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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."

https://www.imdb.com/name/nm0000647/?ref_=fn_al_nm_1

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.

They can't decide that the value is zero if they got public offers from Amazon, Netflix etc

It's clear that the loophole is to ask Amazon and Netflix to make a secret offer.

Public auction is the solution if they do it for tax reasons and not for artistic integrity.

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.

I don’t get your point. If you run a business, money that you spend is subtracted from your earnings.

Are you alleging that they made the money for fun? That they never intended to release it?

That’s they spent 10 dollars to save 3 dollars in taxes?

And then you pay taxes on earnings.

That’s not cheating and it makes a lot of sense if you think about it.

> 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.

Well, those other companies paid taxes as well.

Plus you can only save taxes if you’re paying taxes in the first place. A company that only loses money isn’t going to get paid.

I’m not sure that scheme works work out another trick.

"Well, those other companies paid taxes as well."

This is a bad assumption.

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.

(It's a bit more complex than that, but ...)

> Well, those other companies paid taxes as well.

How do you know? At this scale tax avoidance schemes often completely prevent this.

Warner Brothers has not only intent, but a demonstrated profit margin, which they are deducting the movie from.

Why shouldn't they be able to deduct there very real losses.

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.

>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

Indeed we could, but unfortunately we already have cryptocurrency.

Agreed on every other aspect of your observation.

Maybe when it's 'an amazing and new Road Runner movie', the waste has a more appealing face?

>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.

The value of a destroyed movie is zero.

How is that a lie?

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?

Can you answer your own question?

Why would a greedy company ever intentionally reduce the value to $0 via destruction instead of selling it for $10M?

10M sale plus a 80M deduction is far better than a $90M deduction.

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.

Neither the resources or the labor are public.

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?

"the public" and "public" are two different things. the labor and resource markets are private, not public.

The markets maybe. Markets aren't the thing though.

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.

money is a public resource.

Money isn't consumed and it only has value when used.

that's true. Therefore billions should return into circulation and/or otherwise return to the public.

Believe it or not billionaires are part of the public and those billions are in circulation. There are no dragons sitting on hoards of gold.

More importantly: money that is not in circulation doesn't affect you or me, it has the same weight on the economy as all the gold still not mined.

It sure don't look this way to me. I guess we'll agree to disagree on most points here.

How can we disagree on facts? There are no billionaires just sitting on billions. They are in circulation.

your facts: billionaires not sitting on billions. My facts: homelesness exists.

Also moving money from your left hand to your right is not circulation. It should "trickle down". Wonder where I heard this.

It is clear you're arguing from an emotional, not logical, standpoint where facts don't matter.

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.

Can you provide 3 obvious problems of how the parent post is incorrect? I am curious of your thoughts.

> a public auction which is what I was alluding to by saying "anybody"

I think this is their main objection, not sure there are 2 other things?

Public auction seems appropriate

Why does someone have to demarcate exactly where "the line" is to make a judgement on this situation?

You can simply ask yourself "do I want to live in a world where this happens" - and any decent person would say "no".

The presence of a "slippery slope" is not enough to prevent going down a path, even somewhat.

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?

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's ultimately the same issue, no?

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.

https://en.wikipedia.org/wiki/The_Federalist_Papers

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.

Vice Are Not Crimes

https://archive.org/details/SpoonerVicesCrimes1875

> 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.

Hoo boy, is this a wild take.

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 think you're highlighting the exceptions to ignore the rule

> You can simply ask yourself "do I want to live in a world where this happens" - and any decent person would say "no".

I think any decent person would say yes.

I'm sure it is a bummer for those people, but they were paid to do a job, and don't own the film.

> 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.

Yes I want to live in a world where this happens. It’s a wonderful world even if this particular aspect isn’t great.

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.

I dig your optimism!

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!

> Someone buys a cupcake.

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.

So why are so many bad movies released then?

> 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.

Then they write that off as a business expense.

That's why analogies are always wrong :)

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).

In a world where "this" means what exactly?

That's what the line is for.

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.

You are confusing "not releasing it" with "claiming a value of zero."

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?

No.

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.

In the IRS's eyes, you destroyed an item that had value. Its value was whatever someone was willing to pay for it. Say $30M.

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.

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.

By that reasoning, you want to force businesses to do something with their own property that they decide is against their interests?

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.

