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Disney Seeks Reversal of $319 Million ‘Millionaire’ Loss

Walt Disney Co.’s ABC network and Buena Vista Television units asked a federal appeals court to overturn a $319 million judgment won two years ago by the U.K. creators of “Who Wants to Be a Millionaire.”

A lawyer for ABC and Buena Vista argued their case today before a three-judge panel of the U.S. Court of Appeals meeting in Pasadena, California. The Disney units claim the judge who oversaw the trial allowed the jury to adopt a flawed reading of the contract with Celador International Ltd., entitling the creators to a share of ABC’s profits.

“This case never should have gone to the jury,” Seth Waxman, a lawyer representing the Disney units, said at today’s hearing.

ABC and Buena Vista said in their appeal that the judge overseeing the trial committed a “cascading series of errors” that allowed the jury to interpret the contract to mean that Celador was entitled to a 50 percent share of both ABC’s and Buena Vista’s profits, rather than just Buena Vista’s.

Closely held Celador sued in 2004, claiming Buena Vista and ABC “through a complex web of self-dealing transactions” allowed ABC to keep the advertising revenue and pay Buena Vista only a licensing fee equal to the cost of producing the show. That kept Buena Vista from earning a profit from “Millionaire” that it would have had to share with the creators, Celador said.

Jury Verdict

A jury in Riverside, California, in July 2010 agreed that the Disney units breached the contract and awarded Celador $269 million in damages, to which U.S. District Judge Virginia A. Phillips added $50 million in pre-judgment interest.

U.S. Circuit Judge Andrew Kleinfeld today questioned Celador’s lawyer, Robin Meadow, on the company’s claim that it was harmed because ABC paid Buena Vista a fee per episode of “Millionaire” that equaled the production cost, or about $825,000, rather than as much as $3 million to a producer unaffiliated with Disney.

“What I don’t get is why ABC can’t do that,” Kleinfeld said. “It’s an economy of scale that Disney has. Why can’t they use an internal company and do it cheap?”

The judge also asked what evidence Celador provided at trial that Buena Vista didn’t get from the network what it should have gotten. The license fee ABC paid Buena Vista was kept artificially low, Meadow said.

“License fees are based on success, revenue is based on success,” he said. “They flow together.”

Syndication, Merchandising

ABC and Buena Vista said in their appeal that it’s industry practice for the producer, Buena Vista, to get a licensing fee from the network that is equal to the cost of producing a game show. The producer makes a profit, if any, from syndicating the show to local television stations and from other sources, including merchandising, according to the Disney units.

Celador, under the 1999 agreement that gave ABC and Buena Vista the North American rights to “Millionaire,” was entitled to an up-front option payment and guaranteed fees for each episode, according to the Disney units.

The U.K. company also would receive 50 percent of Buena Vista’s revenue from the show, after certain deductions including Buena Vista’s normal distribution fees, costs and an overhead charge equal to about 10 percent of the production costs, according to the appeal brief.

The overhead charge meant Buena Vista had a deficit from the show after its initial run on ABC, when “Millionaire” aired as often as every night during two-week special events. ABC canceled the show in 2002, and Buena Vista has since produced a version of “Millionaire” for syndication, according to the appeal by the Disney units.

‘Slumdog Millionaire’

The show’s “performance in syndication has not matched its network success,” ABC and Buena Vista said. “The show has earned a profit, but the margin has been too low to cover the distribution fee for syndication specified in the rights agreement, let alone make up the deficit.”

“Millionaire” was first broadcast in the U.K. in 1998 and has been carried in 106 countries, including Australia, India, Japan, Germany and Russia, according to the creators. The show also was featured in the movie “Slumdog Millionaire,” which was co-produced by Celador and won eight Oscars in 2009.

Celador said in its response to ABC and Buena Vista’s appeal that it specifically wanted to make a deal directly with ABC, not with a producer, and that the agreement it made included 50 percent of the network’s profits from the show.

“After the rights agreement had been signed, defendants entered into a mind-boggling succession of agreements that shuffled ‘Millionaire’ rights and obligations among various Disney-affiliated entities,” Celador said. The goal was “to ensure that ‘Millionaire’ never would earn network-run broadcast profits for Celador to share,” Celador said.

Network Promises

The U.K. company said that, if the appeals court reverses the jury verdict, it should also overturn the judge’s ruling that ABC can’t be held liable for fraud. Celador alleges that ABC induced it into making a deal by making promises the network didn’t intend to fulfill.

Phillips found that the alleged fraudulent misrepresentations were “too vague, conclusory and of the nature of opinion to be actionable,” according to Celador’s cross-appeal.

The case is Celador v. ABC, 11-55014 and 11-55172, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

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