This is a highly simplified idea:The decision makes some sense spelled out this way, except it still seems like they could have released both in some capacity later instead of outright cancelations.
Scenario 1: Cancel the Release
- The film cost $100M.
- Claiming the film is incongruent with the strategy from the merger results in getting a tax write down of $25M
- This results in a net loss of $75M.
- The film cost $100M
- The film is projected to make $20M by releasing it without any additional work or marketing.
- Net loss of $80M.
- Releasing it in this state might be reputationly damaging, both to the brand, actors, creatives involved, etc.
- The film needs another $50M in marketing and post-production to bring it to the 'finished' state.
- With that additional 50M the film is projected to make $50M.
- Net loss of $100M.
Essentially, taking the tax write down is a bet by the executive and financial team that the movie was going to bring in less money by releasing it than the tax write off will bring (i.e. releasing it would cause a bigger loss); it's essentially a vote of no confidence in the film's ability to recoup it's budget.
There are additional circumstances and aspects which make this more complex (e.g. the reputational element, the relationship with creators, the merger impacting/etc how lenders perceive profits and any agreements or contracts that dictate this, the timing of financial reporting for pre-/post-merger [and how cancelled or strategy-incongruent projects factor in to that reporting], etc.), but at the highest and most simplified level it's a bet that the movie would have lost more money by releasing it than not releasing it at all and the merger provides an opportunity to do this. Releasing the movie at all, through any channel, means the full cost cannot be written down.
EDIT: Corrected write off to write down
Last edited: