Smallville Creators Sue Warner Bros, Say They Never Got Fair Market Price For Their Work

from the invisible-hand dept

Tue, Mar 30th 2010 4:29am — Dennis Yang

AdamR points us to this story about the Smallville creators suing Warner Brothers -- the creators claim that they were cheated out of the "fair-market price" for the show and are demanding additional compensation for the successful show, which was just renewed for its 10th season. The lawsuit alleges that since WB owns both the studio that creates the show and the networks that air it, the negotiated price for the show was not fair. Hollywood has had a long history of wrestling with matters of vertical integration, with the the 1948 anti-trust case United States v. Paramount Pictures taking down the classic "studio system" that prevailed during that era. So, to accommodate the anti-trust regulations, negotiations between studios and networks must be held at "arms length." In recent days, the producers from Home Improvement, Will & Grace and The X-Files have won settlements worth millions of dollars in similar suits. That said, it's ridiculous to claim that fair-market price was not negotiated -- the fair-market price was whatever the producers could get for it, at the time that the show was sold, before it proved to be a huge hit. The producers accepted and signed the deal when it was negotiated. If a show appreciates in value after the deal is already done, why should the original producer get a piece of that upside? The network assumed the risk in this case when they negotiated the deal. What the producers are seeking is akin to a baseball player trying to renegotiate a previous season's contract after having a great season -- it doesn't make sense. If this tactic were ok, then networks should try and recoup money from the producers of all of the shows that have failed. If the producers want more money, then they need to negotiate for it in future contracts, and that should be easier to do with a hit show under their belts.

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Filed Under: contracts, smallville
Companies: warner brothers

35 Comments

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Richard (profile), 30 Mar 2010 @ 4:52am

Contingency
If you haven't got the sense to get a contingency clause written in to the contract to cover this then it's your own fault.
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Ima Fish (profile), 30 Mar 2010 @ 5:07am

10th fricken season?! Who the frick is still watching that show? Sure, the first four seasons had a certain charm. Watching Clark get through high school. But he's now firmly in his mid twenties and he still can't fly?!

The no flight/no tights rules made sense when he was in high school. But they make no sense now.
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Lutomes (profile), 30 Mar 2010 @ 5:21am

Makes sense
Ok so while I do agree with Mike that the "fair" market price was just whatever was agreed to at the time, before the show was known to be successful.

However my guess at the anti-trust argument is that because the "content creators" aka the studios are essentially the same as the "content distributors" aka the networks - there is no free market for getting at TV show you produce out there. Its not like you can just start up a TV network even if you had the money. There are spectrum issues for OTA, and the networks own/are the cable companies so they don't leave a level playing field.

The real question is - if the market was really at arms length - would a content producer be able to include a contract term that says they get a share of gross/net revenue the TV network brings in from its show. The answer is for many 'big name' shows (which arguably a superman show would count) would be able to.

Now did the Smallville creators ever ask WB for a revenue share. If they did was it not granted or was it just not "enough". If they didn't was it because they were desperate for any offer or was it because the show concept was too risky.
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Anonymous Coward, 30 Mar 2010 @ 5:25am

If you have two parts of a company, and one part "buys" something of value from the other part, the purchaser still has to pay a fair price for it. I don't think it has anything to do with being fair to anyone, but rather for tax purposes. In exchange, the various pieces of the company get some liability protection.

Movie studios do this all the time. They set up a new company (which is owned by the studio and other producers), put the money in to make the film, and then buy or license it back. But they can't just buy it back for $1, even though they may own the majority of production company because there may be other people who have an interest in that company, even if it's only a tiny amount.

Imagine if you make a deal where you get 25% of any money from the sale of something, but you don't have any say in the act sale itself. And then your partner sells it to his brother for $1, way below what it's worth. And then the brother sells it for $10,000, and gives that money back to his brother. You'd probably be pretty pissed.
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MBraedley (profile), 30 Mar 2010 @ 5:25am

You seem to be missing something. Each time a series is renewed, they re-evaluate the market worth of the series. Yes, there are typically options in the contracts that cap the market value increase for the network, but they only extend a few seasons. After that, a new contract needs to be written (or reused, whatever), and the cap no longer applies. If the producers feel that they didn't get a fair deal at this last renegotiation, and that the negotiation itself wasn't conducted properly, then they have every right to be upset and ask for pack pay.
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Tyler!, 30 Mar 2010 @ 5:26am

It's just like...
What creators of Smallville are doing would be an awful lot like someone selling you a house and then suing you ten years down the road because the house appreciated in value.
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Bob Mongoose, 30 Mar 2010 @ 5:27am

Re: Contingency
I disagree. The problem is that the studios do hold a monopoly here. The reason monopolies are bad is because they amass power to gain the ability to force you to sign an undervalued contract.

