3:37pm PT by Eriq Gardner
'Walking Dead' Producers Claim Massive AMC Profits Scam in New Lawsuit
AMC has enjoyed record ratings for The Walking Dead, but will it survive a legal apocalypse? On Monday, in what could become the biggest ever profits case in television history, and one that deserves widespread attention as merger-hungry media companies grow ever more vertically consolidated, Walking Dead co-creator Robert Kirkman and notable series producers Gale Anne Hurd, Glen Mazzara and David Alpert have filed suit against AMC with the allegation they've been massively cheated.
The new case follows the one from Frank Darabont, the show's other co-creator, who was fired as executive producer in the middle of the second season and is demanding $280 million in an accounting lawsuit that has reached the summary judgment phase. Now, the other key creatives on the series are targeting significant damages of their own. With the participation of Kirkman, whose comic books served as source material for Walking Dead, and Hurd and Alpert, who continue to work on the series, AMC finds itself in court against those whose ongoing involvement is crucial to Walking Dead's and perhaps AMC's future.
"This case arises from a major entertainment conglomerate’s failure to honor its contractual obligations to the creative people — the 'talent,' in industry jargon — behind the wildly successful, and hugely profitable, long-running television series The Walking Dead," opens the complaint filed Monday in Los Angeles Superior Court. "The defendant AMC Entities exploited their vertically integrated corporate structure to combine both the production and the exhibition of TWD, which allowed AMC to keep the lion’s share of the series’ enormous profits for itself and not share it with the Plaintiffs, as required by their contracts."
Here's the full complaint. The claims are breach of contract, tortious interference and unfair or fraudulent business acts under California business code.
Like Darabont's lawsuit, the plaintiffs are questioning the amount "paid" by AMC Network to AMC's studio arm for the right to air the show. Because the companies are affiliated with each other, what's seen on Walking Dead profit participation statements are imputed license fees, meaning a stand-in figure that doesn't really mean that money has exchanged hands. During the first four seasons of Walking Dead, AMC was imputing a fee of $1.45 million per episode. That's now up to $2.4 million, but is still less than the non-imputed license fees of Better Call Saul (a Breaking Bad spinoff) and Mad Men, which are produced by non-affiliated Sony and Lionsgate, respectively, and don't command NFL primetime-type ratings as Walking Dead does.
"There can be no question that, if AMC Studio[s] and AMC Network were not part of the same conglomerate, the story would be very different," states the complaint, later adding, "Those substantial license fees for Mad Men and Breaking Bad continued in seasons five and beyond, even though their ratings were a fraction of TWD’s. And while the AMC Network only obtained a limited number of playdates for those series as part of the comparatively-higher license fees it paid for them (both on television and its affiliated websites), the AMC Entities unilaterally took for themselves the right to run an unlimited number of runs of TWD in perpetuity on all AMC platforms."
In their own lawsuit, Darabont and his CAA agents are leaning on financial experts to make the case that the series should be imputing up to $30 million per episode, which over seven seasons would represent a staggering amount of money that AMC isn't booking in revenue.
Kirkman, Hurd, Mazzara and Alpert haven't yet gotten to the point of suggesting what the precise imputed license fee should be, but that's only a matter of time. In the meantime, they are running through other alleged ways they've been denied a fair share of profits. Among them are deductions taken by AMC for payments to other Walking Dead profit participants. They also object to how AMC turned down an offer from another party for international rights to the series "so that [AMC] could do a related-party deal for much less than the related party offered, again keeping the profits at conglomerate level and not passing them through to AMC Studios and the participants."
The lawsuit, being handled by Ron Nessim and other lawyers at Bird Marella, speaks of the decades-long rise of vertical integration in entertainment and media. The subject has always been controversial and continues to be so as a giant like AT&T proposes to buy a conglomerate like Time Warner. Over the years, creatives in Hollywood have been leery of the power concentration and have reacted to corporations both producing and distributing content with litigation. Past lawsuits over films from the Police Academy series to This Is Spinal Tap have accused studios of manipulating the amount of money going in and the expenses going out so as to essentially make profits disappear through practices like packaging, distribution fees, and marketing overhead.
"Hollywood accounting" is hardly a secret anymore, however, so when studios and talent deal with each other these days, the negotiators representing talent are mindful of how things can go wrong. But that doesn't mean there's no room for ambiguity and continued legal fighting.
Kirkman, whose deal entitles him to 5 percent of profits from Walking Dead, came to what his attorneys say was a "related-party provision" that guaranteed that AMC's transactions with affiliated companies would be on monetary terms comparable to transactions with non-affiliated companies. Alpert, who got 2.5 percent of profits, Hurd, who got 7.5 percent, and Mazzara, who took over Darabont's role as the showrunner for a couple of seasons and got 1.5 percent, each cite provisions in their own deals including most-favored-nations clauses that allegedly amounted to protection from AMC self-dealing.
In other words, the Walking Dead executive producers say they thought they had it all figured out only to be blindsided.
AMC, of course, hasn't yet filed any response to the latest lawsuit, but in the Darabont case, AMC has been arguing that license fees for Mad Men, Breaking Bad and other shows are irrelevant as the imputed license fee itself became the answer to calculating contingent compensation in the context of studio licensing to its network affiliate. Represented by Marc Kasowitz and others at his firm, AMC has contended that fee reflects a fair negotiation and suggested that those upset are now trying to achieve through post-agreement litigation what they couldn't through pre-deal negotiation. AMC has also touted millions of dollars recently sent to profit participants.
In response to the newest lawsuit, an AMC spokesperson says, "These kinds of lawsuits are fairly common in entertainment and they all have one thing in common — they follow success. Virtually every studio that has had a successful show has been the target of litigation like this, and The Walking Dead has been the No. 1 show on television for five years in a row, so this is no surprise. We have enormous respect and appreciation for these plaintiffs, and we will continue to work with them as partners, even as we vigorously defend against this baseless and predictably opportunistic lawsuit."
Next week, a New York judge will hold an oral hearing about the summary judgment motions in the Darabont case. What already was going to be a consequential showdown has now become even more so by multiples thanks to this newest case. Although the Kirkman lawsuit doesn't specify a target for compensatory and punitive damages, based on what Darabont's lawyers have computed, damages could approach a billion dollars. But even putting aside the huge monetary stakes, the fight over how AMC has treated accounting on the most successful cable television show ever will be felt in the industry for quite some time. It will surely influence new dealmaking moving forward.