8:41am PT by Eriq Gardner
'Walking Dead' Producers Say AMC Won't Explain Basis for Denying Hundreds of Millions in Profits
Although Walking Dead creator Robert Kirkman is still in the early stages of his profits lawsuit over the mega-hit zombie franchise, his attorney is frustrated by a lack of immediate explanation from AMC about how the company has come to some of its decisions on the accounting front. In a status conference report filed in Los Angeles Superior Court this week, Kirkman's lawyer Ronald Nessim estimates that AMC's decisions have cost his clients "at least many hundreds of millions of dollars" and is priming the judge's intervention in exchanges of information between the parties.
Kirkman, along with series producers Gale Anne Hurd, Glen Mazzara and David Alpert, filed suit in August 2017 with the allegation they've been massively cheated. The dispute raises questions about what AMC's studio arm is charging AMC's cable network for rights to air the show. The intra-nature of transactions at vertically integrated entertainment companies is a sensitive subject and the same sort of controversy that led to an arbitrator recently ordering 21st Century Fox to pay $179 million to the executive producers and stars of Bones. That result came after the arbitrator questioned the honesty of Fox executives tasked with giving testimony about dealmaking and the market value for Fox's successful drama.
The Walking Dead lawsuit from Kirkman hasn't necessarily gotten to the point where AMC must lay out all its cards on the table. But that time is quickly approaching, and as shown by the Bones dispute, AMC will have to navigate this situation carefully. AMC's defense is further complicated by the almost parallel legal fight brought by Frank Darabont and CAA in New York — a $280 million profits fight that's headed for trial next year.
Walking Dead marked a turning point for AMC. Until the zombie series' debut in 2010, AMC had been licensing programs such as Mad Men and Breaking Bad from third parties such as Lionsgate and Sony. Walking Dead was the first show that AMC produced in-house.
In the years that Walking Dead has been on the air, AMC has been "imputing" a license fee for each episode. (During the first four seasons, that fee was $1.45 million. More recently, it's up to $2.4 million.) The imputed fee is essentially a stand-in value for an actual cash transaction. It's the task of AMC's studio division to book this income from AMC's network division, and after deducting expenses, compute the profits pool for those contractually entitled to a share. If the fee is less than the production costs, then the series is in deficit and there are no profits to disburse.
It's the contention of all of Walking Dead's executive producers — Darabont, Hurd, etc. — that despite contractual protection that the imputed fee must be fair market, AMC has kept the show at an artificially deflated value to reap the spoils of the show's success (more ad money, higher carriage fees from satellite and cable companies) for itself.
AMC challenges the proposition that the imputed fee must be based on what third parties pay for comparable shows and is prepared to tell a jury that Darabont was represented by "sophisticated" agents and attorneys who could hardly have been hoodwinked.
The added complexifier occurs thanks to the apparently different deal enjoyed by Kirkman.
Unlike the others, and similar to the situation in the Bones case, Kirkman asserts that he was entitled to an "actual license fee" instead of an imputed one. According to Nessim, that meant that AMC Studios had to negotiate with its affiliate network.
But when it comes to Walking Dead, AMC has never used an actual license fee — and so Kirkman's attorney has been probing AMC's justification.
AMC "refused to explain their position," writes Nessim in the status conference report. "We therefore promulgated written discovery on it. When asked for the basis... [AMC] provided, essentially, a non-response...,"
The status conference was delayed until next month, and both sides couldn't see eye-to-eye to even deliver a joint report, as is customary. As such, AMC's own positioning won't be detailed for a few weeks. At some point based on an informed understanding, AMC will likely argue that Kirkman isn't really entitled to an actual license fee, and even if otherwise, he's forfeited any challenge by accepting an imputed fee over the years without objection.
The controversy is a high-stakes one — perhaps even worth multiples of the Bones case. That's partly because Walking Dead's other executive producers have "most favored nation" clauses in their contracts that could mean they get the same profit participation treatment as Kirkman. (In the status report, Nessim anticipates his other clients will "essentially piggyback on Kirkman’s TWD Agreement through their MFNs.")
Although Kirkman is now telling the judge that AMC is being less than forthcoming in a case with "hundreds of millions of dollars" on the line, the defendant doesn't see it that way.
"Our defense in this case has been clear from day one and continues to be clear today," AMC attorney Orin Snyder tells The Hollywood Reporter. "This is an illegitimate money grab engineered by Hollywood lawyers and agents. AMC has paid the plaintiffs fairly and correctly under the contracts. These complaints about the discovery process are false and amount to sound and fury, signifying nothing. It is also worth noting that in the same breath plaintiffs claim specific money damages, they acknowledge that they don’t have the facts or expert testimony to have any idea what they are actually seeking in this lawsuit. Their decision to turn a procedural update to the Court into an advocacy document is unfortunate and regrettable.”