food altogether. We have laws to cap the speed limit, but not at 30mph on a highway - etc etc. We pick a spot on the spectrum.
> Many people believe that banning disliked things is not what laws are for
Surely some laws are for exactly that? Like: murder, rape, theft, etc?
I'm taking your statement a bit out of context, and I don't have much involvement in this overall issue being discussed, but that statement on its own seems pretty off to me.
Those things being disliked doesn't mean a law shouldn't be made about them. They are much worse than merely being disliked, which is why there are laws.
I feel like that just moves the goalposts. Instead of deciding what should be law or not, now we are deciding what constitutes "mere dislike" vs "something worse."
It seems to related or possibly even identical to: what things should the government regulate vs what things should be left unregulated (or left to be regulated by a more local government).
The founders of the US were very interested in deciding what are the responsibilities of the federal government vs what will be left up to the states to decide. They wrote entire essay series on the topic.
I once fell and hit my head, sliced it right open. It was traumatic. Not any of the aftermath like having to go to the hospital or so on. Just my head being hit. I could have died. I could have died. It took me days to process this. There was something in my head for days preventing me from thinking properly, from feeling emotions properly. There was no concussion, no actual cranial damage. It was all psychological trauma.
Imagine if it wasn't an isolated event but if you knew there's someone out to get you, and who continues to be a risk to your well-being. Say, domestic abuse. SA. Something like that.
Try saying there's nowhere to draw the line between that and "mere dislike".
No one should have to suffer that. That's why there are laws against things like rape and murder.
I didn't mean to say there's nowhere to draw a line.
I meant to say that the question of where to draw the line is open to discussion, in both cases.
To be honest, I don't entirely understand your example, since in the first case you're talking about an accident, and we can't exactly pass a law saying "accidents are not allowed." But in the second case, you can pass a law against SA and such. So in my mind, the difference there is in realistic enforcement options, not on the merits themselves.
If we could somehow magically pass a meaningful law against accidents, then maybe we'd consider it. Accidents are things that just about everybody dislikes, after all. Of course, we can't meaningfully make that law, but only for mere technical reasons, not because it's undesirable.
In that imagined world, I could see people saying: "no one should have to suffer accidents" and using that as rationale for supporting the law. You may not agree with them, and I may not either. But that was my point — where to draw the line is up for discussion.
> I don't entirely understand your example, since in the first case you're talking about an accident
I was using it as an example of trauma, that's all. Traumatizing people is bad, right? Sure, you can't really make accidents against the law, but you can stop people from causing trauma intentionally.
> it was you’d see the powerful banning everything they didn’t like
As far as I can see they are a good way to there, so yes? To the extent possible the powerfull is banning or attempting to ban everythjng they don’t like.
> the powerless banning everything they didn’t like
If the powerless bans everything they didn’t like then they are not powerless. That is the definition of power.
> A film takes hundreds of people to create - how does it feel for them to just have years of their lives fall into the void?
Very few of those hundreds of people care about the project. Maybe the producer and/or director cares, and maybe the writer. There's a funny shirt that crew members wear with the phrase "I'm just crew. I don't have to know what it's about" that sums up exactly how much they care. Even the actors don't care, and a lot will admit they never even see the finished project.
Essentially, the majority of people are just hired hands.
With an attitude like that you will get your lunch eaten so fast, by people who are suffering losses of various sorts in order to get to make their creation their way, the way it's supposed to be made.
That's universal. I don't care whether it's zombie movies or pop music or any sort of thing you think hollow and worthless.
I don't know what industry you're in (tech?) but in the glamour professions where people compete savagely to get to where they're not losing money at the game, those 'hired hands' may be scornful of the director, but it's because they've got their own script that's not being picked up, and their suggestions aren't being followed. And the actor refuses to see the final film because he will lose his mind watching every little fumble of a line, imagining how he should have done it. Surviving this is the inner game of these creative industries.
The times when a crew wears 'I'm just crew and don't care about anything' are sarcasm, protest against a fanatical director who is making them depart from their usual workmanlike habits that they think are how you make a great film that is perfectly fine. They're not advocating for bad so much as they're insisting that they're already the apex of good, that the director is insane and unreasonable. (which can be part of the job description, for advancing the state of the art…)
Nobody who is content to be a hired hand stays in such an industry. You can make more pumping gas, half the time.
Have you ever worked on a film shoot? On longer shoots, the crew probably won't be the same on the last day as it was on the first day. Some people work on projects to fill in the gaps until another project starts. Crews bounce around from gig to gig. Some crews are hired because they are local to the area and it fills quotas for the production to receive some form of incentive.
If you think the PA hired to run errands gives a crap about the project, you are mistaken. Or the construction crew building the set feels the same way the director/producer does, or the set dressers, or the people working the payroll for the project, or any of the myriad of people that work on a project without ever seeing the set, you're just not very familiar with the process
I don't know what industry you're in, but you've seem to have a different opinion of what working a production is like than what actually happens.
> I'm sure it is a bummer for those people, but they were paid to do a job, and don't own the film
That's a really sad viewpoint, believing that being paid to do a job is the only thing that matters, and that it compensates everything about what that job means and how it impacts the world. It's the same thinking justifying "if I don't do this terrible thing at work, someone else will do it for the same money", which is anything but decent.
There's such thing as pride in what one does; double so in artistic endeavours, where the only value is in being seen by spectators.
How about a world that is awesome and also doesn't pay off corporations to destroy the best work of irreplaceable, dedicated humans?
In all seriousness, why pay them to do that? What possible benefit is there of bribing the corporation to be so wasteful and irresponsible? If the thing is made, what possible justification can there be for this wanton entropy?
Why do that, ever? Signs (that the coyote holds up as the anvil's shadow covers him) indicate that lots of people would enjoy the work, that lots of other people have done. What possible excuse can there ever be for doing all that and then un-making it? It's nihilistic, madness.
Should this apply to everything? Someone buys a cupcake. Instead of eating it they throw it away. Is the person that made the cupcake owed something more than the $ they already got for it because the cupcake was not eaten and so their time fell into the void?
How about all the people that built a house or car that a movie production destroys? (less often now that everything is CGI).
Also, if the movie sucks, it often reflects badly on all of those people. They try to get work on a new movie, people look at the old movie, see it sucks, don't hire them.
If I had a cupcake shop, someone came in to buy a cupcake, and then immediately threw it on the floor - I'd be aghast. Regular people take pride in their work. Market abstractions of "it's yours now" don't approximate how people actually feel about the objects they produce. People don't want to be alienated from their labor!
In this case someone made a cupcake. Instead of selling it to potential customers, they destroy the cupcake and claim it was a tax-deductible expense
> Also, if the movie sucks, it often reflects badly on all of those people. They try to get work on a new movie, people look at the old movie, see it sucks, don't hire them.
