Lawsuit Claims Paramount Pictures Is Shorting Producers on New Media Profits

Middle Pictures claims Paramount's activity is a "systematic scheme designed to deprive content providers of their rightful profit participation."
Courtesy of Paramount
'Middle Men'

The latest Hollywood profit participation lawsuit claims Paramount Pictures torpedoed Middle Men at the box office in order to avoid paying royalties and has been hoarding new media revenues. 

Middle Pictures claims it paid Paramount $6.8 million to promote the 2010 Luke Wilson-led film, but the distributor "limited the film's release to a scant number of screens ... thereby causing it to fail at the box office." (The nationwide box-office revenue barely broke $750,000.) According to the complaint, Middle Pictures was entitled to 87.5 percent of theatrical revenue and 80 percent of non-theatrical revenue.

The suit claims Paramount acquired Middle Men to use it as part of packaged libraries the company sells to streaming and VOD services, like Netflix and Hulu, but kept the revenue for itself.

"PPC's conduct, with Middle Men as a leading example, is an updated version of 'Hollywood accounting,' a modernized racket that systematically enriches PPC and helps to cover up PPC's own box office 'flops,'" states the complaint filed by attorney Jeffrey B. Simon. "PPC's failure to account for its 'new media' profits also allows it to perpetually beat producers, guilds, unions, and other members of the entertainment industry out of their rightful shares of revenue."

Middle Pictures hired a Paramount-approved auditor to review the distributor's books and found that "PPC cannot account for how it spent Middle Pictures' promotional and advertising funds, and that PPC owes Middle Pictures a substantial payment of at least $7 million based on 'new media' revenues generated by Middle Men since its original release."

The suit also accuses Paramount of self-dealing with Epix, a joint venture it started with Lionsgate and MGM, and using the premium cable service as "an additional layer of overhead to content providers ... that enhances studio revenue while systematically and intentionally depriving participants of their rightful shares."

"Middle Men has been broadcasted numerous times on Epix and various other cable stations, and has been available at various times on Netflix, Amazon Prime, Hulu, Fuse, and other new media sources pursuant to agreements between Epix and those entities," writes Simon in the complaint. "PPC has allocated overhead and other expenses related to Epix to Middle Men, thereby reducing the amount of compensation due Middle Pictures."

Further, Middle Pictures alleges that Paramount's invoicing system does not preserve backup data regarding payments provided by third-party vendors, which makes it "difficult, if not impossible" to conduct meaningful audits. 

Middle Pictures is suing for breach of contract and fraudulent inducement, among other claims, and is seeking damages in an amount to be determined at trial. (Read the full complaint here.)

Paramount has not yet commented on the lawsuit.