David Zaslav at it again. Cartoon Network site shut down, Completed animated film "Fixed" canceled.

Dark times for creators in the film biz. 

Really. This shit is unacceptable. 

With A.I. they want to do away with human creators completely and only hire people to run the programs that computer generate the “content”.

Unions fought hard against that, but I doubt the suits are going to let it stop them. Dangerous times indeed. 

And, of course, AI doesn't create content - it assimilates (that is, steals) existing content, then vomits out a mashed up hallucination that we're all supposed to happily lap up (and pay for).

This.

Exactly...

This is just one problem that occurs when ~5 corporations control almost all media (and hence, the politicians who make the rules).  It almost seems like subjecting art to the cruel logic of maximizing profit is not the wisest course for humanity.

One thing that gets me, though.  If Warner cancels a movie to get a tax writeoff, why do they then get to just keep the movie (locked in a vault) as opposed to releasing it into the public domain?  In both cases, they supposedly make no profit, so the tax writeoff seems appropriate, but in one case the public good is served whereas in the other it is wanton destruction of the heart-felt creation of the artists and creators who actually do the work.

I say, any media business that wants a tax writeoff *must* release all source material into the public domain.

It’s a loophole that was really never used until now. Nobody envisioned it being abused the way it has been. 

There may be a point in the future where they may be able to monetize the film. They are keeping the asset because it does have value. Who knows what rights are in the contract. So.e rights may have a sunset time 

They won’t be able to monetize it if they write it off for taxes. That’s what is looking likely at this point. 

Actually, that is not correct. I am a tax professional. The film costs are normally capitalized. Then, you offset the cost over a number of years. IRS Section 118 allowed up to 15 million to be written off the first year. IRS Section 168 replaced Sec 181 under the Tax Cuts and Jobs Act. It allows for 100% deduction in the first year of distribution. So basically, all of the qualified production costs may be written off in the first year. It is basically bonus depreciation. Normally depreciation is taken over a number of years. The amount of years varies by type of asset.

Now the company still has the asset (the movie). They have written off the costs. At a future point, there is nothing stopping them from releasing the movie. There is nothing in the IRS tax code that says that they can't make any future income off of the gilm. If the company receives income from that release, but does not incur any future costs. All of that income would be taxable when earned. Any future costs would be deducted from income.

So the company is getting the benefit of the costs in the current year rather than splitting it over a number of years. That loss will offset income from other projects and lower their current tax liability.

Companies usually want to decrease their current tax liabilities because they don't know what may happen in the future.

I'm not a contract lawyer, but who knows what incentives were written into the talent's contracts (profit sharing, etc). Do any incentives have a sunset date?

Nope, that’s not how the tax-write-offs for content are working. I’ve detailed this in previous diaries but WD is basically destroying that art. They can never release it themselves without paying huge penalties that are not worth it. 

It’s an extremely fucked up loophole that isn’t working the way it should. But companies writing this shit off are literally destroying content that will never see the light of day again. 

What is the tax code section?

I don’t know the specific complexities, but creators have been saying their works of art have been taken from them and they cannot be released legally because of the write-offs. I have no idea how it works, but it’s a loophole VERY unscrupulous studio heads like Zaslav have been abusing to avoid paying artists fair wages. The public suffers for the art being destroyed too. 

I just looked up some information on impairments. It was a tax article about how it is applied in film. Impairments decrease the value of an asset before amortization is taken. From what I read, there has to be some cashflow calculations performed. It involves the costs of distribution, etc.

There are legitimate uses for impairment. But for a studio to use it to completely write-off the value seems highly unlikely. The IRS could challenge the deduction. The problem is, they would have to have an agent who is an expert on film impairments to review the calculations that the studio performed.

The only reason to use total impairment is that under Sec 168, the film can't be amortized until the first day of commercial release. Sec 181 did not require that.

And, by not releasing the film, they are not required to pay anything to anyone based upon income that the film generates.

What the studio is basically saying is that the projected costs to release the film, less any projected income received, is greater than the capitalized production  costs.

One other thought. If the artists were paid up front, their wages would be part of the capitalized expenses that make up the value of the asset (the film).

By having some kind of agreement with the artists to pay based upon the income generated moves those wages into costs associated with the release of the film. Those wages would be used in the afore mentioned cash flow.

That is to the studios benefit when doing the impairment calculations. 

