Why did Warner Bros. cancel $90 million Batgirl movie for HBO Max?

On Tuesday, Warner Bros. announced its plan not to move forward with the release of Batgirla movie that cost an estimated $90 million to produce, along with the less expensive film Scoob! Holiday Haunt, a property based on the cartoon about the crime-solving dog Scooby Doo.

The decision came as a surprise to many, as the movie had already finished production in March of this year and featured an all-star cast including actress Leslie Grace in the lead role, providing significant Latinx representation in a major motion picture.

Directed by Adil El Arbi and Bilall Fallah, the film was also meant to feature Michael Keaton as Bruce Wayne in a return to the Golden Globe-winning actor after an absence of 30 years. Keaton was the first big-screen Batman in two Tim Burton-directed movies in 1989 and 1992 that ascended to cultural phenomenon status and set the stage for the coming decades’ superhero blockbuster boom.

So why throw away tens of millions in investment and the return of a legendary actor?

According to Warner Bros., now under new leadership since a merger with Discovery was finalized, it cut Batgirl because the release no longer made sense within the company’s broader business strategy.

“The decision not to release Batgirl reflects our leadership’s strategic shift as it relates to the DC universe and HBO Max,” the company wrote in a statement first reported by Deadline. Warner Bros. did not respond to Fortune‘s request for comment.

Separately, sources familiar with the situation told Variety that Warner Bros. will almost definitely take a significant writedown on both Batgirl and Scoob! A tax lawyer walked Fortune through how that would really look.

But paradoxically, there may be another reason why Batgirl had to die: so Warner Bros.’ precious comic-book IP could live.

Grappling with the streaming era

In April of this year, Warner Bros. merged with Discovery in a $43 billion deal.

Prior to that, Warner Bros. executives Jason Kilar and Ann Sarnoff pioneered a COVID-era streaming-first model for the company. In 2021, it released every movie it had produced for the year at once on subsidiary HBO Max, a controversial decision that’s now credited with helping the platform build its paid subscriber base.

With Discovery’s CEO David Zaslav now at the helm, and Kilar and Sarnoff having departed the company with the merger, he’s turning the company back towards a theatrical release structure, with a focus on individual high-budget blockbusters instead of simultaneous streaming releases of less expensive products.

Across the entertainment industry, other companies have had to make similar adjustments. In April, Netflix reported a net loss of 200,000 subscribers in its first quarter and predicted greater losses to follow amid a crowded playing field of similar service providers.

Zaslav has made other significant changes to the company’s slate of products since taking over, notably killing streaming service CNN+ over insufficient subscriber numbers. In recent weeks, Warner Bros. has removed several films from streaming on HBO Max, including the Anne Hathaway-starring “The Witches” and Seth Rogan-starring “An American Pickle.” It has not given any explanation for this, and the removal was first noticed by commenters on Reddit, but is in line with a non-streaming-centric model. The Wall Street Journal reported in May that Zaslav was acting like a “new media mogul,” particularly focusing on how he was “cutting costly projects.”

Killing expensive projects isn’t altogether rare at Warner Bros. beyond Zaslav’s leadership, either. Its HBO division famously pulled the plug on a star-studded adaptation of Jonathan Franzen’s The Corrections in 2012 and more recently, an expensive Game of Thrones spinoff starring Naomi Watts.

Batgirl would be even more expensive in a theatrical release context, as the costs of distribution and marketing would add millions onto its budget, according to Variety. Canceling it altogether instead could give the company a healthy write-off on this year’s federal tax return, according to David Blum, deputy partner of the tax practice group at the law firm Akerman LLC.

“If they were to write this off as a worthless investment, they get a deduction,” says Blum. “It’s like a business venture that fails.”

The importance of IP

One option for a company to off-load a product is typically to sell it—a prospect made tricky for a legacy brand with multiple stakeholders like Batman for Warner Bros.

Writing the entire production off as a loss, and using that loss to offset gains from other successful productions, Blum says, is likely the easiest path forward for the company to reach a financially-sound conclusion for the film.

When Warner Bros. files its taxes this year, explains Blum, the company will combine the income from its profitable movies with its losses to determine its taxable income. The loss from Batgirl would lower that taxable income significantly.

Ordinarily, he said, a company could sell a loss-making investment like this. Although Blum did not wade into the matters of intellectual property related to comic books, recent precedent demonstrates why that’s not a realistic option here.

Comic-book characters are worth literally billions of dollars, as seen by Disney buying Marvel Studios for $4 billion in 2009, then seeing Marvel’s stable of superheroes generate several movies with multibillion-dollar grosses. As long as Disney holds onto the Marvel IP, it can keep printing money (but the movies should ideally be good, too).

Enter the case of Marvel vs. Kirbyor Kirby vs. Marvel, in which the family of Jack Kirby, the artist who co-created (at least) many of the great Marvel characters, petitioned the Supreme Court to terminate Marvel’s copyright. This case got all the way to a Supreme Court hearing before Disney confidentially settledpresumably for a large sum, rather than risk Marvel characters getting out of its grasp.

“Think about how long they’ve been doing Batman movies,” says Blum. “Warner Brothers Studios, they have a whole Batman part of their studio tour. I think part of this is to maintain the brand and take a tax write-off. I’m speculating that it’s for a dual purpose.”

In other words, selling off any kind of Batman-related IP just isn’t a realistic option for Warner Bros., and so its $90 million Batgirl had to bite the dust in order for its IP to live another day.

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