For the final month, revenue participant lawsuits have been the discuss of the city (or not less than a nook of it). In our follow litigating revenue participation fits, we frequently encounter expertise, expertise attorneys, and different dealmakers who share among the similar misperceptions — and they’re, in some ways, nearer to the problems than the typical observer. That bought us pondering: What do most individuals get flawed about revenue participation lawsuits? What follows are the highest 5 misconceptions about these circumstances.
Earlier than we soar to the listing, we wouldn’t be attorneys if we didn’t provide not less than just a few caveats. First, whereas we deal with lots of these circumstances, and listen to about others we don’t, we aren’t omniscient, and our opinions are exactly that: our opinions. Second, a phrase concerning the viewers for this piece. For those who learn The Hollywood Reporter, you may study one thing new. In case you are an in-house lawyer within the participations group of a significant studio, you won’t, however hopefully you’ll be engaged. With out additional ado …
False impression #1: Essentially the most profitable tv reveals are those with the largest “claims.”
It’s definitely true that some massive circumstances stem from essentially the most profitable reveals of all time. Take, for instance, the $200 million settlement of the long-running litigation between Frank Darabont and CAA towards AMC over earnings on The Strolling Useless. Or the record-setting $319 million jury verdict associated to the ABC recreation present of the aughts, Who Desires To Be a Millionaire? However others, just like the $179 million arbitration award towards Fox on the long-running drama Bones, don’t circulate from the reveals atop the Nielsen rankings. (Disclosure: We litigated The Strolling Useless and Bones circumstances.)
In truth, considerably counterintuitively, the “candy spot” for participant claims might be long-running workhorses. (The excellence between the largest claims, on the one hand, and essentially the most worthwhile reveals, on the opposite, will likely be clear in a second.) Right here’s why: A present that doesn’t run not less than 5 seasons is unlikely to generate vital earnings, which makes litigation much less interesting. (That is altering within the direct-to-streaming period, the place the absence of ancillary income streams resembling home and international syndication and residential video usually leads to upfront buyouts.)
In the meantime, on most massive hits, the studios’ formulation (or the enterprise affairs executives setting the phrases) rein within the temptation to dramatically undersell the present. Studios and their affiliated networks — and, to be clear, that is nearly by no means a problem when the studio and community are unaffiliated, besides in circumstances of co-productions — know that pigs get fats, and hogs get slaughtered. On successful present under-market charges assure litigation.
It’s the reveals within the center the place studios don’t really feel constrained to impute (or demand) premium license charges, deficit recoupment, and so on. There are a selection of causes for this dynamic, however the greatest is that networks don’t cancel massive hits, and the specter of cancellation is the go-to clarification for why the studio “had” to just accept a lowered license price or lacked the leverage to push for a customary one.
False impression #2: Studios will roll over upon the mere risk of litigation.
Purchasers (and fewer steadily their reps) typically assume that one letter from litigators, which can or could not embrace a draft criticism, will scare the studio straight. If solely it had been that straightforward! (It’s occurred just a few instances in our careers, nevertheless it’s definitely not the norm.) The fact is that self-dealing is often a nuanced problem, and the studios have defenses — generally contractual, generally factual, and generally primarily based on “customized and follow.” After all, we’ve got our biases, nevertheless it’s foolish to fake in any other case. Whereas only a few circumstances go the gap, there’s a purpose litigators say “trial dates settle circumstances,” not “draft complaints settle circumstances.”
False impression #3: Arbitration must be averted in any respect prices.
Plenty of refined attorneys on the expertise facet imagine that arbitration is the satan. The explanations may be each prosaic (arbitrators can price $10,000 per day, plus case administration charges) and nefarious (studios and their massive agency attorneys usually tend to be “repeat gamers”). However the actuality is just not so clear.
Sure, arbitration is dear. However many contracts include price shifting provisions, entitling the prevailing celebration to get better these charges. Whereas it’s not at all times straightforward to find out the “prevailing celebration”— if a participant claims $20 million in damages, however “solely” recovers $3 million, did she “prevail”? — some expertise agreements present for arbitration price shifting if the participant did higher than the studio’s final provide. Given that the majority pre-litigation settlement provides are two to 3 digits decrease than what the participant is claiming, such provisions dramatically scale back the “prevailing celebration” threat. After all, this doesn’t uninteresting the sting of the prices the claimant has to advance, however that pertains to litigation usually: no ache, no acquire.