> Instead of selling it to potential customers, they destroy the cupcake and claim it was a tax-deductible expense
But isn’t that thing actually common practice? If a bakery accidentaly ruins a batch of cupcakes they toss them to the bin. And of course the ingredients and labour involved in those cupcakes will count as an expense. They had costs (some flour, some eggs, some employee time) and they had zero income from those burnt cupcakes (or even worse, costs associated with cleanup and disposal!).
When you put it this way it sounds quite ordinary. Do you think I should take away some different message from your analogy?
The failure in this analogy is that it's not the baker tossing away the cupcakes, it's a tax accountant in the background.
A baker creates a batch of cupcakes. They're about to sell this batch to a customer, but then the tax accountant comes in and tells them to toss the batch because the customer might not like them. So the batch gets binned, despite neither the customer or the tax accountant having tasted any cupcakes.
No, but the person buying the cupcake shouldn't be allowed to count it as a loss for their taxes if they made a plan to throw the cupcake into the void when they could have easily sold it.
> A film takes hundreds of people to create - how does it feel for them to just have years of their lives fall into the void?
Were they not paid for their labor? It might not feel great, but I struggle to see a moral problem; if a project or even whole company I used to work on/at goes under I might have feelings about it but in the end I shrug and move on (and this is not a hypothetical for me).
I don't think they need to claim that "no one would pay even $1 for the rights to the movie in its current state" but rather the lesser "in our judgment, the best thing for us as a profit-seeking studio is for us to not release this movie".
Damage to the Batgirl franchise brand, damage to the studio reputation, damage to the relationship with the stars, legal fees, etc. could all be reasonably factored in to the studio's judgment to scrap the current WIP.
If they irretrievably destroy it, its value becomes zero. That's the essence of being able to claim the tax loss (to "finally determine the value").
It's no different from having a stock position in a company that's in limbo. You can't claim the tax loss and keep the position. You have to get the clearinghouse to take the position for $0 in order to claim the loss.
The studio's position is that they've already incurred the loss; now they're taking the action necessary to recognize the loss on their taxes.
I can't deliberately set fire to the money in my bank account and then write that off as a loss.
The movie is an asset, it has some value, the way to determine that value is to make a good faith effort to sell it (auction or broker of some sort) and if it sells for less than you have spent making it, then you can write off the difference as a loss.
Deliberately destroying the asset and then writing off the entire amount you spent on it is probably tax fraud.
> The movie is an asset, it has some value, the way to determine that value is to make a good faith effort to sell it (auction or broker of some sort) and if it sells for less than you have spent making it, then you can write off the difference as a loss.
Except you can't simply sell this movie. Releasing it might lead to reputational damage if the movie is not up to par (as many sister comments have pointed out) and selling it will be even worse, as whoever buys it is now entangled with your IP in addition to possibly tarnishing your reputation.
If ycombinator hires 3 engineers to rewrite hacker news 2.0, pays them for a year, writes off their salary as an expense, and then later decides that actually 2.0 is way worse than what’s currently out and trashes it, should ycombinator not be allowed to write off the investment?
Do you think that every failed A/B test should be not a valid business expense? Only winning tests are valid business expenses?
If an employee is paid for a sick day, PTO, or parental leave, or to attend a team-building event: what have they created with that money? The government must not allow such giveaways from the tax coffers!
All kinds of individual activities are permitted in profit-seeking businesses and not all of them are subject to “in order to deduct this, you have to have omniscient judgment and every individual action must locally optimize your business”.
If a tax benefit relies on destroying an asset, to claim the benefit it should be necessary to demonstrate that you've made a good faith effort to sell it for fair market value. Courts supervise this kind of thing in bankruptcies all the time. Seems reasonable to put a high (multi-million) floor on the write-off before this kicks in.
That's not how this works though, right? They're not saying "we think this movie was worth $100 million because that's what someone offered us, so we're going to write off $100 million.", they're saying "We spent $100 million on making this, and we think there's no way to recoup the expenses by releasing it, so we're writing off the $100 million we already spent on it." The "we already spent that money" is the key part here.
If you're running "Loot Boxes Unlimited" and your business is taking off like a rocket and you invest $300 million in a new HQ, and then just as your finishing up, congress passes a law making loot boxes illegal and you're no longer going to be able to afford moving into that new HQ, you get to write off those expenses just the same. You must offset them by any gains you get from any part of it you do sell off, but you're under no obligation to sell the building, you can just keep it on the books depreciating slowly. Most companies will try to sell what they can to recoup some of those losses, because recouping any of the loss tends to be a better financial option than the write off for that same amount. But selling a building doesn't have the same legal and contractual entanglements that selling a movie might have.
Additionally a building is still useful even if you can't use it for what it was originally intended for. But who is going to buy a movie they can't release? You'd need some company with enough money to buy a produced movie (even if at a discount) who also thinks they could release it and make enough money on it to cover their costs AND who will also be willing to take on all the contractual obligations like licensing and residuals. And chances are in addition to all of that, they also have to be willing to license the various properties that the movie studio already owns (or worse, re-negotiate the rights from the original holders that the studio had already previously negotiated).
It's also important to remember that those expenses would have been written off whether or not the movie was released. My understanding here is the only difference between releasing and not releasing the movie is whether that write off occurs over 3-5 years, or all in this year
If they spent $100M and get an asset out that is worth $30M then they have a loss of $70M. Lighting the $30M shouldn't count as additional loss that they can write off, IMO.
I think what actually happened is that they paid $100m to make the movie. Later they determined that releasing it would be detrimental to the success or value of the company (e.g. because of reputational damage).
To avoid causing this damage they deleted the movie making sure it doesn't get out and wrote off the asset. The act of deleting the movie is not what made it worthless.
If executives had really deleted the movie in spite of believing that releasing or selling it would have a net positive value of $30m, then it could still be written off.
It's the same as employees stealing inventory or vandalising an office. The company could then fire and sue those employees, but that doesn't change the fact that the asset is now worth zero for accounting purposes.
No, the specific reasoning people are mentioning here over and over again is that we, as a people, should not subsidize businesses lighting their property on fire.
If they want to completely toss out the movie then they can. But it's insane to think the government should pay them for doing so because they say it has no value.
It's not subsidizing, government isn't paying the studio. It's just that the studio will pay less taxes because the tax is based on profit and the studio had a loss.
If you decide to rebuild your HQ, you may well have to destroy the old one, even if someone would have bought it from you.
When a developer buys a property, razes it, and builds a new building there, all those costs and actions are permitted.
I find it amusing that a studio, who is almost surely getting professional tax advice with full knowledge of the facts and circumstances, is having the legality of the proposed course of action not just questioned but outright confidently asserted as contrary to the law based on an article that’s light on details.
> is having the legality of the proposed course of action not just questioned but outright confidently asserted as contrary to the law based on an article that’s light on details.
i'm confused, is the article saying that its illegal, or is it saying that it ought to be illegal? i for one agree with that attitude, or at the very least believe that a studio shouldnt be able to get a tax writeoff for just sending a completed film to the void.
