Will we ever see another SEC filing drop like the one on Friday by AMC revealing a $200 million settlement resolving Frank Darabont’s profits from developing The Walking Dead?
It’s not merely the eye-popping figure, which ends eight years of litigation and buys the Shawshank Redemption director out of his rights to any future compensation from the zombie series and its spin-offs. It’s also that the TV industry has changed rapidly in the years since a cable channel once devoted to movie classics tasted the spoils of original programming with Mad Men and then decided to showcase a post-apocalyptic drama that, importantly, it self-produced. In short, this settlement could be the last of its breed.
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“The success of The Walking Dead, and even the litigation itself, resulted in clarifications and changes to artists’ profit definitions by the studios to avoid the same issues raised by the Walking Dead case,” says Larry Stein, a partner at Russ August & Kabat.
The suit from Darabont and his reps at Creative Artists Agency belongs in the pantheon of big “Hollywood Accounting” cases, along with those targeting Disney’s Who Wants to Be a Millionaire and Home Improvement, and Fox’s X-Files and Bones. These controversies came at a particular time for the industry: The deregulatory wave of the 1980s and 1990s brought an end to “fin-syn” rules. As a result, networks were no longer forbidden from retaining financial interests in programs they aired. Consolidation occurred. Syndication flourished. And huge vertically integrated media conglomerates were both producing and distributing content.
In turn, creatives with a profit stake challenged the “sweetheart” deals they were witnessing between studios and affiliated entities. Those with contingent backend compensation — the payday that comes later upon a show’s success but is dependent on how revenue and expenses are defined — would sue or arbitrate their beliefs of being shortchanged. Darabont was among them. The Walking Dead, once the most popular show on cable, was undersold by AMC’s studio arm to its network arm, he insisted.
In some ways, this genre of litigation pointed to the industry’s future.
Led by Netflix, today’s streamers are relying even more heavily on self-produced originals. The difference is that today’s studio dealmakers, somewhat adverse to transparency and perhaps influenced by the Bones arbitrator’s 2019 finding of “reprehensible” fraud, are now looking for a financial model that diminishes the percentage-based backend altogether. So instead of giving a show’s creator, say, 15 percent of net profits, studios are beginning to experiment. For example, Disney is combining bigger upfront payments with bonuses tied to seasons, episodes, awards, and other hard targets. “We’re heading to a world that overpays for failure and underpays for success,” says Robert Schwartz, a partner at Quinn Emanuel who has litigated all sides of Hollywood accounting cases.
As buyouts become the name of the game in the TV industry, and the backend becomes less lucrative, nine-figure settlements after years in court could go away.
For now, entertainment lawyers surveyed say they expect any forthcoming lawsuits to focus on older shows being added to streamers’ libraries. “The studios are hungry for content to launch and maintain their new digital services,” says Bennett Bigman at Russ August & Kabat. “Yet, they are unlikely to set fair market prices, which will reduce the revenues, and backend participations owed to thousands of writers, producers, directors, actors and other creative talent. My sense is that there will be plenty of these claims, and some will involve substantial amounts.”
Yes, there may be shows like Friends, The Office and Seinfeld that should command awesome licensing fees whenever they are on the market, and when they return disappointing sums from studio-affiliated streamers, that will provoke legal action. But this is a matter of cleaning up old contracts, and the value of these series will continue to diminish over time.
Also, many of these fights will be kept private in arbitration, although creatives could look toward suing streamers in open court for interfering with their expectations on the profit front. Says Schwartz, “There are some interesting angles there.”
A version of this story appeared in the July 21 issue of The Hollywood Reporter magazine. Click here to subscribe.