It’s actually a bad business decision. Which is why we are all so furious, 

But that’s what they’ve been doing. 

One other thing. What they are doing is not really a loophole. It is actually abuse of the system.

I don't want to get really nerdy about it. The explanation would be long. About 10 years ago the IRS did a major revision of the capitalization rules and what could be expensed. Impairment is part of that. A company should have the most accurate list of assets on their books as possible. GAAP rules say the amount should basically be the Fair Market Value of the asset.

As there are a number of what ifs regarding the value of film/tv there were a number of IRS rulings on how to account for the value of the asset. Zaslav's company appears (from what is public) to be following the rules. Except they have taken it to an extreme. That is where I believe the IRS could challenge the claim, even though they probably won't. In a hypothetical situation, if the studio's calculation was overruled, any amount left over from a revised impairment calculation, would not be able to be expensed unless the film was released commercially for one day. That could leave a balance not expensed.

Also, I have not yet come across anything that says there are any penalties. I will have to read the original legislation from 10 years ago. It is very long. I've read parts of it over the years. Most of us have relied on extensive summaries and subsequent IRS clarifications.

That is another reason that funding the IRS is vital. The amount of funding that Biden was able to get Congress to pass has already brought in more than 1 Billion more tax dollars.

And it’s worse than just the corporations controlling all media. 

In a very real sense, they own — at least in the legal sense — much of our collective cultural history.

Warner brothers is the EA of streaming platforms.

any proof that Zaslav is a dementor and is incapable of allowing happiness to exist?

Wish we could send him to Azkaban. 

EA??

Videogame company known for questionable decisions. 

Thanks. For clueless others like me, here’s the link.

CartoonNetwork.com now just redirects to Max.com, so that’s probably why the site was down. Amazon Prime advertises it, which means Amazon is probably the host. After the antitrust ruling against Google, I’m hoping there will be one against Amazon.

The site isn’t just down. It’s been shuttered. 

Is this move in response to MeTV’s recently launched cartoon channel, which shows many of the same shows that Boomerang does?

Probably not. But who knows? 

I have been seeing ads on Turner Classic Movies channel, that TCM is now (or soon will be) part of MAX channel. So….what now? We have to pay to see reruns of old movies? And will those old movies come with backstory commentary that puts a film in perspective, as TCM now does?

Much as I might enjoy them, there are other shows to watch. Bummer about your cartoons and games, too. 

We are paying more money for less content. 

I’ve been worried about that on TCM too.  The suits and bean-counters almost trashed TCM last year, firing most of their long-term employees and executives and leaving only a skeleton crew, but the channel was saved by the intervention of a few big, influential people like Steven Spielberg and Martin Scorsese.  Who knows what the plans for it were before those big-hitters got involved.

Need to reverse tax breaks in advance of loss.  Just crazy Trumpian policies of theft fro the public.

Yup.

Correcting misunderstandings about tax write-offs:

1. A tax write off is never a good reason to spend money - If your tax rate is say 20%, and you spend $100 which you then write off, you save $20 in taxes.
2. If you spend money to create or acquire an asset and then write it off can you still keep the asset? - Yes. You write it down to whatever the current value is thought to be. If it ends up being worth more, that will affect subsequent taxes at a later date.

Which is why this all is so stupid. 

I have a young friend in L.A. who is an illustrator/animator.  He and his wife graduated from the celebrated animation program at Cal Arts (founded by Walt Disney) five or six years ago and he has been doing freelance work, and she has had steady storyboarding jobs at Nickolodeon and a few other places.

In our last phone call, he told us the animation business is in complete chaos, imploding.  He said he and his wife went through the program, only to feel like they’re left standing on the dock watching the ship sail off … only to explode.

There is simply no way for new and original content to get made, as no one will listen to any proposals.  All they want is “content” with built-in audiences to ensure “hits”.

He has had better luck in the illustration field, getting some fortunate breaks, and his work with comics writer Alan Moore will come out in October.  Then his own graphic novel will come out some time after that.  He said that a number of his animation classmates — who have worked on some really big movies — are contacting him to ask how to get into comics work, as there is just no way to do anything meaningful in animation any more.

We are going through another Dark Age in animation. What’s astounding is the quality level of current projects is actually quite decent. Usually turmoil is the industry is brought on by substandard projects.