Fox nailed with $179 million in damages for violating revenue agreements around Bones during arbitration

We can argue forever about whether it’s money or love that makes the world go round, but love of money has just brought 21^st Century Fox’s world to a screeching halt, at least temporarily. In a shock arbitration decision that’s just been made public, the company has been slapped with a $179 million judgement for failing to adhere to a profit-sharing agreement, and which could have wide-spread implications for the rest of the industry.

The dispute centers around the Fox series Bones, which starred Emily Deschanel and David Boreanaz and ran for twelve season between 2005 to 2017, which the production company licensed to the streaming service Hulu, in which it has a stake, in what’s been described by arbitrator Peter Lichtman as a “sweetheart” deal.

How the profit-sharing agreement basically works is that a studio will finance a production and then sell rights to a distributor. The proceeds from that sale, less production, marketing, and other associated costs, are then distributed through the profit-sharing agreement to the various parties involved in the agreement. There’s a major incentive on the part of the studio to maximise costs when calculating the profits in order to both reduce its tax burden and the amount it has to pay out to its partners. If you ever wondered why the terms “creative accounting” and “business ethics” exist, there’s a good example.

In this instance, the arbitrator found that Fox had substantially undervalued the series when licensing it to Hulu for airing (i.e. sold it for less than it was worth), which both advantaged Hulu (again, in which Fox has a stake) and reduced Fox’s profit-sharing liability with the series’ stars, producers, and author Kathy Reichs on whose novels the series was based. He then imposed a $50.2 million award for actual damages, and a further $128.5 million in punitive damages – essentially this is how much you pay for being wrong, and this is how much you pay for being a dick about it.

In his scathing judgement, which was originally made on 4 February, he lambasted the company and its senior executives who appeared before him saying that executives “appear to have given false testimony in an attempt to conceal their wrongful acts” and that the company had a “cavalier attitude toward its wrongdoing” and a “company-wide culture and an accepted climate that enveloped an aversion for the truth”.

He further went on to say, “the arbitrator is convinced that perjury was committed by the Fox witnesses. Accordingly, if perjury is not reprehensible then reprehensibility has taken on a new meaning.” The executives he was referring to were 21^st Century Fox president Peter Rice, Fox TV CEO Dana Walden, and Fox TV chairman Gary Newman – with the former two moving to Disney as part of the much-publicised merger between Disney and Fox.

As some of you may know arbitration agreements such as this are generally not made public. However the judgement has now been revealed because, as a source told the L.A. Times, “the only reason this went public is because Fox didn’t pay.”

The company is currently disputing the ruling, or more specifically the punitive damages awarded not the actual damages, and said in a statement following the revelation of the judgement:

“The ruling by this private arbitrator is categorically wrong on the merits and exceeded his arbitration powers. Fox will not allow this flagrant injustice, riddled with errors and gratuitous character attacks, to stand and will vigorously challenge the ruling in a court of law.”

Please do, because this alleged violation of the agreement has serious ramifications for the entire entertainment industry should a court find in the favour of the artists and not the company. Something which has already happened in 2011 by the way, when a jury slapped Disney (hmm) with a record $319 million in damages for exactly the same thing involving the show Who Wants to Be a Millionaire. A similar case is also currently underway between AMC and The Walking Dead creator Frank Darabont. I suspect that the arbitrator is very certain of his facts given the strong language used and the amount of punitive damages awarded.

It’s particularly important given the rapid growth in the number of streaming services entering into the market, many of them forming part of corporate conglomerates that then control both the production and distribution channels. It’s then quite easy for the various arms of the corporation to play around with the figures to the detriment of its profit-sharing partners, particularly if it’s an accepted practice that’s entrenched in the company/industry – which is exactly what Litchman said in his judgement in this case.

Disney CEO Bob Iger has also weighed in on the matter, saying:

“Peter Rice and Dana Walden are highly respected leaders in this industry, and we have complete confidence in their character and integrity. Disney had no involvement in the arbitration, and we understand the decision is being challenged and will leave it to the courts to decide the matter.”

So they’re great people who wouldn’t do anything wrong, and we have nothing to do with it. I guess the cookies just miraculously disappeared from the jar, and the people who helped make them must be satisfied with the crumbs.

Last Updated: February 28, 2019