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.
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