I am a CPA, so here is the scoop.
First if the equipment is used in any type of business (it has to make sense) then it is fully deductible and or depreciable.
If the equipment is being used 50/50, then 50% is deductible or depreciable
Forgeting that it is illegal to charge for showing a dvd, a hobby can make a profit but the worst you can do is to break even.
However, unless you identified yourself as a hobby from the very beginning, (which no one really does) then you can take a loss in that year. What makes you as a hobby is if you dont make a profit 3 out of five years. So technically you can loose your tushy the first year and assuming you make a profit in future years their is no problem. Thats the basic concept except of course the IRS can still say its a bull but they would have to have a good reason.
The following are 9 major issues that ones looks at to determine if a business is a hobby. For most cases, the 3 out of 5 years of profit is the key
Manner in which the taxpayer carries on the activity. The maintenance of complete and accurate books and records indicates the activity is being carried on for profit. A change in the method of operation in order to improve profitability also indicates a profit objective.
Expertise of the taxpayer or the taxpayer's advisors. Preparation for the activity by learning of accepted business practices and the procurement of expert advice in beginning or carrying on such activity indicate a profit objective unless the taxpayer fails to follow such advice, in which case a lack of intent to derive a profit is usually manifested.
Time and effort expended by the taxpayer in carrying on the activity. A taxpayer who devotes a substantial amount of time and effort to carrying on an activity, particularly if the activity does not have significant personal or recreational aspects or if the taxpayer has withdrawn from another occupation, evidences an intent to derive a profit. Although a taxpayer may personally devote a limited amount of time to an endeavor, a profit objective when the taxpayer employs competent and qualified persons to carry on the activity.
Expectation that assets may appreciate in value. Profit, for this purpose, includes an appreciation in value of the assets used in the activity. Thus, a profit objective can exist where an overall profit would result where the gain from the disposal of the asset is added to the other income from the activity, even though a profit is not derived from current operations.
Success of the taxpayer in carrying on other similar or dissimilar activities. A situation when a taxpayer has engaged in similar activities in the past and converted these from unprofitable to profitable enterprises indicates a profit objective.
History of income or losses with respect to the activity. Losses during the start-up of an activity are not necessarily an indication that the activity is a hobby. However, continued losses beyond the period customarily necessary to bring an operation into a profitable mode are an indication of a hobby. Losses due to unforeseen circumstances, such as fire, theft or depressed market conditions (as opposed to customary business risks or reverses), do not, of course, indicate that the activity is a hobby. (See "Presumption that activity is for profit," below.)
Amount of occasional profit. The amount of profits in relation to the amount of losses incurred and the relationship of such profits to the amount of the taxpayer's investment and the value of the assets used in the activity are important factors. An occasional small profit for an activity generating large losses, or in which a taxpayer has a large investment, is not sufficient to establish in itself a for-profit objective. Conversely, an occasional but substantial profit is generally indicative that the activity is not a hobby.
Financial status of the taxpayer. Lack of other sources of income indicates that the activity is engaged in for profit.
Elements of personal pleasure or recreation. Although the fact that a taxpayer enjoys or derives personal satisfaction from an activity does not foreclose a finding of a profit objective, the presence of such elements suggests that the activity is a hobby.