HBO Max/Discovery+ Merger

[ncted]

I'd honestly be happy if they just gave us 1080p HDR. I can't really see the difference between UHD and HD in most cases.

 

[Bruce]

Taking another tax write off instead of releasing a movie-

Warner Bros. Discovery Kills Completed Film Coyote vs. Acme, Takes $30 Million Write-Off Instead | Cord Cutters News

Warner Bros. Discovery is shelving Coyote vs. Acme, saying the live-action animation hybrid film is more valuable as a $30 million write-down than a theatrical or streaming release. The film has seen several disappointments along its production journey. It was slated for release several times...

cordcuttersnews.com

IRS needs to get some of these rules changed, for example, Paramount received a $1.7 Billion tax write off, for the shut down of Showtime and the streaming version.

Except it is just being changed to Showtime with Paramount+ for the cable/sat. subscribers.

 

[lakebum431]

Taking another tax write off instead of releasing a movie-

Warner Bros. Discovery Kills Completed Film Coyote vs. Acme, Takes $30 Million Write-Off Instead | Cord Cutters News

Warner Bros. Discovery is shelving Coyote vs. Acme, saying the live-action animation hybrid film is more valuable as a $30 million write-down than a theatrical or streaming release. The film has seen several disappointments along its production journey. It was slated for release several times...

cordcuttersnews.com

IRS needs to get some of these rules changed, for example, Paramount received a $1.7 Billion tax write off, for the shut down of Showtime and the streaming version.

Except it is just being changed to Showtime with Paramount+ for the cable/sat. subscribers.

I think you might be confused about how taxes work. In general, a company is taxed on their profit. That is Revenue minus expenses. Content is capitalized, instead of expensed as incurred. That means they put an asset on the balance sheet instead of decreasing current year income. In a normal situation a company decreases that asset as it earns revenue on it (when it is released). When a company decides that they are no longer going to use that content (for any reason), it is no longer an asset to the company, so they have to take it off their balance sheet and charge the full expense against income. All this does is change the timing of the expense and therefore when the expense impacts the taxable income.

I'm not sure what you would want the tax rules changed to that would make any difference??

 

[Bruce]

I think you might be confused about how taxes work. In general, a company is taxed on their profit. That is Revenue minus expenses. Content is capitalized, instead of expensed as incurred. That means they put an asset on the balance sheet instead of decreasing current year income. In a normal situation a company decreases that asset as it earns revenue on it (when it is released). When a company decides that they are no longer going to use that content (for any reason), it is no longer an asset to the company, so they have to take it off their balance sheet and charge the full expense against income. All this does is change the timing of the expense and therefore when the expense impacts the taxable income.

I'm not sure what you would want the tax rules changed to that would make any difference??

Upon its merger, Warner Bros Discovery was looking to reduce its $50-billion debt load. Projects like Batgirl were axed for tax purposes which means the existing footage can never see the light of day.

David Zaslav Shows No Remorse for Canned Movies and Series During Investor's Call

Warner Bros. Discovery to Take Additional $800M-$1B in Write-offs, Says ‘Westworld,’ ‘The Nevers’ Being Licensed to Third-Party Streamers

The writeoffs come after HBO Max pulled 'Westworld' from its streaming service, with other high-profile projects canceled or axed.

www.hollywoodreporter.com

After a brutal year of restructuring, layoffs, and tax write-offs stemming from disappeared content

Warner Bros. Discovery says it’s done killing shows and movies just for tax write-offs

After a year of cancellations and restructuring, Warner Bros. Discovery wants to move forward.

www.theverge.com

 

[lakebum431]

Upon its merger, Warner Bros Discovery was looking to reduce its $50-billion debt load. Projects like Batgirl were axed for tax purposes which means the existing footage can never see the light of day.

