“The arbitrator is convinced that perjury was committed by the Fox witnesses.”
— Peter Lichtman, arbitrator
“Fox will not allow this flagrant injustice, riddled with errors and gratuitous character attacks, to stand and will vigorously challenge the ruling in a court of law.”
— Statement from Fox Television
The advent of streaming television services like Netflix, Hulu and Amazon Prime TV, and the continual consolidation of those entities with traditional entertainment companies is rapidly changing the face of television. Just a decade ago, cable television had 68 million subscribers in the United States. By the end of 2015, that number was down to 53 million and is still shrinking rapidly.
So, it is that traditional television programs are now subject to complex licensing and broadcast agreements that move them from network television, to cable television, to streaming services like Netflix. And when the same company owns both the original program and the streaming service, the bookkeeping can get a bit … convoluted.
Earlier this week, news came to light of an arbitrator’s decision delivering an absolutely massive $179 million verdict against the Fox Television company in relation to the manner in which it licensed and accounted for the rebroadcasting fees associated with the long-running TV show “Bones.” The award was the second largest ever delivered against a television company.
It’s not uncommon for these kinds of disputes to be decided by a private arbitrator — contracts often require that. But it is uncommon for those arbitration decisions to become public knowledge. In the instant case, the arbitrator ordered specific damages of $50 million for the undervaluing of the series, and another $129 million in punitive damages for the manner in which Fox hid the assets. Fox then filed a lawsuit appealing the punitive damages portion of the award, which is how the entire situation came to be known.
Several people involved in the creative process with “Bones,” including writers, producers, and the show’s stars Emily Deschanel and David Boreanaz, had a financial stake in the show that was dependent on the profit that Fox Television made from the program. If the show turned a profit, then they made more money, too. These kinds of “options” are not unusual in entertainment contracts.
But there was a twist in the case of “Bones.” That’s because Fox Television licensed “Bones” to be shown on Hulu, which is partially owned by … Fox Entertainment Group. And the financial arrangements between Fox TV and Hulu over the licensing of “Bones” were private internal documents.
What the arbitrator determined was that Fox Television either intentionally underestimated the value of the series (Fox called it “mediocre” even through it ran for 12 seasons), or simply never bothered to come up with any fair market value for the rebroadcasting of the program. Thus, when “Bones” was licensed to Hulu, the arbitrator noted that “Fox actually signed both sides of the agreement,” and concluded that ‘The obvious inferences of self-dealing, conflict of interest and the lack of any arm’s length negotiations leap off the page.”
In short, the arbitrator came to the conclusion that Fox sold “Bones” to Hulu for a fraction of what it was worth, benefitting Fox’s ownership in Hulu, and then was able to write the show off as a loss on the Fox side of the ledger, which prevented them from having to pay any profit sharing to Deschanel, Boreanaz, and the other creative partners in the show.
Fox argued that the creative team should be happy with the substantial amounts they were paid, which led the arbitrator to state, “To suggest that Respondents should somehow be grateful for what they did receive instead of focusing on what they were deceived and cheated out of is audacious and quite frankly astonishing,” and explains the size of the punitive damages award.
The punitive award is now before a court of law, and that case will take months, if not years, to resolve. But the entertainment industry issues laid bare by the arbitration ruling are not going anywhere soon, and will become even more complex as new entrants to the streaming market like Sling, WatchATT, and the upcoming Disney+, and Amazon & Time Warner offerings continue to crowd the digital streaming market.
David Hejmanowski is judge of the Probate/Juvenile Division of the Delaware County Court of Common Pleas.