Frank Darabont & CAA Suing AMC Over ‘The Walking Dead’ Profits
AMC‘s The Walking Dead is the biggest show on television but its developer Frank Darabont has yet to receive any money as a profit participant. Today, Darabont and his agency CAA filed a lawsuit (read it here) against AMC, accusing the network in “self dealing” by setting an unrealistically low license fee for the series it also produces and employing questionable accounting practices thus depriving profit participants of compensation. The complaint also alleges Darabont was wrongfully terminated from the show, that he should continue to receive an executive producer credit and is entitled to proceeds from The Walking Dead offshoots Talking Dead and the upcoming spinoff from Robert Kirkman, on whose graphic novel The Walking Dead was based. Darabont and CAA are asking for unspecified “monetary damages” to be determined by a jury trial. The 73-page complaint was accompanied by a summons from the plaintiffs for AMC to reply by mid-January or risk default judgment.

Judging by the history of vertically integration lawsuits, the odds are small that the dispute would go to trial. There have been a slew of “self dealing” complaints since the 1995 relaxation of TV’s financial interest-syndication rules — all of them eventually settled. The list includes Home Improvement producers’ suit against Disney, NYPD Blue exec producer Steven Bochco’s, X-Files star David Duchovny’s and M*A*S*H star Alan Alda’s complaints against 20th Century Fox TV, and more recently Will & Grace creators Max Mutchnick and David Kohan’s case against NBC and Smallville creators Miles Millar and Alfred Gough’s against Warner Bros TV. The difference is that Darabont was also fired from the show early into its run, a move Darabont and CAA are using in their case against AMC. The lawsuit, filed today with the New York Supreme Court, comes after sources say efforts by Darabont and CAA to resolve their issues were “fundamentally rebuffed” by AMC.

It is hard to dispute that The Walking Dead has been a game-changer, a monster ratings hit that is blurring the lines between broadcast and cable and a global success for AMC. But “despite four seasons of unprecedented programming success and profitability for (AMC), Darabont has not received and may never receive one dollar in Profits for developing the Series,” the complaint said. Profit participants are paid from a pool of funds known as Modified Adjusted Gross Receipts— gross receipts the studio receives minus production costs and other deductions. That means that if a project’s deficit is too high and it does not generate a profit, those participants are left empty-handed. That is the case with The Walking Dead, which has been raking in tens of millions in deficits, due to AMC’s “sham imputed license fee formula” that “is clearly designed to ensure Plaintiffs never see that first dollar,” the suit alleges.

It claims that in Darabont’s initial deal with AMC, the network indicated that the series would be “produced by an unaffiliated studio (such as Lionsgate or Warner Bros Television), and Darabont’s contingent compensation was defined as a percentage of up to 12.5% of the unaffiliated producer’s ‘standard’ definition of Profits ‘subject to good faith negotiations.’ ” (CAA and client Darabont’s combined share of the profits is more than 20%.) AMC subsequently opted to produce The Walking Dead itself. Darabont and CAA “agreed to this arrangement after gaining assurances from AMC that Darabont would obtain protections against improper self-dealing,” the complaint says, pointing to this language in Darabont’s contract: “AMC agrees that AMC’s transactions with (Darabont) will be on monetary terms comparable to the terms on which the (AMC) enters into similar transactions with unrelated third party distributors for comparable programs.” The complaint alleges that, with The Walking Dead shaping up to be a hit, “AMC elected to deprive the Series’ developer and his talent agency of their right to Profits” by creating an unconscionably low license fee formula that had no regard for what AMC or any network would pay in an arms’ length agreement for the right to broadcast such a comparable highly successful series.” Also, unlike most deals with outside studios that are for four seasons, allowing the negotiation of major license fee increase after Season 4 in success, the complaint says that AMC instituted a “‘perpetual’ license fee formula— a formula setting a low license fee for the entire life of the Series regardless of whether the Series was on the air for five seasons or twenty seasons and regardless of the costs of production or the success of the Series.” (There is a built-in 5% bump in the Walking Dead license fee each season.) For the upcoming fifth season, it “is capped at $1,762,483 per episode, and the license fee for an eventual season ten would be capped at $2,249,422 per episode,” the complaint says. In contrast, “through arms’ length negotiations, Lionsgate (an unaffiliated studio) obtained at least $3,000,000 per episode for Mad Men’s season 5 — more than $1.2 million per episode more than AMC will impute for The Walking Dead — despite the fact that Mad Men gets less than 25% of The Walking Dead’s viewership.”

