Disney and 20th Century Studios have settled a breach of contract lawsuit from film financier TSG Entertainment, which accused them of withholding profits and self-dealing to boost subscriber numbers for their streaming platforms.
Lawyers for both sides notified the court on Jan. 5 of a deal to resolve the dueling suits. Terms of the agreement weren’t disclosed.
The case centered on an independent audit of three films TSG invested in, including best picture winner The Shape of Water, that revealed it’s owed at least $40 million. This shortfall, the company alleged, caused it to take a worse position in its investment of Avatar: The Way of Water and deprived it of the cash necessary to exercise options to invest in other movies.
TSG last year sued 20th Century for breach of contract and Disney for inducing that breach. Disney, in turn, filed its own suit seeking a court order that it lived up to the terms of the deal with its longtime financing partner, which has invested more than $3.3 billion into over 100 films, including Bohemian Rhapsody, Deadpool, Dawn of the Planet of the Apes, The Martian, The Grand Budapest Hotel and The Banshees of Inisherin.
While disputes over “Hollywood Accounting,” as TSG called it, are common, they’re typically handled behind closed doors and don’t make it to court. According to the complaint, the terms of the deal between the financier and studio spelled out that conflicts can be filed in court to preserve the ability to appeal any ruling.
TSG said it sued after noticing that money from its investment “decreased dramatically.” According to the complaint, an audit showed that 20th Century failed to credit TSG with revenue, charged tens of millions in distribution fees not permitted under their deal, deducted expenses not related to the pictures in their slate and “uncovered rampant ‘self-dealing,’ the practice by which a studio enters into ‘sweetheart’ deals with its licensee affiliates to artificially minimize the profit payments to stakeholders like TSG.”
One example: The studio ignored a standing agreement with FX Networks that calculated license fees tied to domestic box office performance and “did a secret side deal for a fraction of what the parties had previously agreed was fair value.”
In a cross-complaint, Disney responded, “The 20th-FX output deal explicitly excludes Searchlight films, such as The Shape of Water.”
A major thrust of TSG’s suit also dealt with changes in distribution windows. According to the complaint, 20th Century had agreed to license films to HBO for the “Pay 1 window” from 2012-22 for a reported $200 million per year. That changed in 2019 when Disney acquired 21st Century Fox. TSG claimed Disney made its subsidiary renegotiate its deal with HBO to boost Disney+ and Hulu and “give up a significant portion of its guaranteed HBO license fees” in order to do so, contracting its home video window to get content up on its streamers faster.
Disney looked for a court order clarifying that it has “sole discretion and control over distribution decisions” and stressed that TSG “ignores that distribution patterns have been changing throughout the industry for years.” It also argued that its decision to renegotiate licenses with HBO to allow 20th Century to enter into a coexclusive license with HBO resulted in fees exceeding those that TSG would’ve received under the prior, exclusive deal.
And while TSG has a “limited right” to request that 20th Century make an offer to purchase its interest in select tranches of five movies over the course of the deal, the financier failed to make the request within five years of the initial domestic theatrical release of the last film, as required by the agreement, Disney argued.
In a statement, a Disney spokesperson said, “The matter has been resolved.” TSG didn’t respond to a request for comment.
Disney was represented by John Berlinski, who led Scarlett Johansson’s fight against Disney over her payment on Black Widow after it was given a simultaneous release on Disney+ and the stars of Bones in their profit participation dispute with Fox. Hollywood heavyweight Daniel Petrocelli represented Disney, as he did in the suit from Johansson.