David Zaslav Shows No Remorse for Canned Movies and Series During Investor's Call

Warner Bros. Discovery to Take Additional $800M-$1B in Write-offs, Says ‘Westworld,’ ‘The Nevers’ Being Licensed to Third-Party Streamers

The writeoffs come after HBO Max pulled 'Westworld' from its streaming service, with other high-profile projects canceled or axed.

www.hollywoodreporter.com

After a brutal year of restructuring, layoffs, and tax write-offs stemming from disappeared content

Warner Bros. Discovery says it’s done killing shows and movies just for tax write-offs

After a year of cancellations and restructuring, Warner Bros. Discovery wants to move forward.

www.theverge.com

If you think "Collider" understand tax rules then I'm not sure what to tell you. The way I described it is 100% accurate. You don't get an "extra tax write-off" for shelving content. You just accelerate the loss because it is no longer amortized over the life of the content because there is now no revenue that gives it a life. It's a timing difference which is also referred to as a deferred tax asset.

My guess is that the decision to write off the initial content (like Batgirl) is because it was crap content that was originally made for HBOMax and was very low quality. I'm sure that they decided to accelerate the write-off because under the accounting rules, upon an acquisition (Discovery acquired Warner Media for accounting purposes) you are able to account for those write-offs as part of purchase accounting and ascribe no value to them (therefore the expense never flows through your income statement for financial reporting purposes) and the offset goes to Goodwill (which isn't amortized). However, tax books are different than GAAP books and this does not change the facts I stated above as to how it impacts the company's taxable income.

These new content write-offs are after 1 year of the acquisition date so the purchase accounting window is no longer open, meaning that the expense for the write-off still flows through the Income Statement for financial reporting purposes (same for tax treatment like all the others).

So again, saying the reason is for "tax write-offs" is entirely inaccurate and I'm not sure what "needs to be changed" here...

 

[navychop]

Well, Hollywood has some interesting accounting rules. They seem to have a great deal of leeway in assigning costs to a project, that might seemingly be better assigned to a different project. So it might appear that a written off project had an interestingly high valuation.

 

[Bruce]

If you think "Collider" understand tax rules then I'm not sure what to tell you. The way I described it is 100% accurate. You don't get an "extra tax write-off" for shelving content.

I love how you put down one of my links, yet ignore the other two in a effort to prove yourself correct.

There were 50 more links that back up what I posted, I thought 3 were enough.

Everything I have posted I have provided links for, they all say the same thing , Tax Write-offs/Tax Benefits

Here is another, straight from Paremount’s quarterly report. on a tax benefit they received for the change over with Showtime, the line even says-(Provision for) benefit from income taxes

View: https://www.reddit.com/r/paramountglobal/comments/17o4jyx/paramount_has_been_profitable_all_year_writing/

 

[lakebum431]

I love how you put down one of my links, yet ignore the other two in a effort to prove yourself correct.

There were 50 more links that back up what I posted, I thought 3 were enough.

Everything I have posted I have provided links for, they all say the same thing , Tax Write-offs/Tax Benefits

Here is another, straight from Paremount’s quarterly report. on a tax benefit they received for the change over with Showtime, the line even says-(Provision for) benefit from income taxes

View attachment 166517


View: https://www.reddit.com/r/paramountglobal/comments/17o4jyx/paramount_has_been_profitable_all_year_writing/

I'm sorry, but you obviously don't understand how the corporate tax rules work. I'm a CPA. I work in the media and entertainment space. I'm well aware of how this works. It is a timing difference, nothing else. It does not generate "additional" tax benefits. It is a shift from a Deferred tax asset (DTA) to tax expense. It was always going to happen. It was just about when.

 

[lakebum431]

Well, Hollywood has some interesting accounting rules. They seem to have a great deal of leeway in assigning costs to a project, that might seemingly be better assigned to a different project. So it might appear that a written off project had an interestingly high valuation.

I don't totally agree with that. It is more prescriptive than it may appear as far as what is included. There are some pretty funky rules on how the content is amortized though (the ultimates rules). Basically you have to look at the total amount of revenue you expect from all sources and spread the content amortization relative to when you expect that revenue. However you have to continually adjust that timing as you get better information which can result in large swings in expectations depending on how movies do in the box office.

 

[Bruce]

I'm sorry, but you obviously don't understand how the corporate tax rules work. I'm a CPA. I work in the media and entertainment space.

