R.I.P. Coyote vs. Acme: Warner Brothers’s Legal Movie Turned Tax Sacrifice
Although Coyote vs. Acme sounds like just another legal case, the title is quite deceiving: it is a movie. This live-action-animation hybrid film follows the beloved cartoon character, Wile E. Coyote, and his product liability case against the fictional corporation, Acme.[1] While this premise sounds like an absolute delight for lawyers and families alike, Coyote vs. Acme will likely never see the light of day. On November 10, 2023, Warner Brothers (WB) announced that they would be shelving the movie.[2] The company then took an “estimated $30 million write-down on [Coyote vs. Acme’s] $70 million production.”[3] Movie fans and industry members were less than pleased:[4]
What Makes Coyote vs. Acme Different
So, what’s all the fuss about? Shelving, or the abandonment of a film, is a relatively common practice.[5] Studios often shelve movies to save themselves from releases they predict as unprofitable losses.[6] What makes this case different, however, is that Coyote vs. Acme is a fully completed movie.[7] It is one thing to cancel a movie during production when the company may determine that the completion cost is not worth the potential income. It is another to invest in a production until completion and not even reap the benefits.
This is not WB’s first time shelving a fully completed movie.[8] In August 2022, WB canceled Batgirl, a live-action film starring Gotham City’s notorious vigilante heroine.[9] Batgirl’s cancellation sparked outrage, but WB justified their actions as a necessary cautionary move.[10] First, Batgirl tested poorly during its initial screening tests,[11] and the quality was deemed “unspeakable.”[12] Second, the movie was slated for immediate release on streaming platforms, bypassing an international theatrical debut entirely.[13] A worldwide release would have promised a more lucrative outcome, but this did not seem possible for Batgirl.[14] At the time, the company wanted to prioritize other films as they transitioned out of pandemic-era adjustments.[15] Although the decision remained unpopular,[16] WB provided justification for it.
There are several core differences between Coyote vs. Acme, different from Batgirl, however. First, the film received a positive response during its test run, scoring “14 points above the family norm.”[17] When lead actor Will Forte first heard about the cancellation, he believed the movie to be a “hunk of junk.”[18] However, Forte completely flipped his opinion and called it “amazing” after watching Coyote vs. Acme’s one and only screening.[19] Forte described the movie as “[s]uper funny . . . , visually stunning, sweet, sincere, and emotionally resonant in a very earned way”[20]—the very description of a major Blockbuster hit.
Second, Coyote vs. Acme was set for a world-wide theatrical release—a far cry from the straight-to-streaming treatment Batgirl received.[21] It is not like WB was struggling in the theatrical-release department; just a couple of months prior, Barbie was released in theaters and skyrocketed at the box office—a grand total of $1.4 billion globally.[22] Of course, not every movie can reach Barbie’s level of success in a post-pandemic world. But even Space Jam: A New Legacy—a live-action-animation hybrid that suffered from a simultaneous theater-and-streaming release—still made $163.6 million globally.[23] Movies are never guaranteed to succeed,[24] but in an industry founded on taking creative risks,[25] Coyote vs. Acme seemed like a relatively safe one.[26]
The overwhelmingly positive reviews and plan for theatrical release made people realize that Batgirl was not an outlier, but the model.[27] People were—and still are—understandably upset about WB tossing Coyote vs. Acme away. The outrage stems not only from the inability to see the movie, but also from how the studio so easily disregarded a project that the creative team put their heart into.[28] Reporter Matt Belloni sums it up nicely: “it seems wrong that these artists would put years of their lives into a movie that the studio would decide not to release for a small financial benefit.”[29]
Speculating Warner Brothers’s Accounting Strategy
Public forums and newspapers scrambled to answer why sacrificing a beloved IP for a tax write-off was the ideal business move, even after ardent public outcry.[30] The most straightforward explanation boils down to financial troubles and massive restructuring.[31] In 2022, WB merged with Discovery+ to form Warner Brothers Discovery (“WBD”).[32] This merger took on a collective of $41.4 billion in debt[33] and upended the old WB board of directors.[34] Moreover, WBD cited challenges with the shift in traditional viewing platforms, increased competition, the lingering issues of the pandemic, and the SAG-AFTRA strikes[Roo1] .[35] In an attempt to improve WBD’s financial health, newly appointed CEO David Zaslav revealed that the company had to engage in massive spending cuts, resulting in “mass layoffs and billions in content write-offs.”[36]
