AMC May Face 'Walking Dead' Profits Trial Sooner Than Expected

The Walking Dead-Zombie-Photofest still-H 2019

With hundreds of millions of dollars at stake, and possibly more, AMC could be headed to trial early next year over its zombie hit, Walking Dead. On Thursday, a Los Angeles judge expressed his inclination to begin a so-called "mini-trial" examining the contract enjoyed by Robert Kirkman, who created the comic franchise and is one of the executive producers now suing over profits.

Kirkman, along with series producers Gale Anne Hurd, Glen Mazzara and David Alpert, weren't the first ones to claim that they've been cheated of money from the way AMC's studio arm allegedly undercharges AMC's cable network for rights to air the show. Frank Darabont and his agents at Creative Artists Agency struck first with a complaint filed in New York in 2013. That case is tentatively set for trial this coming May. 

The litigation from Kirkman began in August 2017 and hasn't witnessed a summary judgment round, as Darabont's lawsuit has. In fact, Kirkman's lawyer has been playing quite a bit of catch-up on the extensive discovery conducted in the Darabont case.

Nevertheless, there's now a pretty strong likelihood that a portion of Kirkman's case could beat Darabont's to trial.

Los Angeles Superior Court Judge Daniel Buckley suggested to both sides that it would make sense to bifurcate a trial with interpretation of key contract provisions happening first.

In response, AMC objected with the contention that doing so wouldn't necessarily streamline issues for discovery, had the potential of inconveniencing witnesses, would mean that AMC would incur great expense in preparing for multiple trials and would deny AMC from "telling their full story on the issues of liability of the case."

At a hearing on Thursday, those objections didn't appear to sway Buckley. The judge ordered the parties to submit a briefing before the end of the month on the issues that could be addressed at phase one of a trial, as well as an estimated time that the trial would require. He suggested that his calendar would accommodate a trial in March (and perhaps as soon as November, though that appears to be too soon for AMC).

Buckley hopes that by resolving what the contract means, it will provide clarity on damages and perhaps pave the way for a settlement.

In the years that Walking Dead has been on the air, AMC has been "imputing" a license fee for each episode. (During the first four seasons, that fee was $1.45 million. More recently, it's up to $2.4 million.) The imputed fee is essentially a stand-in value for an actual cash transaction. It's the task of AMC's studio division to book this income from AMC's network division, and after deducting expenses, compute the profits pool for those contractually entitled to a share. If the fee is less than the production costs, then the series is in deficit and there are no profits to disburse.

Walking Dead's executive producers insist they have contractual protection that the imputed fee must be fair market. They allege that AMC has kept the show at an artificially deflated value to reap the spoils of the show's success (more ad money, higher carriage fees from satellite and cable companies) for itself. Moreover,  Kirkman asserts that under his contract, he's entitled to an "actual license fee" instead of an imputed one — and this means that AMC Studios had to negotiate with its affiliate network.

As for AMC's position, the company disputes any requirement for "fair market value" and contends that because there's no real "transaction" between affiliate companies, the supposed self-dealing protection doesn't trigger. AMC also asserts there could have been no expectation by Kirkman or other producers that the network would enter into a licensing transaction with itself in connection with its exhibition of Walking Dead. Thus, the imputed fee fee is argued to be fine.

In the Darabont case, the judge essentially threw it all to a jury to decide, and the case has been marching slowly due to that judge's retirement, a new assigned judge, a crowded court docket and other factors.

Now comes the advance of Kirkman's suit, and the interplay between the two cases could impact AMC's strategy for defending claims as testimony and arguments from one trial may come up at the second, third, and so on...