Experts also tell TheWrap Hollywood’s long tradition of “self-dealing” isn’t going anywhere
“Bones” stars and executive producers were awarded $179 million earlier this month in a profit participation lawsuit with Fox that ended up in arbitration — but don’t expect a sudden surge of copycat lawsuits, experts tell TheWrap. At least, not successful ones.
One prominent dealmaker told TheWrap that although this judgement — which ruled in favor of “Bones” stars David Boreanaz and Emily Deschanel, executive producer Barry Josephson and Kathy Reichs, the forensic anthropologist whose books inspired the show — may lead other hit shows to hire someone to scrutinize how their studio shared profits, not everyone will have the right situation or the finances to take it to court.
“It’s the confluence of a successful show, where people are underpaid, where there are enough points that reside with one or two or three people such that it’s worth it to take on Fox,” the dealmaker, who requested anonymity due to ongoing work within the entertainment industry, told TheWrap. “You’ve got to have some cojones, you’ve got to have some real staying power or assets or upside that is around the corner in order to take this on. And that’s not always the case.”
Tom Nunan, founder and partner of Bull’s Eye Entertainment and UCLA lecturer, agrees.
“Most profit participants suspect that on some level — either trivial or substantive — studios aren’t being fair, but at the same time, few have either the means or the stamina to sue,” he said. “There’s a real chance that we’ll see a surge in lawsuits, but few will succeed, as the studios count on the complainant to either run out of money or time, in pursuing what they figure they’re owed.”
Attorney Bert Fields, partner at Greenberg Glusker, offered another theory as to why you won’t see many copycat lawsuits prevail: studios will think twice about letting legal disputes go to arbitration.
“Maybe studios aren’t going to be so anxious to arbitrate in the future,” he said. Fields characterized “Bones” case arbitrator Peter Lichtman’s harsh words in his 66-page ruling — in which he accused three Fox executives of perjury — as “something a judge rarely does.”
“This seems to be a case where somehow these people and the studio side just drove this arbitrator up the wall,” Fields said.
Still, everyone we spoke with for this story seems to agree that it’s certainly worth checking the math.
“I think it would be remiss of anyone who represents a profit participant on a hit show, which was both produced by a studio and broadcast or cablecast by a network which are vertically integrated, to not do a thorough analysis of the resulting participation statements before the relevant audit periods expire,” Peter Nichols, entertainment lawyer and founding partner of Lichter, Grossman, Nichols, Adler & Feldman, Inc., told us.
One of the main issues at hand in the “Bones” case is the industry practice of “self-dealing,” a tradition almost as old as Hollywood itself, where a network or streaming service pays for a film or TV show from a studio owned by the same company. It’s that matter at the heart of the “Bones” case.
The show was produced by 20th Century Fox, which licensed the series to air on the Fox broadcast network. Streaming rights were also licensed to Hulu, a platform in which Fox currently has a 30 percent stake.
The amount that Fox was hit with was one of the largest rulings of its kind in television history. That facet alone has made those in the industry wonder if we’re headed for a sea-change in Hollywood deal-making, especially as Disney is set to increase its market share by swallowing up most of 21st Century Fox’s assets in a merger set to close in the coming months.
But experts aren’t so sure.
“It shouldn’t be taken as some radical change in the entertainment business,” Fields said. “This is not a new problem. This is just presented so dramatically because the numbers are so big.”
Nichols is also “not sure” if the “Bones” ruling “changes anything.”
“But it certainly underscores the importance of demanding that studios be required to negotiate with all corporate affiliates, whether wholly owned or not, on an ‘arm’s length’ basis,” he said.
Many legacy media companies, including Disney and WarnerMedia, are pushing further in the streaming space, which has already opened a new line of revenue for studios looking to cash in on the shows they own. And Disney will become the majority owner of Hulu after its Fox deal closes.
This could lead to a schism, where on one side you have streamers like Netflix, Amazon and Apple’s upcoming service — that aren’t tied to a larger content producer — and on the other side, you have Disney+, Hulu and WarnerMedia.
BTIG analyst Rich Greenfield believes that streaming licensing deals may come under further scrutiny.
“This illustrates the need for a true fair market value process — if Warner wants to put ‘Friends’ on WarnerMedia, it needs to pay talent as much as Netflix would pay,” he said. “What would Netflix pay for a ‘Star Wars’ TV series that reaches 150 million vs Disney+, which reaches zero at start?”
He added that, even if its own deals are more scrutinized, Netflix could still end up benefiting. “It shows how studios’ fiduciary duty helps Netflix — as they have size and scale to pay dollars that others cannot,” Greenfield said.