The suit alleges that the instituted by AMC license fee, $1,450,000 per episode, covers about 65% of the costs of production, meaning that The Walking Dead is certain to run a deficit for every episode it ever produces. The suit quotes the latest participation statement issued by AMC, dated September 30, 2012, where “the cumulative imputed license fees reported by AMC through Season 2 totaled $48,656,742, whereas AMC listed the costs of production at $104,518,536,” meaning that on paper, The Walking Dead “had an unconscionably high deficit of greater than $55,000,000 before the third season premiered.” There is also interest on the deficit and overhead charges that are are added on top of production costs, pushing the deficit to $71,000,000. This suit expects that deficit “to increase exponentially” each season “because the production costs and interest charges will grow at a greater rate than the improper self-dealing license fee.” Also skewing the balance sheet, according to the complaint, is the fact that AMC’s accounting does not factor in the 30% tax credit from Georgia, where the series is shot, in its production costs estimates. Darabont and CAA are now asking for a better net profit definition.

The lawsuit also alleges wrongful termination over AMC’s firing of Darabont midway through production on Season 2, several months after the network amended his contract to give him a pay raise and lock him in for Seasons 2 and 3. “AMC fired Darabont without cause shortly before Season 2 aired precisely in order to avoid its contractual obligations to pay him increased Profits (which vested fully at the conclusion of Season 2) and to avoid its obligation to negotiate to hire him as showrunner for Season 3.” Darabont and CAA claim that “when asked for an explanation of this action, AMC was unable or unwilling to give any specific reasons for Darabont’s abrupt termination. AMC could not explain why Darabont was not given any notice, warning, or opportunity to cure any perceived problems.” The complaint claims “Darabont was bringing the episodes in on schedule, bringing the show in on budget, and keeping AMC informed regarding each episode.” Darabont has spoken out publicly about his firing, recently ripping AMC executives over the dismissal while promoting his new series, Mob City on TNT.

According to the complaint, Darabont’s contract with AMC also stipulates that he “shall be locked as executive producer for the life of the Series” and claims that he was wrongfully stripped of his EP credit following his dismissal from the show despite “repeated demands” by Darabont to be reinstated as exec producer. Additionally, “Darabont has a contractual right of ‘First Negotiation’ with regard to any derivative production related to The Walking Dead,” the suit says. It claims that The Walking Dead companion talk show Talking Dead is such “derivative production” and “Darabont is entitled to credit on Talking Dead, and, at a minimum, Plaintiffs are entitled to a percentage of AMC’s profits on Talking Dead as a passive payment.” (They have not received any so far.) Additionally, the suit contends that AMC also has breached Darabont’s contract by not offered him to be part of the upcoming Walking Dead spinoff series shepherded by Kirkman.

The lawsuit also recaps The Walking Dead’s winding path to the small screen. Darabont first developed the project for NBC in 2005. He later took the script to AMC, which was ready to commit but by then the TV rights to the graphic novel had expired. Meanwhile, HBO was also pursuing the rights to develop The Walking Dead as a series with what I’d heard was Guillermo del Toro. In the end, AMC was able to obtain them and proceed with Darabont’s version.

Darabont and CAA are represented by Jerry Bernstein and Harris Cogan of NYC firm Blank Rome LLP along with Hollywood heavyweight lawyer Dale Kinsella, as well as Aaron Liskin and Chad Fitzgerald of Santa Monica firm Kinsella Weitzman Iser Kemp & Aldisert LLP.