Universal Reaches Settlement Over Home Video Royalty Payments

Universal has reached a settlement in a class-action litigation over its calculation of home video royalties to profit participants from films such as “The Best Little Whorehouse in Texas,” according to court documents filed this week.

A named plaintiff in the class-action lawsuit was Colin Higgins Prods., named for the late director of “Whorehouse,” but it was filed on behalf of writers, actors, directors and other profit participants.

The settlement calls for the creation of a $26 million fund — $13 million for a member of the class who has the right to participate in profits under the terms of their contract, and another $13 million for class members who have not yet reached that threshold for profit participation payments.

The dispute is over a common studio practice that has long been a source of irritation for creative talent. Rather than calculate profit participation amounts from 100% of home video revenue, the accounting is made from just 20% of revenues. The practice goes back to the early days of VHS tapes, when studios argued that they needed to compensate for the high duplication and production costs.

The settlement also includes electronic sell-through from the sale of digital movies on sites like iTunes and Amazon. Streaming revenue from the likes of Netflix and Hulu fell into a different accounting category, calculated at 100% of the revenue by Universal, and was not part of the lawsuit.

A spokeswoman for Universal said they had no comment. The studio had argued that the 20% calculation was standard industry practice, and that payment under that formula did not deduct costs.

According to a motion filed with Los Angeles Superior Court, the exact amount received by each class member will vary depending “on the number of claims and revenue from films at issue,” but “the formula can be readily tested and applied for approval purposes. For example, every $50,000 of profit participation paid in total profit participation (from the beginning of time) will result in approximately $1,500 in retroactive relief. For every $50,000 of profit participation paid in the four year period will result in approximately $6,400 in prospective relief.”

Other named plaintiffs in the lawsuit included Indigo Inc. and Lynn Unger Children’s Trust.

Studios have faced litigation in cases where contracts don’t spell out the payment of home video or electronic sell-through revenue, so the titles at issue tend to be older releases. Litigation is still pending against Paramount, where Higgins made “Foul Play.”

A hearing is set for July 15 on a motion for preliminary approval of the settlement.

Pearson, Simon & Warshaw; Johnson & Johnson; Kiesel Law and Boucher represented the plaintiffs. The settlement agreement calls for attorneys to seek no more than $4.3 million in attorneys’ fees.

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