The value prior to disposal is irrelevant. The IRS cares about the basis (cost to produce) and that it was disposed at $0.

> is the artist to be prohibited from destroying the painting

Perhaps not prohibited. But we could make it so they lose all IP rights.

Copyright is intended to promote the creation and distribution of new works. It is not a natural human right, like ownership of your physical things.

> 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 you seriously think that artists should not be allowed to throw away drafts they don't like?

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.

>But we could make it so they lose all IP rights.

If they're actually destroying all copies as claimed, then IP rights is irrelevant.

> then IP rights is irrelevant.

Not if someone managed to make a copy of the movie.

And I don't think you should be able to use copyright protection unless you register a copy with a central authority. Just like how patents work.

In what sense is ownership of physical things natural human right?

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.

There are biological instincts to defend your stuff. Like animals will attack you when you try to steal their things.

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.

At claiming a tax break.

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.

Change the rule so destroying in purpose no longer qualify for tax break and someone will accidentally the only hard drive.

“Where do we draw the line” is the most common argument for inaction on a complex dilemma.

Society can always choose to draw the line. We always draw the line - criminal code, taxation, copyright.

The answer is - you gather a work group legitimized by democratic process and figure it out.

The issue is that the people complaining only like the democratic process when it agrees with them.

If the market value was nonzero, why would they be scrapping it?

They could still count the delta between their production cost and the money they got as a loss and deduct that from their taxable income, no?

They have no incentive to underestimate the value of the final product.

Income - expenses = taxable earnings.

As a business, the money you get by earning a dollar is always bigger than the taxes you pay on it.

If they’re scrapping it, they are clearly deciding that the cost of finishing and marketing this movie is greater than the value of the movie.

What am I missing?

> What am I missing?

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%?

This seems like a really odd argument.

> How so? They aren’t selling it. So its value is $0.

If its value is $0, I should be able to buy it for that price.

That’s not how private property works. The owner doesn’t have to sell to you.

Have you ever had a car totaled? Just because the insurance company salvages your vehicle doesn’t mean you get to buy it for that value.

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.)

Go one step further with the car, you salvage the car, they say it’s worth $100, does the insurance company have to sell it to me if I offer $101?

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?

It's not "odd." Anything you build can have a "salvage value." Someone would take it off your hands, be it a building, a car, or a movie.

Unless, of course, everyone's unions agreed on destruction, via their contracts.

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]

[0]https://en.m.wikipedia.org/wiki/Hollywood_accounting

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.

https://en.wikipedia.org/wiki/Moral_rights

Try being realistic. Is "cultural treasure" your line?

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 can draw the line right here. We don't need spurious analogies when we have a clear case where a company is abusing the tax system.

We don't need to draw any line. Larger corporate entities should get progressively smaller caps on deductions. Hard cutoffs breed adverse incentives.

You think that some costs shouldn’t be tax deductible? So companies should pay taxes not only on profit, but revenue independent of profit?

I don’t think that would have a positive effect as you imagine.

How is the tax system abused?

How about a floor of, say, $1mn USD expenditure?

Spend less than that on a media product, and you can axe it as you like without any release.

Spend more than that, and if you want a tax write off it goes straight to the public domain.

where to draw the line?

when other people get their hands on the files

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

I don't understand the move in the first place.

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?

-

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.

Exactly. You want the tax break? The work now belongs to the taxpayers. Seems fair to me.

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.

Why are movies given tax breaks at all, is the question.

It’s not specific for movies. All businesses only pay taxes on profit. And the expenses spent to produce things are a “tax break” to offset revenue.

This is done because it’s hard to pay taxes if you don’t make a profit as your money is already spent on other stuff like resources, people, etc.

I think this specifically is a write off, same as if you made 500,000 widgets and nobody bought them.

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?

You're off by almost an order of magnitude there. It's 95 years of copyright protection nonsense, not a mere 30.

Edit: very few would complain if it were only 30

GP probably meant "30 years left for whatever particular movie".

That is much less than “almost an order of magnitude.“

Since we're being pedantic here, it's just over half an order of magnitude, and could be rounded up to 1.

log(95)-log(30)=0.5006

Could be rounded, but couldn't be converted into "almost"

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”.

> Had it been 105 year it would have been an order of magnitude

That’s not true. How are you getting that number? That’s not how you calculate 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.

> But in this case, the "napkin" math of 95 years would be off by 200 years!

