Frank Darabont Mob City
Michael Lewis

“The Walking Dead” creator Frank Darabont and his agent CAA have filed suit against AMC Networks, claiming that they are owed tens of millions of dollars for the runaway hit, one that the cabler claims is running a deficit.

The suit, filed on Tuesday in the Supreme Court of the State of New York, contends that AMC has been engaged in “the improper and abusive practice of ‘self-dealing.'”

“One AMC affiliate produces ‘The Walking Dead’ and then licenses the show for an artificially low fee to another AMC affiliate that televises the show to the public,” the suit states. “The sole goal of this sham transaction is to enhance profits of the parent company by minimizing the revenues that go into the ‘pool’ of funds for the show’s profit participants.”

The suit states that Darabont is entitled to profits based on the success of the show under a formula in which he receives a percentage from a ‘pool’ of modified adjusted gross receipts. CAA, which packaged the series, also is a profit participant, the suit states.

Their suit claims that the biggest source of gross receipts, the license fees, are being “manipulated” as AMC controls the entity producing the show and shows it on its AMC channel.

But rather than pay “fair market value,” as Darabont’s contract required, he and CAA contend that the AMC created a “license fee formula” that “guarantees that the series will remain grossly in deficit.” The suit states that the formula “imputes” a license fee “millions of dollars lower” than what AMC would have to pay a non-affiliated studio like Lionsgate or Warner Bros. Darab0nt’s suit also says that he “has not received and may never receive one dollar in profits for developing the series.” The series, his attorneys contend, had a $49 million deficit as of September 2012.

Darabont was dismissed from the series in 2011.

AMC declined to comment.

Stu Segall Prods. also is named as a defendant, which Darabont and CAA claim was “simply used” as a signatory to the network’s agreement with Darabont to comply with guild requirements.

Dale Kinsella, one of Darabont’s representatives, said that the suit is distinctive in part because “the success of this particular series is somewhat unprecedented because it has obliterated the distinction between cable and network TV.”

The suit contents that under AMC’s imputed license fee formula, the license fee for the show is 65% of the costs of producing the series or $1.45 million per episode, whichever is lower. That means there “would be a significant deficit on every episode” during the life of the series. The formula provided for a 5% bump in the license fee for each season, regardless of how successful it was. That means that the license fee for season five of the show was capped at $1.76 million per episode, and $2.2 million in season 10. By contrast, the suit points out, AMC paid Lionsgate “at least” $3 million per episode for season five of “Mad Men, even though it gets “less than 25% of ‘The Walking Dead’s’ viewership.”

The suit also notes that while the term of licensing deals between unaffiliated networks and studios is typically four years, AMC’s imputed license fee is a perpetual one.

Darabont and CAA also contend that AMC has not properly accounted for the 30% tax credits they received for filming in Georgia. In September 2012, AMC listed production costs at $100 million, but with the 30% tax credit, the profit pool was “improperly deflated by more than $30 million,” according to the suit.

The litigation also claims that Darabont was dismissed from the series in the summer of 2011 without cause, even though he brought it in on time and within budget. The suit contends that AMC did so to avoid paying him increased compensation, as well as to avoid his right of first negotiation to serve as showrunner in the series’ third season.

 

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