3:01pm PT by Eriq Gardner
AMC Teases Trial Strategy in $270M 'Walking Dead' Profits Case
At the latest hearing in the massive lawsuit brought by Frank Darabont and Creative Artists Agency over profits to The Walking Dead, New York Supreme Court Justice Eileen Bransten on Wednesday didn't deliver her long-awaited summary judgment ruling nor tip her hand about a potential trial. Nevertheless, for the first time publicly, AMC conceded that it expects to lose its summary judgment motion, urged the judge to order a trial and teased what its trial strategy would be.
The timing of the hearing in this five-year-old case couldn't be more noteworthy. Just yesterday, a federal judge in the District of Columbia approved the vertical merger between AT&T and Time Warner over the government's challenge that a marriage between a telecom and a content giant would likely result in lessened competition. And as the Walking Dead hearing stretched into its second hour, Comcast unveiled a $65 billion all-cash bid for large chunks of 21st Century Fox. If that deal comes to fruition, it would mark yet more integration between those who produce content and those who distribute it.
The $270 million Walking Dead case explores a different component of vertical integration — the impact on creators and their reps — as AMC both produces and distributes the hit show about middle America citizens struggling to survive a zombie apocalypse. Darabont and CAA both enjoy profit participation, but such contingent compensation is heavily tied into what AMC Network "pays" AMC Studios for the right to air Walking Dead.
The plaintiffs allege having self-dealing protection in their contracts that essentially means AMC has to book a fair market value for the show when calculating revenue. Their experts think the series should be licensed for tens of millions of dollars per episode and point to how Walking Dead has ratings on par with professional football games and what AMC paid non-affiliated studios like Lionsgate and Sony for the rights to shows like Mad Men, Breaking Bad and Better Call Saul. But AMC argues it has the contractual right to impute any license fee so long as Darabont gets treatment at least as favorable as other executive producers working with the company. Walking Dead currently imputes about $2.4 million an episode in broadcast license fees, and the future fate of the show could turn on how the economics shake out.
Darabont, who was fired during the series' second season in 2011 amid profane messages to colleagues and AMC executives, filed a second lawsuit in January. The move had AMC arguing that the plaintiffs' new allegations undermined their old ones. This led to months of briefing and Wednesday's hearing, and ultimately it will be up to Bransten to determine whether plaintiffs are being inconsistent with their interpretations of the contract or whether AMC has manufactured the appearance of a factual dispute just to get this to trial.
Why might AMC want a trial?
Well, obviously, it would prefer to win the case sooner rather than later, but the soon-to-retire Bransten has made harsh comments towards AMC's (former) lawyers and at times has seemed to favor plaintiffs' position. If AMC can't get the judge to accept its contractual interpretations on summary judgment, then the next best scenario is ensuring that the judge doesn't accept plaintiffs' contractual interpretations either. If the meaning of the contract and the parties' intent is ambiguous enough, that would mean the case goes to a jury to decide.
The plaintiffs' trial strategy has been obvious from the moment in December 2013 when it first filed the case. It will present AMC as greedy beyond belief and willing to make a sweetheart deal licensing Walking Dead to itself.
What AMC will tell the jury has been a little less clear until Wednesday.
CAA "invented the art of the deal and the hustle," said AMC's attorney Orin Snyder at the hearing. "They know better than anyone how to get over on someone in negotiation."
In other words, if the plaintiffs want to turn the case into a referendum on conglomeration in Hollywood — an age-old theme but certainly more relevant in the time of AT&T/Time Warner — the defendants prefer to essentially put the town's most notable lawyers and agents on trial.
At the hearing, Snyder repeatedly hammered the "sophistication" of those who represented Darabont during negotiations for the show about a decade ago.
"The most powerful agents and lawyers in the entertainment business negotiated these agreements," he said.
Snyder's statements basically add up to the proposition that Darabont and CAA hardly could have been hoodwinked. He also quite explicitly told the judge that he was looking forward to conveying to the jury how the plaintiffs' team of lawyers have been "pleading out of both sides of their mouth" over the years while searching for ways to make a grab for more profits.
"They can't get it straight, through five years of litigation," said Snyder. "I think a jury is going to laugh them out of court."
And with two words, Snyder summed it all up: "It's overreach."