Which is fine, because 300 and 100 are the same order of magnitude ;).

> Still confused where you come up with 105 years as an order of magnitude from 30.

30 ≈ 10^1

105 ≈ 10^2

Here you go.

Curiously it’s almost exactly half an order of magnitude (30*10^0.5 = 94.9)

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.

(Again your 1st point is valid and a concern)

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.

ah ok. I didn't get that right. but it does save on taxes.

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.

Commenting before I've read the article:

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.

It's a bummer, yeah, but that's it.

The argument isn't that WB shouldn't be able to scrap projects. The argument is that the tax break for doing this is bad and should not exist

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.

> This isn’t saying the tax break is bad, it’s saying that deleting a film is what’s bad.

That's a true statement, though. What's wrong with saying that?

And if you change the tax breaks, you can get the desired behavior without imposing additional rules.

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.

That would at least make this happen a lot less often.

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.

One argument is that that particular kind of subsidy is incredibly easy to game, and so you tend to create more reward-hacking than actual benefit

They're turning $10 into $3 except at the scale of millions of dollars.

What hack or gaming did they perform?

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

> wastes the time and effort of everyone involved in the production with no recourse

Those people were already paid for their work.

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.

Taxpayers arent paying anything, Taxes are on profit after costs. The company spent 90M of its own money, and hasn't made any income?

Why souldnt they be able the claim the 90m they spent as an expense?

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.

But can’t you carry forward the loss? With current capital rules at least in Canada you don’t have to claim capital expenses in a given year.

Politicians often grant accelerated depreciation rates as a tax incentive.

Also with inflation the sooner you can declare the loss the more it is worth. Especially if you have non capital expenses to offset.

The US govt has recently capitalized software expenses and this is seen as very bad for the industry and investment.

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.

Destroying it should be legal. Writing that off as a loss should be considered fraud, especially when there's an offer for it.

>Writing that off as a loss should be considered fraud, especially when there's an offer for it.

From wikipedia:

>In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.

Where's the deception here?

It's defrauding the taxpayer

"fraud" doesn't mean "losing money in a manner I don't like", so I ask again: where's the deception here?

That they actually incurred the losses they claim to have incurred, so they get a tax break. The taxpayer is defrauded.

They would rather delete the movie to claim the tax break than sell it to another studio offering more than the tax break.

If you think they actually lost that amount of money: https://en.wikipedia.org/wiki/Hollywood_accounting

> 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.

>insurance money

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.”

https://www.irs.gov/publications/p547#en_US_2023_publink1000...

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.

> It gets tricky when amortization and accruals are involved

That's right. But when all the dust settles, writing off an asset that had market value when you intentionally destroyed it will not pass an audit.

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.

[1] https://news.ycombinator.com/item?id=39339672

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.

It would relieve you of property tax for the house, which is my point.

It would also allow you to avoid taxes on the sale of the house.

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?

I think you misread my initial post.

>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. You are making the same point.

>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.

> It is absolutely legal to knock down your house so you dont have to pay property or mortgage tax on it.

Yes, that's true. But that's not the same thing as claiming the resulting loss as a deduction on your income tax.

>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.

> then sell it

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 kock down your house, you literally cant sell it. Also, there are multiple ways of changing asset value besides sale.

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.

Businesses are allowed to destroy inventory and then write that off. In this case I guess the movie is the inventory.

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.

Did we read the same article? That's literally the authors point. Arguing that it is defensible because it is legal is wrong.

nobody is paying the company money.

It is closer to burning down your house to avoid property or sales tax.

No, it isn't. If there were a tax on the movie as an asset that would be true, but there isn't so it isn't.

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.

In your scenario the illegal parts would be:

1. claiming insurance on it. AFAIK this isn't applicable in the case of the movie

2. endangering other houses by doing it in a non-approved way

Other than that setting houses that you own on fire isn't illegal.

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?

The deception is that normal people won’t expect you can destroy your own property and claim insurance without being put in the clink.

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.

But why wouldn't they sell it for $1k and then have a $19k loss to deduct?

And how do we encourage them as much as possible to take that option?

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.

>Not every expense a business incurs is tax deductible.

True, there are multiple reasons why some expenses aren't deductible, but AFAIK no such exception exists for "intentionally destroying it".

>and that’s likely based on Hollywood’s unique accounting practices, which has a tendency to inflate the claimed expense amount.