>If you destroyed it, that was your choice, but you didn't thereby incur a loss of $30M. Any more than if you had dynamited your HQ building.
Where's the line between "dynamited your HQ building" and "investing money into FTX"? Both are intentional activities that leads to total loss of value, but I think most people would agree that the latter is tax deductible.
Did your investment of money in FTX cause it to fail? Because that's what destroying a building is: an intentional choice by a company to destroy an asset that it owns.
What about "destroying all copies of the movie except one, then moving that onto a sd card you got off aliexpress"? Sure, that's a pretty dumb thing to do, but arguably so was investing into FTX.
There are legal definitions of negligence. IANAL, but I'd imagine that what you're describing would meet those definitions.
Investment decisions aren't as easy to diagnose because there's a chance of upside. If FTX didn't end up as a scam, you stand to gain a LOT of money. The same can't be said of putting your only copy of a movie on a crappy SD card.
In addition, you could make the argument that the chances of FTX being a scam were priced in. That is, you're buying stock that accounts for the scam chances.
> Perhaps not prohibited. But we could make it so they lose all IP rights.
I'm not sure how that would work. Suppose I make two draft comics of my original character ExampleMan. One features a dark brooding morally ambiguous anti-hero, and the other is a wholesome family character.
Are you saying if I destroy one draft and publish the other, the character comes partially or wholly into the public domain? Or that I am prohibited from claiming the time and money used to make one of the drafts as the legitimate business expense?
Would same logic also apply to a patents of a company that creates 10 different prototype engine designs, and decides to only bring one of them to market?
Good points. Normally, your discarded drafts are just written off as the cost of creating the keeper. It's not worth anyone's time to put them all out for bid.
However, for a really big project, there's a "salvage value" or "scrap value." It's not zero.
You can't have your cake and eat it. If you want to use copyright protection, you should only be able to do so after making your work public.
If you then destroy your original work or refuse to let other people use it on reasonable terms, you can't sue people for copyright infringement when they use it.
> Would same logic also apply to a patents of a company that creates 10 different prototype engine designs, and decides to only bring one of them to market?
I think you shouldn't be able to use patent protection unless you also make your design available on the market for a reasonable fee.
Do those 10 engines have ten different patents? Then definitely take away 9 of those patents if they won't use them or FRAND license them.
If all the prototypes were for the same patent, there's no issue.
For the draft comics, I think you could pretty well argue those are part of the same work. And I'd be okay excluding projects under a certain size from the rule.
To take it to the primitive level, the thing in your grasp is in your grasp and not in else's. "Intellectual" property is really not like that at all altho we spend tremendously on legal artifice and violent enforcement to make it so.
Many animals are extremely social - they'll attack you for taking the group's resources, they won't necessarily have any individual resources. At the extreme end you have things like ants with no individuality, but you also have social mammals that are more group-oriented than individual-oriented.
If you look at anthropology pre-modern humans were extremely family/tribe oriented. Resources were generally the property of the tribe as a whole. I don't think that the modern understanding of personal property would translate well to someone from such a culture, which makes me sceptical of the idea that personal property is an innate element of human nature.
A tax write off is intended to help you when you suffer a loss. In this case, a company does not suffer a loss but inflicts it on itself by destroying its asset without even trying to liqudate it properly.
I'm a bit confused about the accounting details as well, but I think the key bit is that a scrapped movie becomes an immediate tax write-off, whereas a released move must depreciate its costs over time.
By writing the movie off entirely, Warner Brothers foregoes the marginal profit from releasing the movie (income less distribution costs, considering the movie itself to be a sunk cost), but in return it can claim the tax benefits now rather than over time. At some implied internal interest rate (where a dollar today is worth more than a dollar next year), that makes sense.
Unless there's some detail that I've missed in the above, Warner Brothers seems very desperate to bolster its current accounting profits at the expense of longer-term financial health.
I don't believe that the artist's wishes should always win out. We would have lost Kafka if his wishes were followed.
I don't believe copyright should always win out. We nearly lost Nosferatu.
As for ownership? We lost a wonderful portrait of Churchill because it displeased his wife.
There are countless lost works - late Sibelius, a ton of Brahms, Bacon and Monet paintings. History judges such things severely.
Unless you believe in a specific variant of life-after-death then an artist's wishes only carry moral weight whilst they are still around. Destruction has effects that last forever.
> The solution to their "attribution" problem was found by directors a long time ago when they didn't want their names on a film: it's directed by "Alan Smithee."
That’s not exactly how that works. A director can’t just decide to take their name off a film because they don’t like it. They have to petition the DGA for permission to do so, which is only granted in the event that the director can show that the producers took creative control away from the director and substantially changed the product from the director’s creative vision as a result. In practice, this rarely happens, as the DGA is extremely reluctant to allow directors to take their names off of movies simply because they weren’t happy with how it turned out.
Also, “Alan Smithee” isn’t actually used as a pseudonym anymore, but that’s beside the point.
Your point, whether you realize it or not, is that Hollywood is heavily unionized. The contracts that all the talent sign specify who owns the final product, and what will happen to it if it's a bust.
So that's the real answer. The unions have to make this an issue. Or maybe they already have.
> It's the tax write off for destruction that's fucked up
How so? They aren’t selling it. So its value is $0.
If the artist burns the painting, its value is $0. Is it bad because the artist could have sold it and chose not to?
And it’s not fraud, because if the studio ever chooses to sell, they will pay taxes on 100% since they already deducted all expenses.
I’m not really sure what you’re arguing. What’s the alternative? The IRS forcing you sell at a liquidated value so you only deduct 90% instead of 100%?
I agree with your first paragraph, but my experience with the second is that I’ve always been offered it at that figure. (The insurance company is negotiating with you to buy the car from you. They may not want to present it in those terms, but that’s what’s going on. You own it; they have an obligation to you; in some cases, it’s advantageous to all sides for the insurance company to buy the wreckage from you. If they think they can get $X for salvage, it’s cheaper and easier to offer it to you for that; it ends storage fees, avoids transport and selling costs, and in most states avoids them paying sales tax to you on the salvage amount.)
Of course not. That’s implied by my agreement with GP’s first paragraph.
Whoever owns private property decides its disposition. Depending on what you mean by “you salvage the car”, either the car was never owned by the insurance (in which case they obviously can’t sell it for any price) or it is owned by them (in which case they still don’t have to sell their private property at all, nor to a $1 over-bidder, and not necessarily to the highest bidder).
The company's officers are obligated to be fiscally responsible. If they won't accept half a million dollars for something with negligible value, they're not being responsible.
The thing is that they claim it's value is X to the Tax Man.
Then someone says "I want to pay 1.1 * X for that" and they say "it's worth more" - what are the tax implications?