Fine, your a CPA, I have a MBA( I also, since earlier this year, work for a studio that is doing the same exact thing as Warner, for tax purposes).

But none of that means anything, every link I posted says the same thing, I even posted a actual form from Paramount’s Quarterly report, that shows the Tax Benefit.

If all these stories are incorrect, if Paramount’s form they file with the Government is wrong, if the Warner executive that is quoted on those tax benefits is wrong, in one of those links I provided, tell them that.

Or maybe the IRS will, but I have yet to see a story on that.

 

[Bruce]

I don't totally agree with that. It is more prescriptive than it may appear as far as what is included. There are some pretty funky rules on how the content is amortized though (the ultimates rules). Basically you have to look at the total amount of revenue you expect from all sources and spread the content amortization relative to when you expect that revenue. However you have to continually adjust that timing as you get better information which can result in large swings in expectations depending on how movies do in the box office.

So now you are posting they can do it, but the rules are loose?

And if you look though my past posts on the subject, I said it was based partly on what the studios are calling it, lost revenue for not airing.

Warner did the same thing with the final season of Snowpiercer, already filmed, out of post, ready to go, but they shelved it, took the tax benefit, called it loss revenue for never airing on TNT, yet they paid for the filming of the season.

 

[navychop]

Why does this all remind me of Liberace vs the IRS over his jeweled jackets etc?

 

[ncted]

I'm sorry, but you obviously don't understand how the corporate tax rules work. I'm a CPA. I work in the media and entertainment space. I'm well aware of how this works. It is a timing difference, nothing else. It does not generate "additional" tax benefits. It is a shift from a Deferred tax asset (DTA) to tax expense. It was always going to happen. It was just about when.

Don't forget to apply time value of money to the calculation. Also, by shelving content that may never be profitable, they avoid having to pay residuals on unprofitable projects. Disclaimer: I am not a CPA or an MBA, but I slept at a Holiday Inn Express last night.

 

[lakebum431]

Fine, your a CPA, I have a MBA( I also, since earlier this year, work for a studio that is doing the same exact thing as Warner, for tax purposes).

But none of that means anything, every link I posted says the same thing, I even posted a actual form from Paramount’s Quarterly report, that shows the Tax Benefit.

If all these stories are incorrect, if Paramount’s form they file with the Government is wrong, if the Warner executive that is quoted on those tax benefits is wrong, in one of those links I provided, tell them that.

Or maybe the IRS will, but I have yet to see a story on that.

Bruce, I'm sorry buddy, but you're just not understanding how this works. The filing is correct. The filing that you have above is their SEC Form 10-Q for the 3rd quarter. This is not their tax return. It shows the write-off of the content as a separate line item (because it was large enough that it required a separate line item disclosure for the income statement (Statement of Operations). The Provision for income taxes number is always a separately required line item and it is the 3 month and 9 month impact of income taxes across the entire company (not just related to the write-off). It is impacted by thousands of transactions but in this case a large impact was due to the release (write-off) of the capitalized content. Because the content was written-off (expensed) in a single period as opposed to over the ratable life of expected revenues (because there are no longer expected revenues this is required) there is a large impact in the nine month period (this write-off happened prior to the 3rd quarter). This did not change the amount that they would ultimately write-off related to that content. It just changed the timing.

 

[lakebum431]

So now you are posting they can do it, but the rules are loose?

And if you look though my past posts on the subject, I said it was based partly on what the studios are calling it, lost revenue for not airing.

The Batgirl tax benefit, I have read that Warner put the loss at $120 Million for not airing on HBOMAX, but the IRS approved $100 Million.

Warner did the same thing with the final season of Snowpiercer, already filmed, out of post, ready to go, but they shelved it, took the tax benefit, called it loss revenue for never airing on TNT, yet they paid for the filming of the season.

No, please re-read my position. I was disagreeing with the fact that the rules are loose. I did say that there are some funky rules on how the content is amortized in a normal situation as opposed to the way that most assets are amortized. That is the ultimates accounting that I referred to. It has nothing to do with this situation however.