See my other comment here: https://news.ycombinator.com/item?id=39339493

There's no way that you can save taxes by doing this.

> 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?

https://en.wikipedia.org/wiki/Hollywood_accounting

the deception is assigning a zero value to the movie, when it's not zero.

It is zero when the hard drive holding the only copy is degaussed.

no, if you had an offer for $30M, then that was the value.

And the value went to $0 after destroying it. I don't see what's the issue is here.

If you can't understand accounting, maybe an introductory course would help.

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.

apparently they didn't teach about "fair market value" then.

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.

How so if funded by private capital?

The studio is effectively funded by taxpayer dollars (the tax writeoff)

Tax write-off means you don't pay the taxes. It doesn't mean a full refund of 100% of the cost by the government.

That they lost money on the film.

If you spent a bunch of time and resources making a movie, and then decide to shred it, did you not lose money?

If I burn down my house, I lose money. Should I be able to claim insurance on that?

If your insurance policy covers that (unlikely because of this exact situation), then sure.

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

The penalty is that they lose money at the end of the day. It is not a sustainable business practice.

To me, the weird thing is that the tax write-off doesn't even seem to make sense.

Let's say you spend $80M making a film and you write it off for a $30M benefit. You're still in the hole $50M. Let's say that you sell the film for $20M and write off the remaining $60M loss for a $23M benefit. In the latter case, you're only in the hole $37M instead of $50M. That's a lot better.

Is there some weird accounting rule where you're allowed to write off full losses, but not partial losses? I understand writing off losses: if you make $100M on one project and lose $50M on another project, you pay taxes on the $50M you've made - but you're only getting a fraction of the money back. It's better to get 100% of $20M plus a fraction of $60M than getting a fraction of $80M.

No one seems to be explaining how this is working in Warner Bros Discovery's favor. Sure, I get canceling popular shows where the actors might be looking for more expensive contracts. I might think it's short sighted given that you need popular shows to keep your subscribers, but I get what they're trying to do. I understand licensing content to a competitor for a quick pay day. Again, it seems short sighted, but I get what they're trying to do. What I don't get is why it's better for them to completely scrap content than to let it flop upon release. The only possible explanation I can see is that they'd be able to claim the tax relief earlier. If they released it in late 2023, they'd have to wait to claim any losses since they'd be making money off it into 2024. If they cancel it in 2023, they can take the write off for 2023. It must be something else, right?

It doesn't work in their favor. It does, however, work in the favor of Zaslav's specific desires about slashing content that has to pay residuals in favor of residual-free reality shows and documentaries.

I'm also scratching my head at why this could make sense from a purely financial point of view, doubly so if the film is expected to be at least good. One of the paragraphs in TFA proposes it's some sort of company vision and trying to avoid embarrassing themselves. I would proposition that being known for scrubbing completely projects is rather embarrassing too specially in the view of contractors for future projects but what do I know.

> To my knowledge, the company has never given anyone a justification beyond debt reduction and a bit of vague gesticulation toward a corporate vision that the film supposedly didn’t sync with. Public outcry caused the company to backpedal in November 2023 and say that they would sell the movie elsewhere, but Drew Taylor of The Wrap has reported that the company never entertained any negotiations about their asking price, demanding not a penny less than $70 to $80 million for the privilege of owning a project that they would only gain $30 million by scrubbing from their own ledgers. The offer to sell the film was, to put it mildly, not undertaken in good faith. It appears that the company would rather take less money by writing off the movie than sell it for even a few dollars more than that, because they might risk having a rival turn it into a success, which would further embarrass them for never even having tried to market it themselves, even though it was built around “intellectual property” (i.e., adorable cartoon characters) that are as inextricably linked with Warner Bros. as Marianne is with the nation of France.

I wonder what would happen if a bunch of extremely bankable talent - the Christopher Nolan, Greta Gerwig, Tom Cruise crowd - quietly got in touch with Warner Bros and made it clear that they would avoid working with any studio that had a track record of cancelling completed projects for a tax write-off.

Warner Brothers reportedly lost Nolan for pissing him off with their dumb straight to streaming strategy. And then he made Oppenheimer for another studio. And they still did this.

Nolan has talked about going back to WB in recent months.

