Kirch sues U over pay TV pact

$2 bil suit part of Seagram fallout

Germany’s leading film and television company Kirch has sued Universal Studios for more than $2 billion, charging that the studio breached a major pay TV licensing deal by concealing its plan to drastically cut back its motion picture and television production.

The lawsuit, part of the continuing fallout from the Seagram Co.’s acquisition of Universal, alleges that the studio misrepresented its intentions while negotiating a 1996 licensing agreement with Kirch.

Under the pact, Kirch was to pay the studio hundreds of millions of dollars in return for an exclusive 10-year option on the right to license Universal feature films and television shows for presentation on the German company’s new European digital pay TV platform.

U was major in film

At the time the parties were negotiating, Universal “was a preeminent motion picture producer.” It was also “known for its successful action-adventure television programming that generated substantial revenue from international markets,” according to the lawsuit. Such programs included “Law & Order,” “Murder, She Wrote,” “Miami Vice,” and “Quincy.” In 1996, Universal ranked third among the major Hollywood studios in network programming.

But “unbeknownst to KirchMedia,” Seagram was actually planning “to expand Universal’s music business and to narrow and shift the focus of Universal’s television and motion picture business.” Since then, according to the complaint, filed Wednesday in L.A. Superior Court, Universal’s motion picture output has dropped to half of the studio standard of 20 to 30 films a year.

On the television side, the complaint alleges that that the studio had contemplated getting out of television production, even while it was making a deal with KirchMedia to provide programming.

Complaint allegations

The complaint alleges that while Universal was negotiating with KirchMedia, Seagram’s Edgar Bronfman and Barry Diller were conducting “secretive and confidential negotiations,” which ended with Universal merging most of its television assets, including the USA Networks, into Diller’s Home Shopping Network.

USA Networks has “no incentive … to create programming that will appeal to international audiences,” states the complaint. It seems to be concentrating on “less expensive programming, such as wrestling, half-hour sitcoms and talkshows, which have little-to-no appeal to German-speaking audiences.”

U did ‘wrong,’ says attorney

Skip Miller, KirchMedia’s attorney, said, “What Universal did was wrong, and as we shall show in court, it had a material impact on KirchMedia’s business. Universal’s breaches of contract and fiduciary duty have caused KirchMedia actual damages currently estimated to be in excess of $2 billion.” KirchMedia also is asking for punitive damages.

A Universal spokeswoman said “we have reviewed the complaint and it is completely without merit.”

KirchMedia’s dispute with Universal dates back to at least 1998, when, according to the complaint, Universal improperly intervened with the European Union’s Commission for Competition Policy to block a merger between the Kirch digital programming platform DF-1 and Bertelsmann’s Premiere digital programming platform.

KirchMedia alleges in the suit that because of Universal’s “inexplicable” objection to the merger and the millions of dollars in losses it caused, KirchMedia is entitled to invoke an unusual force majeure clause in the contract to terminate the entire deal with Universal.

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