The same applies when they claim that X = 0. They're doing a disservice to their shareholders if they won't sell something worthless for money.
There's a celebrity president facing the courts for a similar play, the same thing was worthless when having to pay taxes for it and priceless when using it as collateral for a loan =)
Someone is saying "the way this works is wrong, it should work differently" and you're responding "that's not how this works" to that. How does that help?
On the flip side the artists and engineers in the Western Entertainment Industry dont complain about Tax subsidies, govt grants and advantages they have in terms of access to capital, cheap outsourced labour to do boring or dirty work etc. that artists and engineers sitting elsewhere somewhere else dont.
When the rest of the world looks at them, propped up by an extremely unequal playing field engineered by the financial class, there is nothing Fair to see.
Where do you draw the line? If someone buys the Mona Lisa and burns it for the tax credit, is the owner to be prohibited from doing so based on the public interest?
> If someone buys the Mona Lisa and burns it for the tax credit
This is not how taxes work.
If I buy the Mona Lisa for $100 and burn it for the tax credit. That would only yield me a $100 deduction so a savings of $46 in taxes (and I live in the most tax heavy portion of the US for purposes of my example).
So I would lose $54 in your example. Why would anyone do this?
How does that work when the film rights live in Ireland and the intellectual property lives in the Cayman Islands and your business has a well known catch phrase on for your creative accounting practices?[0]
Yes, explicitly! There are these things called "moral rights".
"The moral rights include the right of attribution, the right to have a work published anonymously or pseudonymously, and the right to the integrity of the work. The preserving of the integrity of the work allows the author to object to alteration, distortion, or mutilation of the work that is "prejudicial to the author's honor or reputation"."
I'm sure it applies even though Leonardo is long gone.
If I pay 25% marginal income tax and I make a profit of 200 million dollars, I get to keep 150 million. If instead I decide to buy the Mona Lisa for 200 million dollars, and burn it I walk away with nothing but the satisfaction of not have given one cent to the government. Please tell me how my evil mastermind plan to burn the Mona Lisa works anyway?
Buying the Mona Lisa for $200m is not at all the same thing as netting a $200m profit.
Better analogy: you buy a big museum collection that contains some lost Rembrandt paintings, widely regarded as his worst, but still considered valuable because it's Rembrandt. You think you might have a hard time selling them, so you look up their original purchase price and find that it was $1 million, so you burn them instead and claim a $1 million writeoff, for a guaranteed $250k decrease in taxes for essentially 0 additional cost, resulting in $250k of extra profit.
This example doesn’t work. You’d only be able to deduct your cost to buy them, not their potential value.
It only works if you pay $1M now and then years later burn them to offset a different $1M in income. But that would still be stupid as you’re better off selling them for $1M than burning.
I don’t think you’re thinking the math through properly.
Studios aren’t writing these off because they are stupid or scheming. They are writing them off because they can’t sell them.
I feel the Mona Lisa's destruction would be more valuable to culture than its continued existence. Imagine the headlines, the people with stories of having seen it in person, the conspiracy theories...
Does art belong to the artist or the public? I only ask because of things like the alterations to Star Wars by Lucas. It felt like he was modifying something that no longer belonged to him.
At the other end of the spectrum you have the Bobs who refuse any manipulation or sequels to Back to the Future and turned down Universal's offer of a 3D conversion of the movies, which I actually thought might be OK.
we must admit (and later on embrace) the digital possibilities we have. if the artist or model want it deleted they best make sure nobody copied it first else, in my opinion, they must convince every person holding a copy from voluntarily agreeing to destroy it.
nobody should have a right to force other persons to act against their own will even if they created some artifact they no longer fully control
Seems like a less controversial solution would be to allow the same tax write-off if the studio releases the film for free distribution (e.g. via the Internet Archive), either into the public domain, or under a license like Creative Commons Noncommercial if there's concern about implicitly allowing derivative works by competitors or similar.
I think the tax writeoff should only be available for doing something like that. It's insane that corporations failing at ventures is so incentivised that they'll fail on purpose, and we shouldn't be offering tax breaks for behavior that serves no public good
This kind of law is especially offensive in the context of rhetoric about social programs, wherein we create all sorts of onerous means-testing on the logic that someone, somewhere might actually be incentivized to use social services to ameliorate various forms of poverty and destitution
In both cases, there is a balancing act wherein allowing too many false positives can create perverse incentives, and allowing too many false negatives fails to accomplish what the policy set out to do. I think a massive corporation taking a loss for making something unpopular is not an outcome we should be trying to prevent with government programs at all, but we are consistently prioritizing it over preventing outcomes like homelessness
> It's insane that corporations failing at ventures is so incentivised that they'll fail on purpose, and we shouldn't be offering tax breaks for behavior that serves no public good
I believe the argument is that businesses would take less risks without the security provided by those tax write-offs. Presumably the increased tax revenue from businesses taking risks and having success outweighs the tax losses from risks taken, failed, then written off.
Revenue implication makes sense as a priority for a business, it should be considerably less of a priority for a government. The degree to which the tax code subsidizes whatever a business cares to try regardless of the outcome is already clearly more than adequate to give most industries massive lobbying budgets, so I don't think the economy is going to break if we stop doing it. Businesses are already significantly insulated against risks of various kinds, including in many cases criminal liability for risking people's lives. We don't need to be creating perverse incentives in the hopes of making them less risk-averse
Do tax write offs for corporations work differently than for people? What's the point of spending $90m just to reduce your taxable income by $90m? It's not like corporations have progressive tax brackets.
Or did they acquire the movie as part of the acquisition, and are now somehow able to claim a write-off for something they didn't actually spend any money on?
No it doesn't work differently and the framing of all of this in the media is terrible. No one goes into making a movie planning on writing it off. They made a movie and decided that it was actually not going to be something worth releasing / unable to recoup the expenses, so they're not releasing it. This happens all the time with movies at all sorts of various stages of production. It just so happened this movie was "finished" before the decision was made. If they'd done this 6 months earlier than they did before it was "finished" no one would care.
It doesn't make any sense to claim that, starting now, the expenses to release are higher than the revenue they would get.
Already-spent money doesn't matter because it's not coming back.
If they cancelled many months ago, the expenses to release would have been a much bigger number. That's why it wouldn't have gotten the same complaints.
> It doesn't make any sense to claim that, starting now, the expenses to release are higher than the revenue they would get.
Why not? Distribution isn't free. Contracts that specify payment on gross revenue aren't free. Just because the movie itself is manufactured doesn't mean there aren't still more expenses to be realized in release any more than just because your program compiles it means that your company can deploy it for no additional costs.
Distribution isn't free but it's pretty cheap for getting to sell tickets in major theaters.
And if it's that bad then why don't you sell to a streaming service for one million dollars? Then you only have to deliver a few files and nothing else.
Contracts based on revenue are fine in this situation, aren't they? If you only get moderately low revenue, then you don't pay much into them.