I'm sure this is happening already. People aren't going to want to bring projects to Warner Bros Discovery given all the crap they're pulling. WBD will be the option of last resort when someone else won't take your project - or the place you need to go when WBD owns the IP behind certain characters like Batman.

Without commenting on the larger issue the article brings up, this specific point doesn't survive scrutiny to me:

  Some of the company’s tactics post-merger were garden-variety ruthless, like eliminating 87 series from its streaming platform Max, so that they won’t have to pay union-mandated residuals to the talent that created already-existing programs or pony up funds to produce more seasons of existing ones (such as “Our Flag Means Death,” one of the company’s most popular and critically acclaimed comedies—canceled after just two seasons).

Financially, HBO's decision makes perfect sense as you said but it still sucks, especially if those series had no physical release. If a book or DVD goes out of print you could at least track down a used copy but for streaming there's nothing.

Residuals feel analogous to copyright in some way.

Can anyone with an accounting background explain what is actually happening on the books to make this economically advantageous? By forfeiting any revenue on these films, the studio is reducing its tax burden but isn’t it increasing its overall economic loss?

The contrary argument, that a creator has the right to destroy their creation, is made in the Gary Cooper movie "The Fountainhead" (1949).

Even then it's not quite an apples to apples comparison. From what I understand, everyone directly involved in the making of this film is proud of the work and wants it to be released, it's just the bean counters and executives (who I would not consider the "creators" of the film) who want to destroy the creation for ego and tax reasons.

You're right, it's just part of the absurdity of Rand's vision. In the real world people do work and create something, but some bean counters figure out the heirs who own the majority stake of a company can make a few more bucks by destroying the thing, so it is done.

Why bring ego into it? It's just bottom line thinking, that's all. Is there any good reason to think ego is a part of it?

The article itself puts it forward.

> The offer to sell the film was, to put it mildly, not undertaken in good faith. It appears that the company would rather take less money by writing off the movie than sell it for even a few dollars more than that, because they might risk having a rival turn it into a success, which would further embarrass them for never even having tried to market it themselves

If it was really bottom line thinking, they'd accept the $70M, more than double what they'd get in tax benefits, and have another distributor release the film. Instead, they'd rather trash the film than risk looking like fools if they allowed another company to reap the benefits for releasing a hit.

Which is also part of the argument on TFA, bringing what in part of Europe is known as "moral rights of artists".

Sure, that sounds fine, but the taxpayer ought to not be responsible for footing the bill in any way. The studios do this for the tax writeoff, which is tantamount to robbing the people paying taxes (eg:us) blind.

It's not "robbing the people paying taxes" because the money was never theirs to begin with. Taxes are paid on profits, and if profits are not made they're not owed.

Suppose I make a painting worth $1000. If I had sold that, I would have been required to pay taxes on that at the marginal rate, say 40% so $400 worth of taxes. Instead of doing that, I set it on fire. Does that mean I just robed taxpayers of $400?

It feels like tax fraud. Given that it is apparently not possible to prove that they deleted the movie, it seems like the IRS should assume that they still have the movie.

I bought a stock share for $1000. I wanted to sell it for $2000, but no one was willing to pay more than $400, so I decided to tell the IRS that it was worth zero and take the full tax write off (which was tax fraud).

On top of that, refusing to release or sell the movie should have triggered a shareholder lawsuit.

> Given that it is apparently not possible to prove that they deleted the movie, it seems like the IRS should assume that they still have the movie.

Even if they didn't delete the movie, the fact that they claimed to have deleted the movie and used it as a tax credit basically makes the value $0, because in the unlikely event they have a copy around, they wouldn't be able to sell it without having all of the profits seized from them.

> Given that it is apparently not possible to prove that they deleted the movie

Why does it matter if they delete it or not? As long as they don’t sell it, they don’t make a profit on it, and don’t pay taxes on the profits. If they didn’t delete it and then actually sold it after enjoying their tax break, then they’d be committing actual tax fraud.

> refusing to release or sell the movie should have triggered a shareholder lawsuit

And yet it didn’t. So maybe shareholders are fine with it? Why should shareholders sue when a company doesn’t release a product? This literally happens all the time.

I bet the owners of the film studio had a really hard Christmas that year, with no profits. The issue is that the studio takes the profit if it succeeds, the taxpayers take the losses if it doesn’t.

It's not setting the fire which causes taxpayers to lose money, it's writing off the loss against taxes you would have otherwise paid on profits made from other movies.

