Universal Settles Home Video Royalties Lawsuit for $26 Million

The studio is the first to settle the dispute numerous other studios face from similar lawsuits.

It might be the beginning of the end for home video royalty lawsuits.

Universal will settle the class-action lawsuit filed by director Colin Higgins' company in January 2013 over his profit participation deal for the studio's musical comedy The Best Little Whorehouse in Texas.

The proposed $26 million settlement would compensate the class of plaintiffs who claim they've been underpaid through contracts that base their profit participation earnings on 20 percent of their films' home video revenues. Higgins' company held they should receive earnings based on the full 100 percent.

The settlement would be the first in the series of lawsuits nearly every major studio faces over the home video royalty issue. Filmmakers sued 20th Century Fox and Sony, and Higgins' company separately sued Paramount around the same time it sued Universal, and suits against Warner Bros. and MGM soon followed.

The policy of basing profit participation on 20 percent of home video revenues derives from the rise of the VCR in the 1980s. The studios would pay independent companies to produce and distribute VHS copies of their films and would receive 20 percent of the revenue, which they would then divide out to the profit participants. When studios opened their own home distribution divisions, they continued calculating the profit participants' earnings from 20 percent of the home-video revenues.

In the notice of settlement filed Friday in Los Angeles Superior Court, the plaintiffs' attorneys clarify the class includes only profit participants whose contracts include no specifics regarding home video revenue. "Because newer Profit Participation Contracts include express provisions relating to Home Video Revenue and/or EST, the Settlement Agreement applies to older titles and releases," reads the document.

The class was represented by Neville Johnson of Johnson & Johnson, Daniel Warshaw of Pearson Simon & Warshaw and Paul Kiesel.