It’s additionally true that the typical studio does arbitrate greater than the typical participant (although the discrepancy is often much less pronounced between the events’ respective attorneys). However essentially the most in-demand arbitrators are booked for 12+ months out. So the belief that they’re frightened about being struck on the “subsequent” case is a tad conspiratorial — even should you settle for the insinuation about retired judicial officers, which we don’t.
Lastly, it’s typically assumed that if the studios need it — and, let’s be clear, they do; arbitration clauses are non-negotiable — then it should be unhealthy. This isn’t an unfair response, should you assume that juries usually tend to be star-struck than arbitrators (though this assumption is not less than inconsistent with the tendency of followers to facet with homeowners and never gamers in labor disputes). However that is an empirical query that’s more and more tough to reply. Merely put, given the prevalence of arbitration clauses, there aren’t many current examples of jury trials.
In any occasion, deciding the place to file isn’t that easy. A participant could nicely desire to be in state court docket, however submitting there doesn’t assure that the case stays there, as THR‘s Eriq Gardner identified in these pages. To not point out {that a} shock submitting in open court docket — and the resultant publicity — could poison the continued negotiation dynamic. As a normal rule, studios don’t like being blindsided — see Disney’s preliminary response to the Black Widow lawsuit — and it’s honest to marvel if ratcheting up the temperature is finally counterproductive. In spite of everything, as soon as there’s unhealthy press, why not get your cash’s value? That will not matter to essentially the most principled, most well-heeled individuals, however most individuals aren’t seeking to be catalysts of change. They only need to be compensated pretty.
False impression #4: It’s my agent/lawyer’s fault we ended up in litigation.
When tempers flare, it’s typically tempting to look again on the underlying cope with a jaundiced eye. However no person can predict the longer term with good readability. In 2018, it was predictable that some films would find yourself on the studios’ contemplated streaming providers. A world pandemic closing film theaters? Not a lot. So it’s not shocking that many offers had been silent on “day-and-date” releases — a technique that didn’t exist and which no person was predicting — not less than not when films costing $200 million to make and one other $100 million to market had been producing $1 billion on the worldwide field workplace.
The opposite level is that even the perfect deal attorneys, representing essentially the most high-octane stars, administrators, and producers, can’t get all the pieces they need in any given negotiation. There typically comes a degree when a lawyer or agent has a alternative: Comply with the deal as drafted, or stroll from the mission. As a result of shoppers are loath to stroll, and studios are loath to lose the actors and creators that drive viewers, it’s typically in each events’ curiosity to “let the thriller be,” to cite one in all our favourite title sequences (from HBO’s criminally underrated The Leftovers). Sarcastically, if litigation finally outcomes, that’s often as a result of the mission was successful. Most tasks aren’t value preventing about.
False impression #5: Scarlett Johansson’s lawsuit goes to be the primary of many “day-and-date” lawsuits.
We return to the place we began: the continued Black Widow go well with. Whereas it’s too early to explain the impact it has had on revenue participant litigation, we do have a prediction: It received’t unleash the avalanche of copycat fits that has been predicted. There are just a few causes for our pessimism.
First, though hers was not the primary such go well with (albeit the primary filed publicly), the typical studio contract offers studios lots of discretion to find out the best way to distribute their movies — in the event that they select to launch them in any respect. Absent one thing else — a sequence of buyouts, an e mail from the studio’s chief counsel promising a large theatrical launch — the typical revenue participant has a steep street to climb.
Second, we’ve by no means met a consumer who most popular to litigate when there was a enterprise deal to be carried out. In that vein, it’s most likely not a coincidence that the opposite stars who had been rumored to be “sad” with their Disney day-and-date releases at the moment are hooked up to sequels.
After all, as litigators, that is one prediction we hope we’re flawed about.
Dale Kinsella and Nick Soltman are litigators at Kinsella Weitzman Iser Kump & Holley LLP, the place their crew focuses on revenue participation litigation for actors, administrators, and producers towards tv and movement image studios. All views are their very own.