WBD’s actions could indicate that the conglomerate might engage in “big bath” accounting. When a company “takes a big bath,” it manipulates its earnings to aggregate loss within a single fiscal year.[37] The purpose is to create artificial growth for the following years since all potential and future losses have already been taken care of.[38] This accounting method is controversial—although lawful—and is often utilized when a company experiences a negative year or experiences massive restructuring.[39]
In the film world, prematurely dealing with loss can translate to writing down a movie if “the carrying cost of a given production is higher than the expected recoverable amount.”[40] Tax attorney Andrew Leahey suggests that WBD considers Coyote vs. Acme an impairment charge[41] or an asset “whose value decreases or is lost completely.”[42] Therefore, movies deemed “impairment charges” are the first on the chopping block when a company “takes a big bath.”[43] This seems to align with WBD’s “strategic alignment plan,” where the company abandoned up to $115 millions worth of films by the end of 2022.[44] However, the company has not confirmed these exact methods, leaving the public in the dark.[45]
But even with all the behind-the-scenes accounting, would it not be beneficial to release Coyote vs. Acme anyway? Indeed, with its earnest reviews and ardent public demand, this movie would be able to wiggle its way out of an impairment charge status and help chip away at WBD’s 41.4 billion debt status. However, we must also consider how much of an investment it is to release a film. The cost of marketing and distribution is almost as costly as the production itself, ranging between $50-100 million.[46] Zaslav even posed the question: “Should we take certain of these movies and open them in the theater and spend another $30 [million] or $40 million to promote them?”[47] Ultimately, it seems like the margin of profit that WBD predicted the movie would make was not worth the cost of releasing it in the first place.
It is important to note that Coyote vs. Acme was not destined for the grave from the very start. WBD displayed some level of responsiveness after the public responded poorly to the news.[48] In November 2023, the media conglomerate entertained the idea of selling the film for $75-80 million—the total production price.[49] Netflix, Paramount+, and Amazon made handsome bids, but none were willing to meet the steep asking price.[50] WB ultimately did not accept any offers, and Coyote v. Acme is still destined for the grave.[51] Once again, the public is left to ponder why. One theory is that WBD would only accept the deal if the price could cover the negative price and then some.[52] Others propose embarrassment; why risk selling a movie for 75-80 million if it has the potential to make so much more than that?[53] WBD has been tight-lipped,[54] so fans are left to speculate.
Addressing Concerns and Potential Solutions
WBD’s refusal to release Coyote vs. Acme in any capacity raises several concerns. First, the public began questioning the legality of WBD’s questionable actions. Second, legal experts have started asking if a new class of victims is implicated: the taxpayer.
Are WB’s Actions “Predatory and Anti-Competitive?”
WBD remains unpopular with the public. Besides shelving movies featuring beloved cartoon characters, the company is also in a class action for failure to pay their employees.[55] To add fuel to the fire, Zaslav apparently received a pay package of $49.7 million in 2023—“a 26.5% increase from 2022.”[56] This was a slap in the face to workers and fans alike, many of them voicing their complaints on social media. One industry worker alleged that although the WBD workers “generated $400 billion in 2023,” workers saw “NONE of it.”[57] Another wirily noted that “[Zaslav’s] raise is literally the budget of a movie. They gave him the budget of a movie for being so good at not releasing movies.”[58]
Public outcry also attracted the attention of elected representatives. On November 13, 2023, Representative Joaquin Castro tweeted the following:[59]
Rep. Castro’s tweet became extremely popular with the public, resulting in thousands of likes and reposts.[60] Castro also raises the question: can WBD’s action amount to a formal investigation led by the administrative branch?