There is no such thing as a tax deduction or a write-off for lost revenues. Again, poorly written articles are very misleading. You don't get credit for what might have been. You expense what was spent and in a case like this where you didn't have any revenues, then those expenses don't have any revenue to offset them resulting in a net higher amount that hits the total expense.

As far as what expenses are allowable for tax and what aren't, again, that is not unique to content that is written-off. The IRS has different rules than GAAP (Generally Accepted Accounting Principles) that are used for financial statements in SEC filings. There are always certain expenses that appropriately flow through the GAAP financials that are not allowable for US income tax purposes. This would have been the same outcome if the content was written off or if it was used on HBO Max or in the theater.

 

[lakebum431]

Don't forget to apply time value of money to the calculation. Also, by shelving content that may never be profitable, they avoid having to pay residuals on unprofitable projects. Disclaimer: I am not a CPA or an MBA, but I slept at a Holiday Inn Express last night.

Very true! Getting the impact today vs. over multiple years is likely one of the reasons that they did this. In addition, they don't have to pay residuals or participation rights to the actors, directors, showrunners, etc.

 

[Bruce]

and more-

HBO Max parent company Warner Bros. Discovery announced last week that the $90 million Batgirl movie is being shelved and will no longer be released on the streaming platform—or anywhere else.

The decision was made following the arrival of new Warner Bros. Discovery CEO David Zaslav, who is championing cost-cutting measures and favors releasing films theatrically instead of streaming platforms. Experts say that the company decided to "cut its losses" rather than release a film that did not align with the DC and HBO Max brand, while also giving itself a hefty tax write-off.

"By shelving the Batgirl film, Warner Bros. will be able to reduce the loss incurred in producing Batgirl against its net income from other movies. Thus, the loss from Batgirl will reduce taxable income," James M. Bandoblu, Jr., a partner at New York-based law firm Hodgson Russ, told Newsweek.

"Of course, Warner Bros. did incur costs, and thereby lose money, by producing the film and receiving no income in return. As such, it is not as though there is a tax benefit being obtained here without a non-tax (i.e., financial) cost," Bandoblu, who is also head of his firm's tax dispute resolution practice, explained.

Warner Bros. 'Cut Its Losses' by Axing $90 Million 'Batgirl' Movie: Lawyer

"In the end, 'Batgirl' was the canary in the coal mine for the new post-COVID era of major film studios," one expert told Newsweek.

www.newsweek.com

 

[lakebum431]

"Of course, Warner Bros. did incur costs, and thereby lose money, by producing the film and receiving no income in return. As such, it is not as though there is a tax benefit being obtained here without a non-tax (i.e., financial) cost," Bandoblu, who is also head of his firm's tax dispute resolution practice, explained.

This, read this from your post above. Please. Then pause and read it again.
From your quote above:
"As such, it is not as though there is a tax benefit being obtained here without a non-tax (i.e. financial) cost."
This is what I have been saying post after post. The write-off did not create any additional tax benefit. The expenses that they incurred were going to reduce their taxable income no matter if they wrote it off or if they generated revenue from it and expensed it over time.

THE ONLY DIFFERENCE IS THE TIMING OF THAT TAX BENEFIT OF THE ACTUAL EXPENSES INCURRED.

 

[Bruce]

This, read this from your post above. Please. Then pause and read it again.
From your quote above:
"As such, it is not as though there is a tax benefit being obtained here without a non-tax (i.e. financial) cost."
This is what I have been saying post after post. The write-off did not create any additional tax benefit. The expenses that they incurred were going to reduce their taxable income no matter if they wrote it off or if they generated revenue from it and expensed it over time.

THE ONLY DIFFERENCE IS THE TIMING OF THAT TAX BENEFIT OF THE ACTUAL EXPENSES INCURRED.

and it says this-

Experts say that the company decided to "cut its losses" rather than release a film that did not align with the DC and HBO Max brand, while also giving itself a hefty tax write-off.

So yes or no, did Warner benefit from shutting down the movie with regard to taxes.

All the News stories say yes, some guy on a forum says no.

Now taxes are not my expertise, statistics and trends are what my job requires me to go when I have to do my reports.

 

[navychop]

The word for today is “Semantics.”