>Distribution isn't free but it's pretty cheap for getting to sell tickets in major theaters.
Last time I saw numbers on something like this, film advertising costs were generally assumed to be another 50-100% of the production costs. After all, those talk show appearances of all your stars don't come cheap. And your "major theaters" are going to insist on advertising. They're not going to block out precious screens and show times for a movie you're not going to advertise. And that's before we talk about actual physical media distribution, replacements for losses or damaged media, tracking and auditing your ticket sales and everything else that goes into getting eyeballs in front of screens turned into cash in your income bucket.
> And if it's that bad then why don't you sell to a streaming service for one million dollars? Then you only have to deliver a few files and nothing else.
On a multi-million dollar film, that's almost certainly less than the value of the tax write-off, and again may incur costs well and above any revenue. You'll need licensing contracts, lawyer time, accounting time, and again, all the various contractual obligations that kick in on release.
>Contracts based on revenue are fine in this situation, aren't they? If you only get moderately low revenue, then you don't pay much into them.
1) They can still make it impossible to recover enough of the expense costs to make releasing the film worthwhile. As a simplified example, if you spend $50 million making a film, spend $10 million distributing it, earn $15 million in gross revenue, and pay $7 million in gross revenue contracts, you're in the hole an additional $2 million, not counting all the expenses incurred tracking and paying on those contracts.
2) You still need to expect to make your expenses back, regardless. Again in the above example, say instead your gross revenue contracts are only $2 million. Great, you've earned $13 million, on an expenses budget of $60 million. Not even close to beginning to pay for the expenses incurred.
I'm not talking about advertising. Just distribution. If the theaters won't take it, then streaming services.
> that's almost certainly less than the value of the tax write-off
Please explain.
If the value drops to 1 million dollars, can't you write off the rest?
If you can't, then that is exactly the problem here, there's a flaw in tax law causing destruction.
> You'll need licensing contracts, lawyer time, accounting time, and again, all the various contractual obligations that kick in on release.
They already did 99% of the contracts they need.
> 1) They can still make it impossible to recover enough of the expense costs to make releasing the film worthwhile.
I already addressed this in the comment you replied to. Sell to a streaming service in that case. But I doubt it would make that little. Also that's a big percentage to not even be part of the distribution cost.
> 2) You still need to expect to make your expenses back, regardless. Again in the above example, say instead your gross revenue contracts are only $2 million. Great, you've earned $13 million, on an expenses budget of $60 million. Not even close to beginning to pay for the expenses incurred.
No you don't "need to" do the impossible.
You already spent the $60 million, and deleting the film won't make the money reappear.
Do you want to be $60M in the hole, or do you want to be $47M in the hole?
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So summary: If they think a theatrical release requires so many dollars it's still a waste, that's one thing (though I reserve skepticism). If they won't sell it off to the highest bidder, for which they have to do almost nothing, that's a very different thing.
Destroying everything probably costs just as much as selling it off.
Look you’re arguing that they should throw good money after bad. And both of us are just speculating on what the actual numbers are. We all agree that at some point before this, if they cancel the project and write it off, no one cares. So all this boils down to is whether or not you believe their accountants suddenly become wrong or liars about their expected expenses and returns the moment the “final” edit is committed to film.
> Look you’re arguing that they should throw good money after bad.
Yes, when something is already done, the vast majority of the time you should throw enough good money at it for delivery.
Especially when you can make a contract to guarantee you get paid more than that. Upfront, even!
> So all this boils down to is whether or not you believe their accountants suddenly become wrong or liars about their expected expenses and returns the moment the “final” edit is committed to film.
It's not "suddenly". The necessary amount of "good money" to get the movie released drops precipitously as it approaches completion. At this point the "good money" is basically nothing. There are lots of companies that would happily pay for it.
So then I have to ask, if it’s so easy to just sell it off, spending next to nothing and getting more than the tax write off, what if your proposed reason for why they aren’t doing that? Why have they chosen to lose (according to the article in question) $50 million dollars when according to you they can just do nothing at all except give it to someone else and instantly turn that loss into a gain (or at least a lesser loss). And if it’s that easy, why are the studios accountants so blind to this easy solution which is so obvious to you?
There is no world in which “because tax write offs” make sense as an answer to this question if your claims of being able to turn around if not a profit than a smaller loss so easily are true.
> So then I have to ask, if it’s so easy to just sell it off, spending next to nothing and getting more than the tax write off, what if your proposed reason for why they aren’t doing that?
Yes, I have been asking the same question. None of these articles explain the actual accounting that's happening.
Something is more complicated here. But I don't think it's "it would cost too many millions of dollars just to sell"
They don’t spent the $90M intending to write it off.
This is a failure mitigation strategy where they failed and want to recoup as much value as possible.
Studios still lose $60M when they write off $90M they are effectively only saving the $30M they would pay in taxes. It’s still not profitable and they want to avoid this as much as possible.
Since - as only one example of the complexity involved - the music used in the film is almost certainly licensed and must be paid for, and the studio does not "own" it, there's no way that they can simply release it for free distribution or put it into the public domain...
And having had this issue myself with a Hollywood movie, where the rights for the music in the final cut were too expensive, trying to replace the music is always horrible. Especially, as in this case, where you would likely have to go with public domain music.
That seems even worse for all the people affected doesn't it? Anyone who had residual contracts now not only gets nothing like they were before, but their work is still actually being distributed, even if the studio in question is getting nothing for it. I feel like the first court case we'd see after something like this would be all the actors suing some "Rejectflix" company that springs up to provide a curated streaming site for these things.
Could we not just skip the 30 years of copy right protection or whatever
it is now and just release it to the public domain?
No money will be made, but if people should want to they can view it.
I am sure Internet Archive or some organization would be willing to
host such movies, and not make any attempt at making a profit from it.
Even better would be to turn all the assets that went into the creating it
into the public domain as well.
They should be able to say
"Well this movie is total sh*t and we want a tax write off, once it is
all done and we have recovered that money we will make it available to
the public (at no cost to us))
Is the problem that if anyone was allowed to watch it,
they may conclude that the movie had potential and thus the
tax write off is not made in good faith?
Had it been 105 year it would have been an order of magnitude. Being only 5 years off an order of magnitude justified the “almost an order of magnitude”.
You don't “calculate” orders of magnitude, that the point of manipulating them in the first place. And an order of magnitude colloquially means “one more digit”, hence the original remark.
I appreciate the irony of nitpicking about a concept that merely exist to allow for low precision napkin math.
But in this case, the "napkin" math of 95 years would be off by 200 years! Hardly a useful estimate for this particular topic. Still confused where you come up with 105 years as an order of magnitude from 30.
You can reasonably imagine a movie that has negative brand value. In a ridiculous scenario, imagine if the first attempt at Iron Man 2 was 90 minutes of Robert Downey Jr engaged in hardcore sex and shouting racial slurs at people. Even if some people are interested in watching (or even buying) this, it should be clear that a studio has the right to destroy it.