While a formal investigation sounds like a fitting solution, it is questionable whether anything can be done from an administrative standpoint. If WBD is truly engaging in “big bath” accounting, then there is a perfectly legal explanation to Zaslav’s dramatic pay increase. When a company aggregates their losses, board members are more likely to “earn” a large financial bonus based on the “growth” that occurs in the following year.[61] This may seem rather unethical, but it is all still technically legal.[62]
Rep. Castro suggests involving the Federal Trade Commission (FTC), which reviews mergers—such as the WB and Discovery+ mega-conglomerate—to police for anticompetitive or unfair practices.[63] While the megamerger itself is within the FTC’s jurisdiction, it is difficult to ascertain whether the agency can reasonably do anything about Coyote vs. Acme. WBD’s actions are not actually anti-competitive; “[i]t's just one studio having financial problems deciding that they don't want to release a product.”[64] The company may simply be alleviating their internal burdens, not reduce competition. Therefore, the FTC can “review this conduct,” as Rep. Castro suggests,[65] but the public should not rely on the administration agency to take action.
For solutions, the ball might be in Rep. Castro’s court—Congress. Currently, no bills appear to prevent an entertainment conglomerate from shelving its products. However, some bills address issues with the megamerger, such as the self-explanatory Tax Excessive CEO Pay Act of 2024.[66]
What are the tax implications?
One claim arising from the Coyote vs. Acme debacle is that this is not just an accounting issue but an issue with state tax incentives as well.[67] Film production is expensive, so studios often rely on tax legislation to fund and mitigate the production process.[68] States provide these incentives to attract production to their state in the hope that it will “create jobs, [] draw investments to an area, [and] increase tourism.”[69] But despite the promising gains of tax incentives, tax attorney Leahey argues that a state loses out on economic boons when a movie is shelved.[70] “When a film is cast into the dustbin of history for tax purposes,” Leahey states, “the public is helping offset movie studios’ gains and line studio heads’ pockets.”[71]
Leahey’s argument is true, in part. Technically, New Mexico, the central filming location of Coyote vs. Acme,[72] already benefitted from the tax incentives. The southwestern state offered WB qualified in-state production credits,[73] and in return the studio hired “180 New Mexico crew members, 49 New Mexico principal actors and roughly 2,120 New Mexicans serving as background talent.”[74] New Mexico successfully attracted jobs for its constituents, so it is hard to deny that the state never realized economic gains in this regard.
However, when a movie is shelved, New Mexico loses out on the long-term purposes of tax incentives. Tourism is one such aspect.[75] New Mexico’s Economic Development Department expressed excitement about showcasing Albuquerque as an iconic Looney Tunes location.[76] Perhaps they were hoping that their city would receive the same treatment as Forks, Washington—a small drive-through town that became revitalized after the release of the Twilight saga.[77] Moreover, New Mexico could have been trying to use tax incentives to vitalize their arts scene. Tax incentives are one of the reasons why California, New York, and Georgia have such robust film industries, after all.[78] However, New Mexico would not have received either of these reputational boons without the movie’s release.[79] Leahey is not incorrect when he says that “any policy rationale for incentivizing film production . . . [is] wholly lost when the film is never released.”[80]
Conclusion
Overall, one cannot deny the tragedy of WBD shelving Coyote vs. Acme. A potential Blockbuster hit was sacrificed for a tax write-off of all things. It is understandable why fans and the creative industry remain angry. The reputation and fun that comes with releasing a family movie will never come to fruition, to the chagrin of fans, industry workers, and taxpayers alike. The only ones who profit are WBD executives attempting to mitigate company harm. But for all the funny business behind the scenes, it does not seem like we can hold WBD accountable for shelving their movies. So, unless new information comes to light, Coyote vs. Acme will likely remain behind closed doors.
“That’s all folks!” – Porky Pig
[1] See Laurén Alexa, First Look Revealed for Resurrected ‘Coyote vs. Acme’ Feature, AWN (Jan. 22, 2024, 4:49PM), https://www.awn.com/news/first-look-revealed-resurrected-coyote-vs-acme-feature.
