Inside ‘The Walking Dead’ fight over profits and why it matters

Dressed in a blue-gray checked suit jacket, Robert Kirkman sat hunched in the front row of a downtown Los Angeles courtroom as lawyers and witnesses took turns dissecting his AMC Networks contract, illuminated on screens around the white tile and walnut wood-paneled room.

Kirkman, who wrote the comics upon which AMC based its hit show “The Walking Dead,” alternated between resting his head on his right hand and throwing exasperated looks to his business partner David Alpert, who sat beside him on the slick wooden pews.

The men were in court recently to press their case against AMC Networks, alleging its namesake cable network cheated them out of potentially hundreds of millions of profits from “The Walking Dead” and its spinoffs. The producers allege they only received profits from two of the 10 years the highest-rated show in cable TV history has been on the air.

“They kept indicating that they would provide and treat us fairly, and then when they didn’t, we then ended up in litigation,” Alpert said of AMC in court.

A decade after “The Walking Dead” debuted, the cable network that made its name with “Mad Men” and “Breaking Bad” is waging a legal battle on multiple fronts to defend itself from claims that it shortchanged the creators and producers of the hit series. The case by Kirkman and Alpert is one of three lawsuits over the zombie drama, which has been renewed for an 11th season. The series’ first showrunner, Frank Darabont, and his agent, Creative Artists Agency, also have two pending complaints over AMC’s handling of profits from the show.

AMC has denied the claims, including allegations that it engaged in the practice of so-called “self-dealing,” in which studios are accused of selling shows at less than fair market value to networks they own, thereby lowering overall profits left to share with the participants.

The cases are being closely watched because they provide a rare glimpse into the typically opaque world of Hollywood accounting — a matter that has sparked several other high-profile lawsuits in recent years.

Last year, an arbitration resulted in a $178.7-million judgment against 20th Century Fox Television over the series “Bones.” The landmark award was later reduced to $50 million in favor of stars Emily Deschanel and David Boreanaz and two producers of the long-running Fox crime show. The case was settled for an undisclosed amount last year.

The biggest award in a profit participation case came in 2010 when a jury ordered Disney to pay $269 million to the creators of the game show “Who Wants to Be a Millionaire.”

Legal experts say such disputes will likely become more common in the streaming era as major media companies such as Walt Disney Co. and WarnerMedia create their own streaming services and shore up content exclusively for their platforms.

“Inevitably, there will be challenges to how the studios report the revenues generated by the studio’s exploitation of a film or TV series on their own service, since there will be no negotiation with the streaming platform or attempt to license the project elsewhere for a higher price,” said Stanton “Larry” Stein, head of law firm Russ August & Kabat’s media and entertainment group.

The protracted legal fight has been awkward for New York-based AMC Networks, the publicly-traded company that owns such niche cable channels as Sundance TV and BBC America. The media company was spun off from Cablevision in 2011 and is now controlled by the Dolan family.

“The Walking Dead” was a watershed moment for AMC when it debuted a decade ago, as it was the first show developed by the independently-owned cable network. “Breaking Bad” and “Mad Men” also became hits on the network but they were made by Sony Pictures and Lionsgate, respectively. The dystopian thriller also became a huge draw for Netflix, which aired reruns, and a decade on continues to pay dividends for the network.

But the horror series also became a legal battleground just three years after it first aired. Darabont, the executive producer whose credits include “The Shawshank Redemption” and “The Green Mile,” sued AMC after he was dismissed from the show. He was joined by Creative Artists Agency.

The plaintiffs alleged that AMC withheld “tens of millions of dollars” in profit through “improper and abusive” practices, including “self-dealing,” and denied them compensation and credit for the “Talking Dead” show and “Fear the Walking Dead” spinoff.

AMC waited until the series became a hit to reveal how it calculated the profit split and used an “unconscionably low license fee formula” that was “well below fair market value,” according to their complaint.

Darabont and CAA filed a second lawsuit in 2018, citing an audit of AMC’s accounting records that revealed “wrongful conduct” over how it calculated profits. They are seeking damages of at least $280 million. The two suits have been consolidated for a trial in New York that is set to begin this summer.

“CAA stands by Frank and all the other incredible talent behind ‘The Walking Dead,’” Dale Kinsella, attorney for Darabont and CAA, said in a statement. “What AMC has done, and is doing, is bad, old-fashioned self-dealing.”

AMC declined to comment but referred to an earlier statement by its attorney Orin Snyder, who accused CAA of “greed” and having a “total disregard for contracts.” In court filings, AMC has denied allegations by Darabont and CAA, saying they were an “opportunistic attempt” to “renegotiate and rewrite the terms of contracts they negotiated and signed long ago.”

Meanwhile, the show’s producers have leveled similar claims against AMC. Kirkman, Alpert, and executive producers Gale Anne Hurd, Charles Eglee and Glen Mazzara sued the company in 2017, saying its control of both production and distribution of “The Walking Dead” allowed it to keep “the lion’s share of the series’ enormous profits for itself.”

They argued the license fees were “substantially larger” for “Mad Men” and “Breaking Bad,” even though those series had much lower ratings than “The Walking Dead.”

The producers further argued they were not fairly compensated for the successful spinoff “Talking Dead” and the prequel “Fear the Walking Dead,” and that AMC could air an unlimited number of reruns on any platform.

“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,” said the producers, represented by Los Angeles attorney Ron Nessim of Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow.

AMC has denied the claims.

“AMC had faith in the show,” said defense attorney Scott Edelman, of law firm Gibson Dunn, in court. The company “took a big risk by agreeing to produce and exhibit the show.” He noted that Kirkman waited years, enjoying the benefit of the contract, before raising any complaint.

“Now, more than a decade later, he doesn’t get to rip up his contract and get a redo because the show exceeded anyone’s expectations,” Edelman said during recent testimony.

The Kirkman case is in the early stages and a verdict could be years away.

In the meantime, as Hollywood shifts more resources to streaming, some studios are changing deal terms in order to avoid such long-running and costly disputes.

Changes in the industry are prompting studios like Walt Disney to change how they compensate creators, similar to the model used by Netflix whereby creators are paid a flat fee upfront in lieu of the traditional system of back-end payments, where creators get a cut of the profits after the show has been made and aired.

“Because artists and producers are pushing back, and sometimes sue, over these type of provisions,” Stein said, “studios are now looking for ways to limit back-end participations.”