The studio spent $100m to make this thing. Maybe a competing studio would like to buy it for $50m so they can destroy the MCU or whatever. But the studio considers the brand harm to be so great that there is no way that they'll sell it. Should the studio have to artificially reduce their expenses by $50m because of this potential buyer even though the studio in no way agreed to this price?
You raise a valid point that I had not considered when it
comes to reputation.
I agree that the studio has the right to destroy films.
I do think that is unfortunate when they do.
I dont think, but I have no data so its pure speculation, that
at least the majority of movies that get destroyed would not have
much of a influence on the studio's reputation.
Perhaps more for actors or directors.
On your second point I dont quite follow.
In my post my suggestion is that after the studio has received its
tax credits, the film would be available in the public domain for free.
Post tax break the movie has little utility for the movie.
This may require an adjustment in tax law.
I am in no way well versed in that and I have little idea how it works.
The tax code could be amended for this scenario that the work being
used for tax credit does not have to be destroyed.
It isn't a tax credit. It is an offset on profit, same as if the studio spent a bunch of money on preproduction and never got to the principle photography phase or if the studio spent a bunch of money on production but stopped during editing.
As someone stated above, there might be rights issues with the music and other elements used in the movie where the IP creators expect to get paid with every viewing etc.
That's ridiculous. There's no obligation for anyone to bring something to market regardless of how far along it is.
After I read the article:
Still not persuaded. It reads like motivated reasoning, the person doesn't like things not getting released and says that governments should step in. There's some mention of taxes and lost work, but nothing tht holds water.
As an example: if it cost you $100M to make a film and you write that off you could reduce your tax burden by as much, netting a $15M lower tax bill if your rate was 15%.
By contrast if you release it you've no guarantee of that $15M, especially once promotion and other costs are factored in. If it's a trash movie that'll also damage the firm's reputation---something that's tough to quantify but no less real.
That's not great, but its I wouldn't want to live in a society where that was criminal.
Then there's this:
> nobody who did any sort of work on a project that consumed years of their lives will ever be able to point to it as evidence of what sort of work they’re capable of doing
That's the status quo in most jobs. Things don't ship all the time.
Except the post very much is arguing studios shouldn’t be able to scrap projects. Did you catch the end? “governments exist (in part) to regulate corporations, in order to stop them from doing things that are deleterious or destructive to the public good and to individuals who work for them.” This isn’t saying the tax break is bad, it’s saying that deleting a film is what’s bad.
I wasn’t suggesting above that anything is wrong with say deleting a film is bad, only pointing out that is what the article is claiming, contrary to the parent’s claim.
That said, TBH, I don’t see a problem with deleting a film, if there are no tax breaks in question. I don’t agree with the author that governments should force anyone to sell or give away something they don’t want to sell or give away. I’m pretty sure the author’s suggestions and a bunch of the commentary here is completely naive and unrealistic about the ramifications of being forced to release a film against the studio’s will; there are many reasons studios don’t want to do that aside from money, including reputation, liability, copyrights, brand recognition, etc.. The author suggested trying to use moral rights to force the release, but the funny thing is that using moral rights to prevent the release is a much stronger argument, if the film is actually crappy, right? I don’t know exactly what the tax breaks in question are, but I don’t see a problem with not paying taxes on profits either. I do see a potential problem with doing both things at the same time - if the tax breaks were more than not having to pay a percent of the profits; that’s does start to sound like burning down your house for the insurance money.
I’ve worked overtime on a project that was canned after being finished, and also worked at a studio that was closed on the heels of $1B in sales, with rumors the execs said the tax break was bigger than the remaining profits. These things suck hard and they’re destructive and it’s obvious that accountant-executives lack all imagination and can’t see potential. But should it be illegal? Probably not, forcing people to do business when they don’t want to would drive businesses into the ground and ruin people.
That is not necessarily true. Studios can still decide that a movie is sufficiently bad that it is a brand risk and will still refuse to release it even if they cannot deduct some or all of the expense to create it.
If we're to do that are we going to force every company to release a product they've developed, or otherwise the code/blueprints for it?
Aside from the reputation hit I mentioned, the unreleased film might have some neat ideas they want to recycle into another, better project.
There's a case to be made that we should eliminate tax breaks for all "R&D" work, but this article doesn't persuade me. It reads like it was written by someone who'se unhappy that they're work won't see the light of day, which I get. I've developed several products that at the last minute the exec team decided wasn't worth the capex to tool up...it's just a part of the game.
Again, eliminating a perverse tax incentive doesn't "force" anyone to do anything. Why is it self-evident that we should subsidize failure at the level of a corporation to prevent balance sheets going negative, especially when we are so against doing the same for an individual to prevent them from becoming homeless?
Don’t think it’s self-evident. My point was only that if I were to accept OPs argument I’d have to accept them larger argument to abolish the existing subsidies, and the article didn’t persuade me that to do so is the best way to go.
I’d like to read an argument against subsidizing development.
In this case, refusing offers to sell in favor of a strategy that simply wastes the time and effort of everyone involved in the production with no recourse. This should at the very least not allow them to write it off their taxes. Admittedly, a lot of the problems that enable this situation are more about how IP and ownership work as well as the consolidation of the entertainment industry (and every other industry for that matter), but I think the fact that there's a monetary incentive for this kind of thing which directly exhibits the exact kind of anti-productivity incentives at scale that people use to argue against social programs warrants special consideration in its own right
And the vast overwhelming majority of them are not being paid comparably to jobs that require similar workloads and levels of education, due to the "vocational awe" of working on a movie. This is so pervasive in the arts that it's been talked about for decades, but it's not a problem our economy seems equipped to solve: Since people like working on art projects, people will often line up to do so even when conditions and pay don't economically square with their effort. To benefit from this vocational awe and then scrap the project is itself a moral injury to those workers
> but it's not a problem our economy seems equipped to solve
It's not a problem at all in my opinion.
> Since people like working on art projects, people will often line up to do so even when conditions and pay don't economically square with their effort.
The pay has only to be accepted to be fair. You're free to start your own production company that pays more "fairly" but you'll find yourself with fewer opportunities to give people this "awe" than the company that can finance more projects.
> To benefit from this vocational awe
Warner Bros. is losing money by scrapping the movie, how are they benefiting in this case?
IMO this is a labor relations issue and it's exactly the sort of thing that unions should be negotiating with studios, just like they negotiate film credits and residuals and all kinds of other things.
The real victims here are people who signed the contract to do the work, many of whom probably got box office participation who are going to be denied some of their compensation through no fault of their own. And even people with no stake in the box office presumably did the work for "experience" on their resume that is essentially getting disappeared.
I think this problem is somewhat self limiting because film makers signing contracts with WB are going to add clauses to prevent this from happening again.