[2] James Hibberd, Will Forte Sad After Finally Watching ‘Coyote vs. Acme’: “It’s Incredible”, The Hollywood Reporter (Feb. 29, 2024, 9:46AM), https://www.hollywoodreporter.com/movies/movie-news/will-forte-coyote-vs-acme-review-1235839616/.
[3] Anthony D’Alessandro, ‘Coyote Vs. Acme’: Warner Bros Shelves Finished Live-Action/Animated Pic Completely As Studio Takes $30M Tax Write-off, Deadline (Nov. 9, 2023, 12:38PM), https://deadline.com/2023/11/coyote-vs-acme-shelved-warner-bros-discovery-writeoff-david-zaslav-1235598676/.
[4] Saber (@Saberspark), X (Feb. 12, 2024, 2:45PM), https://x.com/Saberspark/status/1757174182650028366, and Chris DeRose (Wants a Full time job Please) (@ScratchyDerose), X (Nov. 9, 2023, 5:01PM), https://x.com/ScratchyDerose/status/1722781553527247027, and Amos Posner (@AmosPosner), X (Feb. 9, 2024, 7:46AM), https://x.com/AmosPosner/status/1755981529375793553.
[5] See generally Tony Maglio, Warner Bros. Scrapping ‘Batgirl’: Test Screening Scores Were Poor but Not Without Precedent, Indiewire (Aug. 3, 2022, 1:46PM), https://www.indiewire.com/features/general/batgirl-why-warner-bros-scrapped-hbo-max-theatrical-release-1234747665/ (noting how other major entertainment companies are also shelving movies).
[6] See generally Jacob Oller, Destroying Movies for Fun and Profit, Paste (Feb. 9, 2024, 3:14 PM), https://www.pastemagazine.com/movies/warner-bros-discovery/shelving-movies-tax-write-off-coyote-vs-acme-warner-bros.
[7] D’Alessandro, supra note 3.
[8] See generally Samantha Bergeson, ‘Batgirl’ Was ‘Not Releasable’ and ‘Would Have Hurt Those People Involved,’ Says Peter Safran, Indiewire (Jan. 31, 2023, 2:30 PM), https://www.indiewire.com/features/general/batgirl-was-not-releasable-would-hurt-dc-1234805604/.
[9] Id.
[10] See id.
[11] Id.
[12] Maglio, supra note 5 (discussing the poor quality of the Batgirl movie).
[13] Id.
[14] Maglio, supra note 5 (noting how a theatrical release would have a more “direct revenue stream”).
[15] Maglio, supra note 5 (referencing David Zaslav’s goals for the DC-verse).
[16] Andrew Leahey, Movie Tax Write-Downs Help Studios Profit at Public’s Expense, Bloomberg tax (Nov. 21, 2023, 1:30 AM), https://news.bloombergtax.com/tax-insights-and-commentary/movie-tax-write-downs-help-studios-profit-at-publics-expense. (“[A] Batgirl movie that people are apparently still very upset about.”).
[17] D’Alessandro, supra note 3.
[18] James Hibberd, Will Forte Sad After Finally Watching ‘Coyote vs. Acme’: “It’s Incredible”, The Hollywood Reporter (Feb. 29, 2024, 9:46 AM), https://www.hollywoodreporter.com/movies/movie-news/will-forte-coyote-vs-acme-review-1235839616/.
[19] Id.
[20] Id.
[21] Compare D’Alessandro, supra note 3, with Maglio, supra note 5.
[22] Barbie (2023), Box Office Mojo, https://www.boxofficemojo.com/title/tt1517268/ (last visited Oct. 3, 2024).
[23] D’Alessandro, supra note 3.
[24] See Hibberd, supra note 2 (“‘Even when a movie tests very well . . . there’s no guarantee that it’s gonna be a hit.’”).
[25] Ayesha Rascoe, Why Warner Bros. has shelved another finished movie, NPR (2023), https://www.npr.org/2023/11/19/1214042387/why-warner-bros-has-shelved-another-finished-movie (last visited Oct. 23, 2024).