Senator Franken has brought up the issues he lived through at SNL when the studios were allowed to own a larger percentage of the shows on television in regards to the Comcast/NBC merger. Previously, the networks were supposed to be the equivalent of dumb pipes. Then laws and regulations changed. Suddenly, creators were forced to sell their shows to the broadcasters. Otherwise they might be given bad timeslots or the show wouldn't be picked up.

In other words, unless you played by the monopoly's rules, you couldn't play at all.

And that's why these guys are winning settlements. If the studios were so risk averse, they wouldn't be forcing creators to let them own more and more of the show. Instead, the studios would be seeking to be dumb pipes and profit on that.

This is another case of a monopoly using it's power to guarantee revenue without much risk exposure.

And by the way, pro athletes should be able to adjust their contracts after a good season. Particularly in the NFL where few contracts are guaranteed and the team's routinely ask players to renegotiate down after a bad season.
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Michial Thompson, 30 Mar 2010 @ 5:59am

WOW little mikee controdicts himself again
Hmmmm so if a Producer asked the network for more money after the fact and doesn't deserve the money because the network assumed the risk????

Wait isn't this EXACTLY the opposite of what you claim that the music industry needs to do? I have seen you slam time and time again the contracts between the music studios and the musicians, but it's the studio that assumed the risk and even fronted money to the bands, so why should the artist deserve more just because the music become popular?

WOW, come on little mikee at least be consistantly pouty and whiney
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Anonymous Coward, 30 Mar 2010 @ 6:01am

Re: Contingency
"And by the way, pro athletes should be able to adjust their contracts after a good season. Particularly in the NFL where few contracts are guaranteed and the team's routinely ask players to renegotiate down after a bad season."

Most athletes DO try to renegotiate for better future contracts based on previous season's performances. That is pretty basic. And just as an athlete is not asked to REFUND the millions of dollars he got paid for sitting on the bench with an injury (it's all part of the risk), the producers should not be allowed to get this type of compensation unless it is proven they were forced somehow to take a bad contract. Which can be a little hard to prove, since they always have the option not to. But rather CHOSE to in order to make money...
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Dark Helmet (profile), 30 Mar 2010 @ 6:17am

Re:
"The no flight/no tights rules made sense when he was in high school. But they make no sense now."

It's actually an excellent show, but only if you watch it under the exact right conditions. Here's what you do:

1. Turn the television to the WB, no matter how much your eye begins twitching at the prospect

2. Light several candles, open up a nice bottle of wine, put out a basket of chocolate covered strawberries

3. Listen to Remy Zero, the whole theme song, because it is an excellent reminder to complete the next step...

4. Which is to immediately jam your finger into the "Volume Down" button with enough force to draw blood

5. Once they've returned from whatever Noxema advertisement was playing, you will be treated to the stunning vision of an extremely hot, busty girl. It might might be one of the regular cast, or it might be a guest star, that's part of the fun!

6. Reach for the wine and gulp it as fast as you can in one breath, and then toss three of the strawberries in your mouth (raw oysters are an excellent substitute).

7. Begin furiously masturbating as violently as possible. You have only a few moments to do so before....

8. ARRGGHHH! Begin violently shouting nonsense words at the TV as one of the no-talent assclown male castmembers appears on the screen. If any strawberries or oysters remain, hurl them with righteous indignation at the screen.

9. As the camera continues to shift between characters, repeat steps 5-9 until satisfaction is attained.

10. Get up, look at the mess you've made, and then notice that your dog/cat/girlfriend is looking at you with the same expression the dead people had in "The Ring"
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Anonymous Coward, 30 Mar 2010 @ 6:23am

Re:
Apparently you're watching it, since your relatively aware of the story line.
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Ima Fish (profile), 30 Mar 2010 @ 6:24am

Re: Re:
"as one of the no-talent assclown male castmembers appears on the screen"... without a shirt.