I’m with you. People see this as some kind of scam, but this is a basic business loss as far as I read it. Just like making a dumb IoT juice squeezer and losing money on it. Every single company on the planet does this.
But I don't understand why destruction is required for the write off.
An IoT juice squeezer is a physical item that costs something to make every additional unit. Every unit you make can actively lose you more money.
Compare to a film.The marginal cost of each digital copy of a finished film is basically zero. The money is already spent.
The only thing I can come up with here are royalties, but they should be based on some percentages of revenue right?
If you release a turd movie that cost 100M to make and only nets you 5m in revenue after royalties, can't you still write off the 95m and have almost 5m more than you would otherwise? How would writing the entire 100m off ever be preferable?
Something is clearly weird where this is advantageous. It's not clear from the article why this trick actually works for movies.
> If you release a turd movie that cost 100M to make and only nets you 5m in revenue after royalties, can't you still write off the 95m and have almost 5m more than you would otherwise? How would writing the entire 100m off ever be preferable?
Releasing the movie is not free. You still need to finish the product, market it, find a distributor and manage sales channels, just to name a few. Also, a bad movie will reflect badly on your studio and everyone in it; if the movie is in a series, it might even impact the lore of your universe negatively.
Movie studios are not stupid, 5M of revenue plus 95M of write-off would be more money than 100M of write-off. But you can easily end up with 5M of revenue and 110M of losses and some non-monetary damages extra, so writing off 100M is the best option.
I’m not a tax attorney but companies have been destroying product for loss purposes for ages.
Motorcycle companies crush inventory to take the losses. I’m sure any company with excess product does similar things. I’m guessing they do it because it gives them the best return. The IRS likely requires it to prevent the company from double dipping.
With movies, I don’t even want to think what obligations trigger on “release”.
Honestly, if we want to disincentivize Hollywood from burning movies, that's the loophole to close. Stop letting them take a movie that generates a net loss as a write-off.
This would have monumental consequences to the Hollywood business model.
If $15m of taxpayer money is being paid out as a write-off for a finished movie, I feel like I as a taxpayer should have the right to see the movie. Nobody is forcing anyone to sell anything.
My guess is this is actually an accelerated capital loss. From a profit-loss perspective the net loss is the same whether they release or not.
But the accounting net loss is smaller initially because the movie is on the books as having capital value. It might take decades to reduce that to zero.
Destroying the film does so instantly so you get to book the full loss immediately.
Never really understood why we use depreciation in the first place to be honest, rather than just making all expenses immediately deductible. Presumably there’s some explanation
> Never really understood why we use depreciation in the first place to be honest, rather than just making all expenses immediately deductible. Presumably there’s some explanation
It's actually advantageous for most companies. If your company makes 20M in yearly profits and builds a new HQ for 100M and you deduct it immediately, you'd have one year with no taxes and a loss of 80M and 9 years with full taxes. If you write it off over 10 years instead (which reflects you actually using that house for this amount of time), you'll pay less taxes in all those years and save more overall.
I don't think it's about deducting expenses, otherwise this would be entirely moot because they'd deduct for expenses no matter whether it was a hit or a flop. I understood the article to be about deducting taxable income for a loss.
But a loss is just when expenses are greater than revenue. Deducting taxable income for a loss is just the same as deducting the expenses that caused the loss to be a loss.
> That they actually incurred the losses they claim to have incurred, so they get a tax break. The taxpayer is defrauded.
Did they not incur such losses? Did they claim to delete the movie but actually kept a backup? Granted, the loss is self-inflicted, but that's not a relevant factor in the tax code.
Destroying a movie to claim the tax break is analogous to burning your house down for the insurance money or to claim a casualty loss. Yes, you really did lose your house. No, you are not entitled to claim it as a write-off.
That's fraud because the insurance policy specifically says it won't pay out if you intentionally set it on fire. If you actually did set it on fire, then claimed that you didn't then that's the deception.
>No, you are not entitled to claim it as a write-off.
Can you point to the relevant tax law that prevents this?
“ Nondeductible losses. A casualty loss isn’t deductible, even to the extent the loss doesn’t exceed your personal casualty gains, if the damage or destruction is caused by the following.
Accidentally breaking articles such as glassware or china under normal conditions.
A family pet (explained below).
A fire if you willfully set it, or pay someone else to set it.
A car accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
Progressive deterioration (explained below). However, see Special Procedure for Damage From Corrosive Drywall, later.”
The linked document looks like it's for personal taxes, not corporate taxes. Business taxes is different from personal taxes in many ways, including how deductions are handled. For instance if you buy office 365 personally that can't be deducted, but if you bought it as a business it can.
Sure. Qualified business expenses are deductible. Personal expenses are not deductible, and neither are losses suffered because you willfully destroyed your own property. That is true for businesses as well as individuals.
Right, and the studio is deducting all the resources it spent making the movie. If you decide to invest in a bunch of money into developing a product, and then not commercialize it, all the r&d money that went into it is still deductible. It gets tricky when amortization and accruals are involved, but in the end it's approximately the same principle.
There is no law that specifically prevents it, just as there is no law the specifically prevents you from deducting, say, money that you pay to buy groceries. What there is is a very long list of things you can deduct, and grocery money, and losses that you suffer from willful destruction of your own property, are not on that list.
> What there is is a very long list of things you can deduct, and grocery money, and losses that you suffer from willful destruction of your own property, are not on that list.
Actually if you read the sibling comment[1], such list of "things you can't deduct" does exist, albeit it's seemingly for personal taxes.
That list is advisory. It is not part of the law. I can't point you to a law that says, "You cannot deduct destroyed movies" just as I cannot point you to a law that says, "You cannot deduct grocery expenses."
> analogous to burning your house down for the insurance money
It’s very different because insurance pays out to make whole. Taxes are just taxes.
It’s the equivalent of burning your house down and then writing off the depreciated value because it burned down. Totally legal. Because it’s worth less after burning it down. Assuming you burn it in a legal, controlled manner and not arson.
Every tax dollar you don't pay is a dollar someone else has to pay instead, or a dollar that gets added to the national debt. And burning your house down and writing off the depreciated value is absolutely not legal.
> Assuming you burn it in a legal, controlled manner and not arson.
Yes, well, that is a might big assumption. I doubt you could point me to a single instance of someone actually burning down their house in a "legal, controlled manner".
It ultimately boils down to details. If there really were a legitimate reason to destroy a film (or a house) rather than selling it to the highest bidder then you might have a case. But you'd be very hard-pressed to come up with a set of legitimate circumstances for either one.
>Every tax dollar you don't pay is a dollar someone else has to pay instead, or a dollar that gets added to the national debt. And burning your house down and writing off the depreciated value is absolutely not legal.
nobody is entitled tax revenue. Laws generally support taxes on income/profit, and arent just a bill.
It isn't illegal to work less and pay less taxes.