[26] See Hibberd, supra note 3 (equating “safe choice” with the sentiment expressed by actor, Will Forte).
[27] Drew Taylor, The Final Days of ‘Coyote vs. Acme’: Offers, Rejections and a Roadrunner Race Against Time | Exclusive, The Wrap (Feb. 9, 2024, 6:00 AM), https://www.thewrap.com/coyote-vs-acme-update-offers-warner-bros/ (“[G]etting rid of a wholly finished movie became “an acceptable means of dealing with a problem.”).
[28] See Hibberd, supra note 3 (“‘Please know that all the years and years of hard work, dedication and love that you put into this movie shows in every frame.’”), see also Saber, supra note 4 (indicating how shelving a movie “punish[es] artists”).
[29] Rascoe, supra note 25.
[30] See generally Kai Ryssdal & Sofia Terenzio, Fans want “Coyote vs. Acme,” but Warner Bros. isn’t releasing it, Marketplace (Apr. 16, 2024), https://www.marketplace.org/2024/04/16/why-warner-isnt-releasing-coyote-vs-acme/.
[31] See Todd Spangler, Warner Bros. Discovery CEO David Zaslav’s 2023 Compensation Rises 26.5% to Nearly $50 Million, Variety (Apr. 19, 2024, 5:35 AM), https://variety.com/2024/biz/news/warner-bros-discovery-david-zaslav-2023-compensation-pay-1235974254/; Taylor, supra note 27 (noting how the only executive still in the company from the “previous regime” is Jesse Ehrman).
[32] George Szalai, Two Years After WarnerMedia Merged With Discovery, Debt and Megadeal Questions Loom, The Hollywood Reporter (Apr. 8, 2024, 11:36 AM), https://www.hollywoodreporter.com/business/business-news/warner-bros-discovery-debt-megadeal-questions-1235868542/.
[33] Reuters, S&P lowers outlook for Warner Bros Discovery to 'negative' on cable TV decline, Reuters (Aug. 16, 2024, 1:20 PM),
[34] David Zaslav, Warner Bros. Discovery, https://www.wbd.com/leadership/david-zaslav#:~:text=Mr.,of%20brands%2C%20including%20Warner%20Bros (last visited Oct. 10, 2024).
[35] Spangler, supra note 31; see also Andrew Pulver & Catherine Shoard, The Hollywood Actors’ Strike: Everything You Need to Know, The Guardian (July 14, 2023), https://www.theguardian.com/culture/2023/jul/14/the-hollywood-actors-strike-everything-you-need-to-know (expanding on the 2023 SAG-AFTRA strikes, a major labor movement conducted by the Screen Actors Guild and the American Federation of Television and Radio Artists).
[36] Todd Spangler, Zaslav Says Warner Bros. Discovery Cutbacks, Including Shelving Movies, Took ‘Courage’, Variety (Nov. 19, 2023, 1:14 PM), https://variety.com/2023/tv/news/zaslav-warner-bros-discovery-cutbacks-courage-hollywood-strikes-bad-1235813198/.
[37] Adam Hayes, Big Bath: Definition, Accounting Examples, Legality, Investopedia, https://www.investopedia.com/terms/b/bigbath.asp#:~:text=Banks%20can%20also%20engage%20in,create%20a%20loan%20loss%20reserve (Dec. 31, 2020).
[38] Id.
[39] See id.
[40] Id.
[41] Leahey, supra note 16.
[42] A complete guide to impairment charge? (With example), Indeed (Sept. 22, 2023), https://uk.indeed.com/career-advice/career-development/impairment-charge#:~:text=An%20impairment%20charge%20is%20an,impact%20on%20the%20company's%20health.
[43] Dan, Restructuring Expense, Strategic CFO (July 27, 2020), https://strategiccfo.com/articles/bankruptcy-restructuring/restructuring-expense/#:~:text=The%20practice%20of%20taking%20a,public%20corporations%20than%20private%20companies.