You forgot that very important part.
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Richard (profile), 30 Mar 2010 @ 6:26am

Re: Re: Contingency
I disagree. The problem is that the studios do hold a monopoly here. The reason monopolies are bad is because they amass power to gain the ability to force you to sign an undervalued contract.

Agreed the monopoly power is a bad thing - however I still think it is possible to get a bigger share of the upside if you believe in your product enough - although you probably have to take a smaller upfront payment.

Of course there is the possibility that the success of Smallville was either luck or smart promotion by the networks....
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Ima Fish (profile), 30 Mar 2010 @ 6:31am

Re: Re:
Yeah, I said I liked the first four seasons. I continued watching for a few seasons more, because as Dark Helmet pointed out, the babes are smoking hot. But eventually it just got so stupid that even smoking hot babes could not make it watchable.
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Dark Helmet (profile), 30 Mar 2010 @ 6:37am

Re: Re: Re:
Dammit, I knew I was forgetting something...
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Rob (profile), 30 Mar 2010 @ 6:44am

One interesting wrinkle on this is that WB not only owns the studio and the network, but also the rights to the character the show is based on, since Time Warner also owns DC Comics, and therefore the Superman character.
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techflaws.org (profile), 30 Mar 2010 @ 6:54am

Re: WOW little mikee controdicts himself again
WOW, come on little mikee at least be consistantly pouty and whiney

Look who's talking. So Mike, when do we get the option to filter troll comments?
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James, 30 Mar 2010 @ 7:51am

Other parts to the deal
There is more to the lawsuit then just the "vertical integration" stuff - allegations about smallville being sold abroad internationally in packages with other less successful shows, and then not getting fees that reflect that. While I don't know enough about this case to make a judgement on the arms length issue, this seems like a stronger and clearer point (assuming the fees were genuinely low, of course)
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RickMan (profile), 30 Mar 2010 @ 8:05am

Fair Market Value
The jist of this argument is not that they are not getting the negotiated fee for the show, which is a percentage of what the product is sold for in the secondary market. The Hollywood Reporter (THR) explains this: Warner Brothers (WB) is under valueing the Smallville for foriegn markets by packaging it with several other less desirable products. Because WB owns the arm that creates and sells the package to others, then sets the value of each property in the package, the value of Smallville was valued at less then the fair Market value and the other properties were valued at a value higher than Market Value. This lowers the amount due Smallville's producers, and increases the value of the other shows, that are owned by WB. So WB makes more money at Smallville's Expense.

Smallville's Producers feel that WB is taking advantage of their distribution power to unfairly keep revenue through an accounting trick, that artificially lowers the agreed moneys WB would pay to Smallville's Producers.

Also it is time to End Smallville and the no tights no flight and start Metropolis in Flying in tights & a Cape.
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Ima Fish (profile), 30 Mar 2010 @ 8:10am

Re: Re: Re: Re:
I can certainly understand why you'd want to forget.

I'm guessing that somewhere there's a group of friends who play a drinking game to Smallville, where whenever there's female cleavage the guys drink and whenever there's a guy not wearing a shirt the girls drink. They'd be pretty drunk by the end, that's for sure.
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Bob Mongoose, 30 Mar 2010 @ 8:49am

Re: Re: Re: Contingency
How do you get a Thursday night timeslot without selling to the CW? Not to mention that the CW built the Supernatural franchise by following Smallville.

Obviously, the execution matters, it isn't just someone says teenage superman who can't fly and there's a hit. And honestly, I don't know enough of the details to say who is responsible for the success.

My concern is this: You create the best TV series ever from top to bottom. You go to the networks, and every single one of them loves the show, and wants to back it and go primetime with it. One catch. Every single one of the networks wants 85% ownership of the show to give it a primetime slot.

So instead of an independent studios competing to work with you to create the show, you have to sell to the network studios to get it on the air.

And that's where the lawsuit comes from.

I agree that the spark of an idea didn't produce a successful show. But I still have a huge issue with networks expanding into monopolies.

The networks make more money owning 85% of a failing show than they do owning 15% of a successful show. Do you see the issue? It isn't about producing the best TV. Is that a problem for anyone else?