Not an accountant, but tax write-offs aren't some sort of no tax glitch that you make them seem. You can only deduct losses that you've actually suffered, not imaginary losses. If you spent $10M into making a movie, you can't value the movie at $80M and then use that against all your other revenues to pay less taxes. If this were true every company would be making fake movies to destroy and pay less taxes, not destroy actual movies that they spent millions on.

Taxing people on income they didn't make but the government imagined they could have made in some situation that didn't happen sounds like a slippery slope to be standing on.

Many of the people on this site are involved in technology (software and/or hardware) product development. If they work for a company that spends $10M in development salaries & related costs to build a product, and then decides not to release that product, the company certainly deducts those development costs from its revenues when it files its taxes.

This is true even if some third party had made an offer to acquire the product - there are many valid reasons why the first company may choose not to sell it.

Are any of the people responsible for this phenomenon actually creators? Isn't it usually investors and accountants doing it for a tax writeoff?

Yeah. The problem arises when there’s many creators and they disagree. Or when a creation has already been duplicated and given to the world and they think they have any right to claw that back.

Ah, the work of fiction based on an Ayn Rand novel?

Considering I'm operating from a very different set of values than she was, I doubt I would find the movie particularly persuasive.

Movies are often as much or more the work of their director as they are the work of the author whose book they are based upon. In this case, a reviewer said this:

> King Vidor turned Ayn Rand's preposterous 'philosophical' novel into one of his finest and most personal films, mainly by pushing the phallic imagery so hard that it surpasses Rand's rightist diatribes

I'm of the opposite opinion... now what?

Now you're welcome to find it persuasive?

Criminal fraud issues aside, I would think that all of the artists had a reasonable expectation that the work they were doing would be released, and would then become part of their resume.

Since it didn't get released, they collectively and/or individually might very well bring a civil suit against the company for lost compensation (where compensation is defined as some combination of cash and reputational gains, and this latter part became zero).

I worked for a month on a server migration project that ended up getting axed.

I have 0 expectation of any sort of retribution because I don't get to put the migration on my resume.

That's an insane expectation.

Depends on expectations and contractual agreements on how someone gets paid for their work. Entertainment can be a wildly different beast to that which us regular paycheck folks deal with.

If we eliminated the accounting fiction called "depreciation", and instead simply had all expenses deductible in the year they were incurred or paid on a cash basis (with net losses carrying-over to future years), this wouldn't have happened.

So how do these tax write offs actually work?

I'm assuming that when the film is produced, they spend money to receive an asset, no different than e.g. buying a machine.

With a machine, they could write it off over time, or (I assume) they can delete the movie/scrap the machine to immediately book the remaining value as a loss?

If they don't do that, I think a machine is valued according to the purchase price and written off over X years. How does a movie get valued and written off?

There's a good argument for banning write-offs for salvageable assets that are scrapped (regardless of whether it's machines, inventory or movies) - I've heard the tax impact argument made for the destruction of still-usable assets too.

Seriously! So many exasperated comments talking about unfair "tax breaks" and whatnot, and very little examination of the mechanics that actually would support this. It's like the Seinfeld "write off" scene.

From the sec 174 discussions, I had thought that movie production didn't even have to be capitalized? Or maybe that's wrong?

But even with capitalization, you'd think that selling the movie to someone else would accomplish the same thing - fast forwarding the depreciation - but with some additional immediate cashflow, part of which goes to taxes.

Unless the goal is to float this narrative for a year or two. Call the movies worthless for now, but retain control. And then finally "relent", re-value them upwards, and monetize? This would skip the current depreciation period and push taxes into the future.

Does WB get the whole writeoff in one year, but only if they value the movie at zero and destroy it without ever releasing it? Otherwise I don’t see how doing this is better for them than recouping whatever they might.

"One of WBD’s most notorious post-merger decisions was deleting an entire finished feature, “Batgirl,” that had an estimated budget of $90 million, to claim a tax write-off"

I feel like if someone reads that in a thousand years they're going to look at us the same way we look at some ancient tribe worshipping idols. Years of work and cultural artifacts destroyed for the accounting department, that's nuts.

It's not destroyed, it exists somewhere. And IMO it's just as likely it sees release in the next 1000 years as it is accidentally destroyed or lost.

