6:00am PT by Eriq Gardner
How 'The Walking Dead' Legal Fights Could Redefine Dealmaking
After seven years in court, AMC will soon see some big legal rulings concerning The Walking Dead, the mega-successful drama about a fictional group of survivors living at a time when a virus had turned most of humanity into ravenous zombies. Assuming society’s real-life viral pandemic doesn’t interfere with the timetable, these court decisions may also influence ongoing profit participation fights and the changing way that many creatives are compensated in the streaming era.
The first big ruling may come April 17. That’s when L.A. Superior Court Judge Daniel Buckley has indicated he’ll announce his interpretation of AMC’s deals with Robert Kirkman (who authored the Walking Dead graphic novels) and the show’s executive producers, including Gale Anne Hurd and David Alpert.
Because AMC both produces the series (through its studio) and distributes it (via its cable network), the core issue is license fees. Is a formal transaction required between two sister companies, or does AMC get to "impute" an amount? If the latter, must the fee be on fair-market terms? The answers go to how much The Walking Dead is booking in revenue, which changes the pool for profit participants. The creatives say if a fair market fee was used, it would have resulted in hundreds of millions more for profit participants. AMC disputes that.
At a trial in February, Hurd testified that AMC’s former boss, Charlie Collier (now Fox Entertainment CEO), promised the creative executives would be "treated fairly," which she thought meant that license fees would flow as if the show had been produced by a third party. "I might tell them they’re going to do well and that they’ll be treated fairly," said Collier in his own testimony. "I wouldn’t typically talk contingent compensation with anybody. It’s beyond the scope."
Judge Buckley’s ruling won’t be the end of the story. In June, another set of plaintiffs — Walking Dead co-creator Frank Darabont and CAA — are set to go to trial against AMC in New York, although both sides anticipate COVID-19-related delays.
Each side is preparing to tell a story about the sophistication of the other’s attorneys. “Mr. Darabont had the best agents and lawyers in Hollywood negotiate his deal," says AMC’s attorney Orin Snyder. "Now that The Walking Dead is a huge success, he is trying to rewrite his deal years later through litigation."
Darabont’s attorney Dale Kinsella counters, " 'All transactions’ means all transactions," referring to a provision in the contracts specifying that AMC’s transactions with affiliates had to be fair-market. "Even if their super-sophisticated lawyers wanted to limit ‘all’ [to deals outside of cable television], that could have been put in [the contract]."
Since Darabont sued in 2013, industry changes have boosted the profile of this case. Netflix showed Hollywood its future in streaming. AT&T acquired Time Warner, Disney gobbled up Fox and CBS merged with Viacom. Now, these giants are launching Netflix competitors and licensing content from subsidiaries to wholly owned streamers. More affiliate dealmaking means more EPs are claiming they’re being shortchanged of fair license fees.
In fact, O’Melveny & Myers litigator Daniel Petrocelli says he has billions’ worth of affiliate transactions being challenged in arbitration: "My list involves all the studios and a number of very famous properties." It may be the trendiest area of his practice.
Snyder resists the notion that his case has anything to do with streaming. While it’s true those Walking Dead deals predated Netflix’s success, the trial will nevertheless test something significant in the age of affiliate dealmaking: How does one determine what’s "fair market"?
Darabont’s lawyers, estimating nearly $300 million in damages, will call experts to testify as to how much highly rated TV shows receive in license fees. They’ll also argue that, more than any other series, including Breaking Bad and Mad Men, the zombie show made AMC what it is today and Darabont and his agents deserve to share in that success.
AMC asserts that this calculation ignores the fact that when The Walking Dead was being shopped a decade ago, other networks passed. "Most didn’t think a postapocalyptic show about zombies would be successful," says AMC attorney Scott Edelman, adding, "Neither AMC nor any cable channel has ever paid the types of license fees they are arguing this show should have received."
This story first appeared in the March 26 issue of The Hollywood Reporter magazine. Click here to subscribe.