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‘The Walking Dead’ Producers Sue AMC Networks Over Profits From Hit Series

UPDATED with Tuesday’s filing in New York State Supreme Court and a statement in response to AMC.

AMC’s monster hit “The Walking Dead” has sparked another lawsuit, this time from producers who say AMC is short-changing their profit participation stakes through self-dealing.

“Walking Dead” comic creator Robert Kirkman and his fellow exec producers Gale Anne Hurd, Glen Mazzara, and David Alpert maintain AMC has failed to pay fair market value in the license fee for the series because the show is produced by its in-house AMC Studios arm. The suit filed Monday in Los Angeles Superior Court also involves the spinoff “Fear the Walking Dead” and the “Talking Dead” after-show.

The suit echoes the accusations in the bitter legal fight that original “Walking Dead” showrunner Frank Darabont has waged against the cabler for the past few years. Ironically, in the most recent round of motions in the Darabont case, AMC pointed to what it depicted as the acceptance of the license fee definition by Hurd and others as evidence that Darabont’s position was unfounded.

“When the production company and the network are part of the same conglomerate, as AMC Studios and AMC Network are here, there is a powerful financial incentive to keep the lion’s share of the profit at the network level and not pay a fair-market-value license fee to the production company — thereby depriving profit participants, like Plaintiffs, of their fair share of the series’ profits,” the suit states.

AMC called the filing “opportunistic” in a response that suggests it will battle the foursome’s self-dealing claim as vigorously as it has defended its actions in the Darabont case.

“These kinds of lawsuits are fairly common in entertainment and they all have one thing in common – they follow success,” AMC said in a statement. “Virtually every studio that has had a successful show has been the target of litigation like this, and ‘The Walking Dead’ has been the #1 show on television for five years in a row, so this is no surprise. We have enormous respect and appreciation for these plaintiffs, and we will continue to work with them as partners, even as we vigorously defend against this baseless and predictably opportunistic lawsuit.”

On Tuesday, Hurd and Alpert filed a nearly identical complaint against AMC in New York State Supreme Court, in accordance with the adjudication provision of their AMC contracts. Attorneys have requested that AMC waive its New York jurisdictional right and consolidate the case with the California filing.

In a response to AMC’s statement on the California lawsuit, Hurd, Kirkman and Alpert said: “While we disagree with AMC on the merits of our lawsuit, we appreciate its statement that it will continue to work with us as partners on the continued success ‘The Walking Dead,’ ‘Fear the Walking Dead’ and ‘Talking Dead.’ We also reaffirm our commitment to continue to make the best programs possible.”

The lawsuit from the foursome hinges on the dispute over the calculation of the “imputed” license fee for “Walking Dead,” a number derived for the purposes of profit participants because the network does not formally pay the studio a license fee — as would be the case if the show hailed from an outside studio. Instead, the initial imputed license fee was set at 65% of production costs with a cap of $1.45 million for the first season, with 5% bumps per season thereafter.

The lawsuit maintains that the current imputed license fee for the show, which will begin its eighth season in October, covers only 68% of the production costs. For such a huge hit — “Walking Dead” is the highest-rated series in adults 18-49 in all of primetime — the license fee would be much higher if the show was licensed from an outside studio. The plaintiffs maintain that the lack of a fair license fee artificially limits the value of their profit participation stakes. The suit also contends that AMC has improperly deducted expenses from the pool of money available to profit participants — including the costs of paying each profit participant.

Kirkman’s deal with AMC calls for him to receive 5% of modified adjusted gross receipts from the show (a.k.a. essentially profits after production and other costs are deducted), according to the complaint. Hurd was to receive 7.5% while Alpert was entitled to 2.5%. Charles Eglee, a former exec producer of “Walking Dead” who is not formally a plaintiff but is included in the complaint, was to receive 2.375%. Mazzara, who served as showrunner in 2011 and 2012, was to receive 1.5%. Kirkman and Hurd had the same stakes in “Fear the Walking Dead.”

All five participants also had “most favored nations” clauses in their contracts stipulating that no profit participant would receive a more generous definition of the revenue that comprised the modified adjusted gross receipts. The nitty-gritty of that definition and a recent adjustment made to it is another point of contention between the producers and AMC.

Among other claims in the filing:

— AMC received $22.8 million in revenue from Apple’s iTunes licensing of the show for paid downloads through 2014, but only reported $4.6 million of that sum as profit to be shared by participants.

— AMC double-dips on distribution fees for international licensing and home video sales of the show by imposing its own 10%-20% distribution fees on top of the 12.5%-20% fee charged by Starz for home video and the 5%-12% fee charged by Fox International Channels.

— AMC charges a whopping 50% distribution fee for merchandising sales, on top of a fee paid to a third-party licensor.

— Kirkman maintains AMC has failed to pay him contractually obligated royalties as the owner of the underlying “Walking Dead” property.

— Kirkman accused AMC of violating the terms of a merchandising agreement that gave him control over certain products such as video games, dolls, and action figures.

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