Backend tussle moves to nets’ front burner

Studios make re-writes to avoid self-dealing lawsuits

HOLLYWOOD — If the networks and studios have their way, “profit participation” may essentially become a thing of the past.

A litany of new clauses making their way into pilot contracts around town have been designed to keep media congloms out of the courtroom — and essentially remove almost all of a studio’s liability in potential legal tussles over a show’s backend coin.

NBC, for example, last week pulled the plug on the Adam Sandler-produced comedy pilot “Leave Me Alone” after Endeavor and Brillstein-Grey — which rep Sandler, scribe Tim Herlihy and Sandler’s Happy Madison Prods. — refused to sign off on such clauses.

Similar battles are being waged all around town. In many cases, sources say studios are threatening not to pick up or renew a show if the changes aren’t made.

Studios are “getting this language through with some of the most powerful showrunners and most highly compensated actors in the business,” says attorney Larry Stein, who has been involved in a number of “self-dealing” lawsuits, including Wind Dancer’s “Home Improvement” tussle with Disney.

“These provisions will change the entire nature of profit participation,” he says.

Hoping to guard against self-dealing suits, studios are aggressively changing the rules in the following ways:

  • Removing language that requires the studio to seek “fair market value” and conduct “arm’s length negotiations” when selling the off-net or repurposing rights to its shows, or when negotiating new license fees.

  • Putting in arbitration clauses that prevent profit participants from going to court and having their complaints decided by a jury.

  • Forcing profit participants into early mediation before they file a lawsuit.

  • Limiting any recovery to compensatory damages, therefore not allowing any punitive damages.

“With compensatory damages, all you get is what you lost,” Stein says. “That’s not much incentive for the studio to change its conduct.”

  • Shortening the statute of limitations to file a suit, which means disgruntled profit participants would have to act quickly.

  • Altering presumptions, which would shift the burden of proof to profit participants. Presumptions traditionally argue that by its nature, self-dealing is not at arm’s length; the new rules would start out with the presumption that self-dealing is fair, just and equitable.

Studio execs defend the clauses, arguing that current language regarding “fair market value” and “arm’s length negotiations” has virtually guaranteed litigation from profit participants since it’s hard to prove a negotiation between a network and its studio sibling is actually arm’s length.

In the case of NBC, Peacock execs hope to remove “arm’s length” notions from its contracts and insert new rules requiring the net to act “in good faith” — language that still leaves room for lawsuits if, say, the Peacock were to sell off-net rights to an NBC Studios sitcom to NBC-owned stations at a ridiculously low price.

NBC “tried to take away the gun to their heads (with the new language),” one insider familiar with the negotiations says. “Fair market value is an impossible standard to prove. (The new clause) still allows recourse if the profit participants think NBC makes a bad deal.”

Others, however, believe the Peacock is trying to give itself the right to make sweetheart deals by making it harder to prove self-dealing.

Net and studio execs have been trying to limit their liability against “self-dealing” lawsuits ever since actions by Wind Dancer, Steven Bochco, David Duchovny, Alan Alda, the producers of “Homicide: Life on the Street” and “Cops” producer John Langley shone a spotlight on the issue.

“You always have a problem when you negotiate with yourself,” Wind Dancer principal Matt Williams says. “As a creative entity, in the past you depended on the studio to take your side and beat the hell out of the network. But when (the studio) beats the hell out of itself, how hard are those punches?”

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