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U.K. movie distributor and financier Goldcrest Film Distribution III Limited has filed a breach of contract suit against Summit Distribution, charging that on the 2008 movie Twilight it used “deceptive accounting practices” to “systematically understate revenues and overstate its costs.”
Goldcrest claims it is due an additional payment of nearly $7 million and possibly much more, and says Summit has refused to provide the full documentation from the making and selling of the movie and it needs to determine what is owed. “Defendant made over $39.3 million worth of errors in the calculation of the Goldcrest Participations,” says the suit, “resulting in a $6.3 million loss to Goldcrest and its other counterparties in the transaction.”
In the filing in L.A. Superior Court on Wednesday, Goldcrest cited payments made to castmembers and the writers as items for which it was improperly charged. The suit says that after Twilight became a much bigger success than expected, as part of plans to continue the series, Summit went back to actors Robert Pattinson and Kristen Stewart, screenwriter Melissa Rosenberg and book author Stephenie Meyer and voluntarily paid bonuses totaling $6 million ($2.5 million each to Pattinson and Stewart, and $500,000 each to Rosenberg and Meyer).
The real purpose of that money, says the suit, was to convince the actors and writers to sign on for the first sequel, New Moon, charges Goldcrest, and so that money should not have been recorded as an expense against their profit participation.
Summit, now part of Lionsgate, came to Goldcrest before the release of the first Twilight and presold distribution rights in return for a payment of about $10 million. When Twilight, which cost less than $40 million to produce, went on to generate big ticket sales and profits, Goldcrest says Summit overstated the costs and understated the revenues.
The suit says Summit also overcharged it for prints, advertising and distribution costs and says Summit claims to have spent $49 million — which they note “amounts to over 50 percent of the films total distribution costs.” It also claims Summit improperly included $11.5 million of home video residual costs in calculating Goldcrest’s profit participation. It says charges by a third-party sub distributor, which under their contract should not have been a charge against their profits, was in fact charged against their participation.
Goldcrest charges that proceeds from video and video on demand that should have been recorded as 100 percent of revenue instead were reported at 25 percent. “Defendant’s strained interpretation of what it means to report on a royalty basis is disingenuous,” says the suit, “and thus it underreported Gross Receipts by $9,901,565.”
Goldcrest further disputes a $4 million signing bonus Summit received from Universal in return for the right to distribute Twilight and other films on home video, but never allocated any of that to the revenue pool that its participation was based on. Summit also improperly included about $3.5 million in unauthorized merchandising-related agency fees in calculation of the participation, the suit continues, and included nearly $800,000 in allocations for overhead when those costs should already have been covered by a 5 percent production fee.
The distributor also disputes nearly $600,000 in virtual print fees that it says should have been included in its distribution costs. There was no immediate comment on the suit from Summit owner Lionsgate.
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