Topline
TSG Entertainment, a film company that co-financed blockbusters including Deadpool and the latest Avatar, sued Disney and its Twentieth Century Fox film studio Tuesday, accusing the company of using accounting tricks to deprive it of “hundreds of millions” of dollars —two years after actress Scarlett Johansson sued the company for similar breach of contract claims.
The Cast of ‘Avatar: The Way of Water’ at the D23 Expo 2022 at Anaheim Convention Center.
Key Facts
TSG, which said it invested more than $3.3 billion into over 140 films, alleged in a lawsuit filed in Los Angeles state court the film studio underpaid the company by more than $40 million as part of a scheme involving “a number of underhanded Hollywood accounting tricks,” according to an independent audit—and the company says it could be owed hundreds of millions (Forbes has reached out to Disney for comment).
The complaint claimed Disney “tried to use nearly every trick” to shortchange TSG, which had agreed to co-finance production and marketing costs, while the money Disney paid TSG “decreased dramatically,” prompting the company to request the audit of its financial records.
That audit allegedly found Disney engaged in “rampant self-dealing,” and that Disney charged TSG tens of millions of dollars in distribution fees that were outside its agreement.
Those tricks allegedly included so-called sweetheart deals that the studio entered into with licensing companies to “artificially minimize the profit payments” it made to TSG, as well as a scheme to deduct tens of millions of dollars from TSG’s receipts in supposed “distribution expenses” that TSG claims had “nothing to do wit the distribution” of the movies it financed.
TSG also alleges Twentieth Century Fox shortened the in-theater distribution window of some movies by bringing them to Disney’s streaming platforms Disney+ and Hulu, in an effort to drive viewership to streaming services and prop up its stock while “brazenly” ignoring its agreement with TSG.
The suit marks the latest breach of contract complaint against Disney: Johansson sued the company in July 2021, alleging it breached her contract when it released its Marvel blockbuster Black Widow on its streaming platform Disney+ on the same day as its premiere in theaters—Johansson settled the suit two months later.
News Peg
Disney’s stock fell nearly 2% on Tuesday to just over $87, culminating a three-month drop in its shares prices since briefly rallying over the first two months of the year.
Key Background
Big Hollywood studios have long been accused of using clever accounting tricks to reduce movies’ profits on paper, in a gambit to reduce their profit-sharing payments to business partners. Disney is hardly the first entertainment company to face a lawsuit over these practices. But the rise of streaming services—and many companies’ tendency to release movies on streaming shortly after they appear in theaters—has uprooted the film business, which has historically relied on movies appearing exclusively in theaters for weeks. Johansson, an Academy Award-winning actress who played the titular role in Black Widow, argued Disney diverted audiences away from theaters to Disney+. The company said at the time that Johansson had already been paid roughly $20 million for the movie, and called the suit “especially sad and distressing in its callous disregard for the horrific and prolonged global effects of the Covid-19 pandemic.” Johansson reached a settlement with Disney that September, which sources familiar to the matter told Deadline exceeded $40 million.
Further Reading
Movie Financier TSG Accuses Disney of Depriving It of Millions of Dollars (Wall Street Journal)
Scarlett Johansson Sues Disney For Releasing ‘Black Widow’ On Streaming Service (Forbes)
Source: https://www.forbes.com/sites/brianbushard/2023/08/15/movie-financier-sues-disney-for-allegedly-using-accounting-tricks-to-deprive-hundreds-of-millions-in-profit/