Movie studio regimes change all the time, and it's possible to un-tax-write-off a work (it's just a giant pain in the ass).

Adult Swim got Sym-Bionic Titan and IGPX back from the dead, and they're owned by the same parent company (Warner Bros.)

Kinda weird to bring legislation into it. Should my employer not be allowed to delete my code because it's my special little snowflake?

I don't see how it is socially beneficial to incentivize wasting millions worth of human effort with taxation benefits.

I don't think it is exactly the same thing with a more utilitarian thing like code. Even then, I'm not convinced outright tossing code out should be incentivized.

Your employer should be allowed to delete your code, but not be rewarded with tax savings for doing so.

If they released the movie to the public domain and set up a torrent, wouldn't the value of it be zero to them? And that in an even more irrevocable manner than destroying the copies they have (since you can never be sure that anyone has squirreled it away). Then they would get literally all the critics off their back.

Isn't Hollywood very well known money laundering machine?

Companies invest money to create products. Some turn into a profit, some don't, some don't even make it to the market. At the end of the year they sum revenues and expenses and either a profit or a loss. If a movie makes zero money it's only an expense and that already reduces the taxes on the revenues. SO why do studios have that tax write-off on top of normal tax on the revenues - expenses figure?

IDK if meta comments are ever allowed but: it appears HN has changed this headline, dropping the imperative clause “…should be a crime”. Why? I get that they want polite conversation on here, but pretending that the whole thesis of this essay doesn’t exist seems like an ineffective and terribly obscurative way to do that. But I’m probably missing something?

This article screams a lack of understanding of finances.

A finished movie doesn't cost $0 to release. There is considerable spend on promotion, distribution, etc. If you don't do it, then movie revenues would be much lower.

It doesn't make sense to spend $10M to make say $30M, when just destroying the film gets you $30M in tax benefits.

From my reading of the article they had offers to buy the film which were more than the $30M tax benefit, but they declined them. If they sell the rights they don't have to handle release.

WBD is a public company, can the shareholders sue or otherwise punish the board/CEO? I'm not sure where those boundaries are, just top of mind because of the recent Musk action. That seems like the appropriate source of any enforcement on this angle, as shareholders are most affected by these decisions and have standing.

I wonder, is it even possible to truly delete a movie?

I am surprised Batgirl didn't leak. How do you even prevent that?

It's just bits.

The short version is that almost everyone with enough access to make a local copy of the movie is financially and/idealistically incentivized enough by future opportunity within the industry not to risk it.

For everyone else, there’s law enforcement supported by unlimited budget for prosecution from the industry.

> How do you even prevent that?

Keep the working copies on computers in a special lab with no external network access.

Restrict access and physically search the people leaving the lab.

Not fool proof, but it will reduce leaks by a lot.

But yeah, once you send out thousands of review copies, there's no stopping the leaks.

But usually a movie is worked on by multiple VFX companies and whatnot.

I would be shocked if copies shared with third parties did not contain obvious and hidden fingerprint watermarks through the film. If the leak can be traced back to a particular studio, they are going to be black balled forever.

Most studios moved to a high security environment a while back. Only Covid reopened things a bit, and not sure how long.

the part that I dont understand is why the production costs aren't always deductible, no matter what happens to the movie.

When I run my company, I can deduct labor and material costs. I dont have to resort to any special measured to qualify for them.

Is this about some accelerated ammonization schedule?

"Why deleting finished programs should be a crime."

Be honest, at least some of you have finished a project before deciding to axe it instead of publishing it. It is any creators right to decide not to publish something.

If the issue is the tax treatment of these circumstances, then fix that.

This argument reminds me Robert Rauschenberg's, Erased de Kooning https://www.sfmoma.org/artwork/98.298/

"... deeming it bad-to-the-point of un-releasability (how they could prove this when no one outside the production had seen it remains a mystery"

Not a mystery at all, the name is enough.

Hey, it's just like in the plot of GTA V :D

I thought it's something absurd Rockstar made just for the plot, but apparently it's a common thing.

I think the issue here isn't that they are deleting the movie, it's that they're deleting other people's work.

Remember, a corporation is a group of people joining together to create something they couldn't individually. Yes, there's a bunch of contract law we pile on top of that to make the concept borderline worthless, but bear with me.

If the employees created the movie, and the broader corporation declares it a failure and attempts to write it off, the people who created it should then be given the copyright or the copyright should be revoked such that those individual artists can do with it as they please.