[44] Aaron Couch, As ‘Coyote vs. Acme’ Hangs in the Balance, Warner Bros. Discovery Takes $115M Write-Down on Mystery Projects, The Hollywood Reporter (Feb. 23, 2024, 5:21 PM), https://www.hollywoodreporter.com/movies/movie-news/coyote-vs-acme-warner-bros-discovery-115m-write-down-mystery-projects-1235832120/.
[45] See Taylor, supra note 27 (“[T]he reason for “Coyote vs. Acme’s” cancellation remains damnably unknowable – even to those who made the movie.”).
[46] Paolo, Movie Marketing Budget 101: Where To Get Your Funds and How To Spend It Wisely, Gruvi (July 7, 2023), https://gruvi.tv/post/movie-marketing-budget/#:~:text=The%20average%20movie%20marketing%20budget,them%20is%20no%20picnic%2C%20either.
[47] Spangler, supra note 36.
[48] See Taylor, supra note 27.
[49] Taylor, supra note 27.
[50] Id.
[51] Id.
[52] Id.
[53] Kai et al., supra note 30.
[54] Taylor, supra note 27.
[55] See Maia Spoto, Warner Bros. Failed to Pay Extras All Wages, Suit Says, Bloomberg Law (July 18, 2024, 12:52 PM), https://news.bloomberglaw.com/litigation/warner-bros-failed-to-pay-extras-all-wages-suit-says.
[56] Spangler, supra note 31.
[57] Ẋ (@ProjectENDO), X (Apr. 19, 2024, 11:04 AM), https://x.com/ProjectENDO/status/1781383393013571871.
[58] Josh Gondelman (@joshgondelman), X (Apr. 19, 2024, 12:05 PM), https://x.com/joshgondelman/status/1781398733831262294.
[59] Joaquin Castro (@JoaquinCastrox), X (Nov. 13, 2023, 8:19 PM), https://x.com/JoaquinCastrotx/status/1724280827138256954.
[60] Castro, supra note 59 (noting how Castro’s tweet has 8.1K likes and 2.4K retweets as of October 15, 2024).
[61] See Hayes, supra note 37.
[62] Id.
[63] See generally Merger Review, FTC, https://www.ftc.gov/enforcement/merger-review (last visited Oct. 3, 2024)
[64] Rascoe, supra note 25.
[65] Castro, supra note 59.
[66] See generally Tax Excessive CEO Pay Act of 2024, S.3620, 118th Cong. (2023-2024).
[67] See Leahey, supra note 16.
[68] See David D. Steward & George S. Ford, How Tax Incentives Drive the Film Industry, Taxnotes (July 25, 2024), https://www.taxnotes.com/tax-notes-live/tax-notes-talk/how-tax-incentives-drive-film-industry/7khw3.
[69] Id.
[70] Leahey, supra note 16.
[71] Id.
[72] Melissa Kasule, Warner Bros.’ Coyote vs Acme set to shoot in New Mexico, KFTV (Feb. 22, 2022), https://www.kftv.com/news/2022/02/22/coyote-vs-acme-is-set-to-shoot-in-new-mexico.
[73] See generally Incentives The Film Tax Credit, Film New Mexico, https://nmfilm.com/incentives-2 (last visited Oct. 3, 2024).
[74] Rebecca Rubin, ‘Coyote vs. Acme’ Being Shopped to Other Studios After Warner Bros. Axes Finished Film, Variety (Nov. 13, 2023, 11:13 AM) https://variety.com/2023/film/news/coyote-vs-acme-shopped-other-studios-warner-bros-axes-finished-film-1235789445/.
[75] Steward et al., supra note 68.
[76] Matt Hollinshead, Live-action movie ‘Coyote vs. ACME’ filmed in ABQ area, Rio Ranch Observer (June 9, 2022)
[77] Mary Ellen Pitney, Twilight Or Bust: How One Saga Revitalized A Small Town Economy, NWPB (Sept. 6, 2022), https://www.nwpb.org/2022/09/06/twilight-or-bust/.
[78] Steward et al., supra note 68.
[79] See Leahey, supra note 16.
[80] Id.