Royalty Suit a Shock to Film Studio System?

June 14, 2010 – In The News
Los Angeles Business Journal

Former studio executive Alan Ladd Jr. recently won a suit that could change the way Hollywood handles movie royalties; ensuring that film royalties would pay out based on whether the movie was a hit or miss. Now, producers of high-grossing films could claim higher royalties than small movie producers.

Darrell Miller said the Ladd issue could lead to other claims and lawsuits.

“It is one of those cases that we all have our eyes on,” said Miller, who is not involved in the case. “I’m looking at how it will affect clients making a new deal or challenging royalty statements. It won’t spark a floodgate of litigation, but for guys like me it will provide some leverage in challenging accounting statements.”

According to Miller, hits are fewer than misses, so the amount of money that straight-lining costs big hits is much more than the amount that would be lost by smaller ones.

“With straight-lining, the benefit to poor movies is much less than the detriment to the well-performing movies,” he said.

Miller added that it’s common for producers to file lawsuits seeking higher royalties. The studios either quickly settle to minimize their time and energy, or drag the case out in court – as with Ladd. As a result, only rare cases – usually involving producers with the means to sustain a lengthy legal battle – ever reach a jury.

Miller said that studios contend that there isn’t a valid alternative to straight-lining, given all the variables. For example, a film could be a hit in Japan and a flop in France. But he rejects that argument, because studios have mastered ways to quantify and standardize every other aspect of movie-making.

“Their entire business model is based on audience analysis and projections,” Miller said. “The facts in Alan Ladd’s case show they didn’t go out of their way to find a method that’s fair.”

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