A California judge gave the upper hand to AMC in a huge contract battle over AMC’s hit show “The Walking Dead” – known to viewers as “TWD.” Executive Producers of TWD filed a lawsuit in 2017 claiming that AMC had shorted them profits because it acts as both the show’s production company and network.
The show’s producers claimed that AMC received an improperly large benefit from their licensing deal by producing the show completely in-house using a “perpetual license formula,” and hiding the ball on their definition of modified gross adjusted receipts (“MAGR”), which is the revenue derived from the show, less costs and other charges, that gets paid to the show by the network. The producers belived that MAGR was artificially deflated by AMC’s definition. (This gets a little technical, but the court decision is attached for those who want to wade through the minutia of Hollywood contracts!)
Thus, the show’s producers argued that the contract’s language, “MAGR from the show ‘shall’ be determined by AMC” really meant that the producers and AMC will define the MAGR at a future, indefinite date, so they would eventually get paid more, because the precise calculation of MAGR was not provided at the time the agreement was signed.
AMC said, no way, and the Court agreed, holding that it must interpret “shall” by its plain meaning – here, letting AMC set the terms of MAGR even if it’s unilateral (AMC said they created this definition and have been using it for the last ten years). Setting up a claim for legal malpractice against the producers’ contract attorneys, the judge ruled that these were sophisticated business entities, with carefully negotiated contracts, and they knew what they were doing. Furthermore, the Judge explained that if he followed the producers’ interpretation, it would render the contract unenforceable because under New York law an “agreement to agree” does not create a binding contract, and the whole thing would be void.
This is a huge win for AMC, as the Judge decided on the “threshold” issue that “resolves much of the case.” In addition, this ruling will allow entertainment companies to continue to use their existing perpetual licensing deals for in-house productions, arguably shorting (greedy) producers millions of dollars.Of course this also means that producers can be wise to this contract term in the future and negotiate otherwise.