It is absolutely legal to knock down your house so you dont have to pay property or sales tax on it.
>It is absolutely legal to knock down your house so you dont have to pay property or sales tax on it.
Generally property taxes are on the land and its improvements (eg. houses), so burning down the house wouldn't relieve you of property tax obligations. Moreover, destroying the house would actually reduce your tax obligations, and AFAIK isn't illegal.
So you're saying that you can't demolish buildings on your own property (or at least not without rebuilding another of equal value), because that would lead to the city/county getting less taxes? That seems utterly absurd. What's next, not being able to paint the inside of your house puke yellow, which would also tank property values?
>Every tax dollar you don't pay is a dollar someone else has to pay instead, or a dollar that gets added to the national debt. And burning your house down and writing off the depreciated value is absolutely not legal.
nobody is entitled tax revenue. Laws generally support taxes on income/profit, and arent just a bill.
It isn't illegal to work less and pay less taxes.
It is absolutely legal to knock down your house so you dont have to pay property or mortgage tax on it.
>but that's not the same thing as claiming the resulting loss as a deduction on your income tax
which you can also do. If you knock down your house, then sell it, you will have a pretty heafty capital loss, which you can then use as a income deduction for up to 8 years, or until it runs out.
Yes, but you have to sell it, at which point it's a capital loss. And you can sell the movie and take a loss that way as well (assuming you actually sell it at a loss).
What you cannot do is delete the movie and then claim it as a capital loss -- because you haven't sold it.
If you really want to get technical about it, in the vast majority of legal jurisdictions it is not possible to sell a house in isolation. You sell the land that the house is sitting on, and the house just comes along for the ride as an "improvement". So whatever legal abstraction you could sell before you tore the house down you can also sell after.
Only in the case when they can't profitably dispose of that inventory any other way. So unsold books, for example, can be destroyed and deducted, but an unoccupied office building cannot.
If I burn down my house and claim insurance or tax losses, they’ll laugh and send me to jail. Explain how a corporation doing the effectively the same thing should get a write off. It’s a sham.
And why should a studio be allowed to claim a movie they destroyed on taxes again? I’m not interested in the answer, “it’s legal,” because a lot of things are legal that should be illegal and vice versa, I’m looking for your moral reasoning here as to why this shouldn’t be made illegal.
>I’m looking for your moral reasoning here as to why this shouldn’t be made illegal.
If you read the thread more carefully, you'll see I never made such a claim. The only claim I made is that it's not fraud. I thought this was pretty clear with my earlier comment:
> "fraud" doesn't mean "losing money in a manner I don't like", so I ask again: where's the deception here?
It's not the same because the tax code is, even more than the rest of the law, really just made up.
It just tells you when you have to pay and when you don't have to pay. If they didn't explicitly write in that you're not allowed to burn a movie, then burning a movie gets you a tax break. End of.
A company buys a balloon making machine for $100k. They use the machine and depreciate it over the years to $20k, getting $80k of deductions over the years. They decide to stop making these balloons. Someone offers them $1k but they decline. They destroy the machine, and have a $20k loss on their taxes.
This is all above board, totally normal behavior. There are reasons to be against destroying these movies, but tax fraud really isn’t one of them. They actually did take the loss of whatever was the remaining value of that asset.
Maybe the reason they stopped making them is the balloon got a negative connotation and was hurting their brand. I dunno, a disgraced celebrity. Selling the machine for others to make it hurts them (even under another brand). Maybe the offer was only $100 and it’s not worth the time.
They used the machine here, and depreciation rules mean you can do that, but most companies will still try and keep using a machine until it’s no longer working for that process, whether or not it was depreciated fully. Also, I expect there are different time windows for dormant equipment depreciation and while laptops might depreciate in five years I doubt industrial equipment does at the same rate.
The motivation to stop using the machine wouldn’t be deprecation but just some external business reason. You can also change the deprecation schedule and the numbers, the idea is the same.
The overall point is I don’t think it’s rare to destroy an asset that you could sell, and to take a deduction for that. Comments were calling that fraud.
The deductible losses are supposed to be incurred in pursuit of profit. Not every expense a business incurs is tax deductible. Not even trying to sell it calls into question whether it was in pursuit of profit. They’re expecting the American tax payer to make up the shortfall and that’s likely based on Hollywood’s unique accounting practices, which has a tendency to inflate the claimed expense amount.
> True, there are multiple reasons why some expenses aren't deductible, but AFAIK no such exception exists for "intentionally destroying it".
No, of course not. There isn't an enumerated list of weird cases and if your weird case doesn't match you can get a tax advantage. There are rules about what is and isn't deductible and if you're unclear, you can ask the IRS for a clarification. If you don't get that clarification you better be prepared to adequately defend your tax theory when you get audited. What I suggested is what they're doing may not be in line with the rules about what is deductible. It seems like something should be evaluated.
> There's no way that you can save taxes by doing this.
You absolutely can save taxes by doing this. They're not only not paying any tax, they're offsetting tax they would otherwise pay on a profitable film. I think what you're saying is that they couldn't get enough tax deductions to offset the money they put into the film development. That's a claim I didn't make. I do think it's possible they could get back more money than they otherwise should. It's not like tax fraud is a rare occurrence. And that situation could make this maneuver more attractive. I think it's worth an audit.
You make a good point. When somebody says something should be illegal, the clever route of discussion is to repeatedly point out that it is not currently illegal — a fact that both of you agree about, since that is the premise for making the statement that it should be illegal.
We aren't arguing that it's tax fraud by definition, but that it should be considered fraud. If the tax code incentivizes destroying something then that seems like a defect of the tax code.
If you re-read my prior comment, you'd see my complaint is that it's not "fraud" by any reasonable definition because deception is not involved, not that it should or should not be allowed.
> "fraud" doesn't mean "losing money in a manner I don't like", so I ask again: where's the deception here?
Whatever "introductory course" you took must be pretty bad, because even the elective I took in college taught that valuations on the same asset can go up and down.
The buyer is not buying the hard drive, they're buying the asset it holds. If you destroy the only copy, you make it unobtainable but the value of that intellectual property is arguably still $30m. (If said offer was $30m, in this case)
For that reason: if the studio destroyed all known copies of the movie, write it off, and then an unknown copy gets leaked by someone who worked on it -- the studio will still sue for damages >$0 and claim in court that any piracy downloads are potential viewings, ergo stolen profit.
No insurance company in the world will pay out insurance if you commit arson against your own house because that's stupid. Same thing should apply here. Destroying a film to get a tax break at the very least should incur penalties
It's the tax write off for destruction that's fucked up, as @cnees says. Failures are part of the process of creation. If the producer says the market value of the work is zero, they've committed tax fraud if it's not.
The solution to their "attribution" problem was found by directors a long time ago when they didn't want their names on a film: it's directed by "Alan Smithee."
https://www.imdb.com/name/nm0000647/?ref_=fn_al_nm_1