And again, I'd like to bring up that MLB players (I missed that it said baseball in the summary the first time) can't just be cut next season. The contracts are guaranteed. If they had an 5 year guaranteed contract, the creators have no complaint. That's two sports the analogy fails in.
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AdamR (profile), 30 Mar 2010 @ 9:09am

Warner Bros. owns DC comics which makes the Superman comic. They knew the risk was low and the potential was high. Warner got to triple dip here. The made money off the license of the comic to TV, distribution fees, and low balled it to networks they owned and made more money of their air time commercials. I wonder how many Warmer Music artist they plugged into the show and money they made of licensing that?
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AdamR (profile), 30 Mar 2010 @ 9:13am

Re: Makes sense
Umm Mike didnt write the article.
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Dark Helmet (profile), 30 Mar 2010 @ 9:16am

Re: Re: Re: Re: Contingency
"That's two sports the analogy fails in."

Though that really only applies with baseball, though. Most sports contracts don't include guranteed money as the whole sum, only a partial, and even that can be taken back via litigation (i.e. Michael Vick).

That's why among avid sports fans you'll hear reference to two differentiating types of money: Football money vs. baseball money. Baseball money is always better than football money, for the reason you just gave...
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AdamR (profile), 30 Mar 2010 @ 9:17am

Re: WOW little mikee controdicts himself again
Hey Ass hat read who posted the article it wasn't Mike.
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CoughingMonkey (profile), 30 Mar 2010 @ 9:28am

Re:
yes there were a couple seasons that were on the boring side but, they got their act back together once again.
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Joel (profile), 30 Mar 2010 @ 9:29am

Re:
I watch it. I don't agree with the no flights/no tights rule from the start; in the Superman movies they show him flying/hovering when he falls in the Kent Barn when he was a child.
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Joel (profile), 30 Mar 2010 @ 9:38am

Misuse of words...
Please when stories or comments are written use the correct words to express your ideas.
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PRMan, 30 Mar 2010 @ 10:13am

Slight problem with your logic, Mike...
The trademark for Superman is also OWNED BY WARNER BROS. If WB decides that they're not going to allow Superman to appear on another network, then it's not happening.

Paul
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Ryan, 30 Mar 2010 @ 10:38am

Re: Slight problem with your logic, Mike...
PrMan: It wasn't written by Mike, and I don't see what that has to do with anything. The show's writers didn't create Superman and then somehow have the rights taken from them, they created a background for a tv series based on Superman. Didn't have to be Superman - could've been about anything, and they could easily have sold their talent to a different network.

Seems like a lot of replies mention that the writers had no choice because of monopolies...What a crock of shit. Here's a list of some U.S. networks: http://en.wikipedia.org/wiki/List_of_United_States_cable_and_satellite_television_networks

And nobody is stopping you from starting your own channel. Oh, you'd rather just write scripts than actually running a network with all the work and risk that entails? Then stop bitching about them not paying you whatever you damn well feel like after you agreed to terms. There may or may not be an issue with meeting the terms laid out in the existing contract, but all this antitrust crap is a bunch of B.S.
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Anonymous Coward, 30 Mar 2010 @ 11:18am

Re: WOW little mikee controdicts himself again
Oh look, little tiny michiall makes a mess of himself, color me shocked.
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Anonymous Coward, 30 Mar 2010 @ 12:40pm

Transfer Pricing
The history of transfer pricing makes it clear that, absent legal/regulatory requirements, pricing between subsidiaries will bear no resemblance to "market prices".
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BearGriz72 (profile), 30 Mar 2010 @ 4:40pm

Re: Re:
Thank you for that mental image now burned into the back of my eyeballs for the rest of the day��
F*%& You Very Much
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Anonymous Coward, 30 Mar 2010 @ 5:18pm

"Smallville Creators Sue Warner Bros, Say They Never Got Fair Market Price For Their Work"

Are you serious? I used to watch that show too, but then I eventually got bored of it. The writers still don't know how to come up with anything besides kryptonite in every episode.
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Dark Helmet (profile), 31 Mar 2010 @ 3:58am

Re: Re: Re:
If it helps at all, I'm one of the most stunningly attractive people on the planet....

Aaaaaannnnndddd enjoy...
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