'Walking Dead' Creators Challenge AMC's Accounting Practices in Lawsuit

By:
Chris Gaetano
Published Date:
Aug 17, 2017
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The co-creators and producers behind hit cable series The Walking Dead have sued AMC Entities and related companies over what exactly constitutes "profit" when the production studio and TV network are owned by the same company, according to Accounting Today. While the Walking Dead and its spinoff shows Fear the Walking Dead and The Talking Dead have generated great profits for AMC, the plaintiffs said that the company has used its vertically integrated structure to keep the lion's share of the series' profits for itself, which is in breach of contract. 

At the heart of the complaint is that AMC engaged in self-dealing in related-party transactions in order to avoid fulfilling the terms of its contract. The plaintiffs said that, typically, profit is realized at the production company level, which is then shared with the participants. In contrast, network profit made from showing the content is generally not. However, it said, when the studio and the network are part of the same company, as AMC is, "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." So, for instance, under the terms of the contract, AMC Studios was supposed to get license fees at fair market value from the AMC Network for the right to show The Wakling Dead. However, AMC Studios simply gave AMC Network the rights for free, and then imputed a license fee that the plaintiffs said was wholly inadequate. 

In contrast, according to the complaint, when dealing with independent production companies not controlled by AMC, such as those that produced "Mad Men" or "Breaking Bad," the company paid substantial licensing fees for the right to broadcast these shows. 

"There can be no question that, if AMC Studio and AMC Network were not
part of the same conglomerate, the story would be very different. As this case will show, if AMC Studios had been paid a fair market license fee (as required under Kirkman's TWD Agreement), or had it properly imputed one (as required under the other Plaintiffs' TWD Agreements), TWD would have commanded a license fee far above the costs of production of the series over the long term, and certainly much above the mere 68% of prodution costs (including extra payments known as breakage) AMC Studios has given Plaintiffs credit for to date on their TWD MAGR statements through T'WD's seventh season. As a result, Kirkman, whose comic books were the basis for TWD, and the other Plaintiffs, who helped to bring his vision to television, have been denied their contractual rights to participate fairly with the AMC Entities in TWD's success," said the complaint. 

For its part, AMC Networks said that these sorts of lawsuits are a natural by-product of success and dismissed the claims as mere opportunism, according to Accounting Today. 

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