Anything else is just someone coming over and stomping on your sandcastle because employee contract law is insane.

Isn’t this how game companies operate often? They guard their brand by not putting out mediocre products.

Legal or not, it still reeks of evil. But it seems quite a few people are OK with evil. Very disappointing.

@dang: Actual title: Why Deleting and Destroying Finished Movies Like Coyote vs Acme Should Be a Crime

Jus change the law so total tax write offs put the film into public domain rather than destruction

This...doesn't make sense? The expenses of producing the movie can already be offset against their profits. That's how business works: you only pay taxes on money you earn after expenses.

So how, exactly, do they get an additional write-off for destroying the film? If you deliberately destroy something of value, why should you get to write that off your taxes? Consider: They certainly own a lot of computers. If the CEO walks through the building smashing all the computers with a sledgehammer, the IRS is not going to let them write off the destruction. That would be stupid.

So why can they do this with a movie?

Probably there are some costs involved after publishing the movie. Some minimum guarantee royalty commitment to some people involved, like actors etc.

Do they get to realize the entire loss in the year it occurs?

my saddest story there is "frank'n stein" a hilarious comedy movie and theatre play toying with the Frankenstein plot.

I've seen the movie and it made ma watch a local play and I loved both.

when I tried to get hold of the DVD years later I learned that the heirs to the author Ken Campbell had withdrawn all rights. this removed all prints from all libraries too. the thing is _gone_. because the heirs hated their gene provider so much.

I was amazed this is possible... "freedom of speech"? nope. intellectual property.

That seems... wrong?

You can't unpublish a book by withdrawing the right and force the destruction of already sold copies. I believe DVDs fall under the same first sale doctrine, so this story seems to be missing some details.

it's not a normal book, it's a theatre play, a script. and the license owner can restrict the rights for these to be useless unless relicensed. it was mind bending to me. and yes, it feels wrong.

Yes a play can no longer be performed, but a recording of a play is a different thing.

A songwriter can stop anyone from making new covers of their song, but they can't order the destruction of your CDs.

There are three conversations currently being had here,

One revolves around corporations deleting works that they've paid for.

The second centers on the rights of artists (and is framed via first person, therefore it's at the human level).

The third focuses on corporations, the government and society writ large.

The offered prescriptions and takes on each differ by each scenario.

It's important to recognize that it's, most likely, not possible to create a rule, or even a set of rules, that fits all scenarios for the above categories. But it is likely worth asking questions about the scenario at hand; an executive removed from the production & artistic creation process has decided to use deletion of art works as an accounting strategy to offset debt from a Leveraged Buy Out. A question worth asking is what other irregularities are going on,

   > Financial engineering has always been central to leveraged buyouts. In a typical deal, a private-equity firm buys a company, using some of its own money and some borrowed money. It then tries to improve the performance of the acquired company, with an eye toward cashing out by selling it or taking it public. The key to this strategy is debt: the model encourages firms to borrow as much as possible, since, just as with a mortgage, the less money you put down, the bigger your potential return on investment. The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust.
    > 
    > This approach has one obvious virtue: if a private-equity firm wants to make money, it has to improve the value of the companies it buys. Sometimes the improvement may be more cosmetic than real, but historically private-equity firms have in principle had a powerful incentive to make companies perform better. In the past decade, though, that calculus changed. Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.” This allowed them to recoup their initial investment while keeping the same ownership stake. Before 2000, big special dividends were not that common. But between 2003 and 2007 private-equity funds took more than seventy billion dollars out of their companies. These dividends created no economic value—they just redistributed money from the company to the private-equity investors.
    >
    > As a result, private-equity firms are increasingly able to profit even if the companies they run go under—an outcome made much likelier by all the extra borrowing—and many companies have been getting picked clean. In 2004, for instance, Wasserstein & Company bought the thriving mail-order fruit retailer Harry and David. The following year, Wasserstein and other investors took out more than a hundred million in dividends, paid for with borrowed money—covering their original investment plus a twenty-three per cent profit—and charged Harry and David millions in “management fees.” Last year, Harry and David defaulted on its debt and dumped its pension obligations. In other words, Wasserstein failed to improve the company’s performance, failed to meet its obligations to creditors, screwed its workers, and still made a profit. That’s not exactly how capitalism is supposed to work.

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