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Shady Hollywood. Fox, Hulu, Bones, and Fraud

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Joined: 08 Jul 2012
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PostPosted: 02/27/19 4:23 pm    ::: Shady Hollywood. Fox, Hulu, Bones, and Fraud Reply Reply with quote

Fox Rocked by $179M 'Bones' Ruling: Lying, Cheating and "Reprehensible" Studio Fraud

In coming to a decision, Lichtman describes how some of Fox’s top executives, including 21st Century Fox president Peter Rice and Fox TV CEO Dana Walden (soon to be top executives at Disney) plus Fox TV chairman Gary Newman (leaving Fox) “appear to have given false testimony in an attempt to conceal their wrongful acts.” According to the ruling, Fox has taken a “cavalier attitude toward its wrongdoing" and exhibits a "company-wide culture and an accepted climate that enveloped an aversion for the truth."

Arguably, the most consequential aspect of the arbitrator’s decision pertains to Hulu, the video-on-demand service co-owned by Fox, Disney, Comcast and other studios. In his decision, Lichtman addresses digital rights given to Hulu...
With the success of platforms such as Netflix and Amazon Prime, there is now a healthy market for old and current seasons of TV shows. Nevertheless, Hulu persists, and its backbone is recently aired content.

So with this context, the arbitrator finds it nearly inexplicable that the Fox studio producing Bones permitted its parent company to exploit streaming rights and license those rights to Hulu without much of anything in return. Lichtman finds this to be a clear breach of Fox's obligations to distribute the series in good faith.

One Fox executive testified that it was his understanding that Fox Broadcasting got full-season "stacking rights" for Bones — meaning that it could distribute all of the episodes of the current season to the show at a given time. If so, then Fox Broadcasting could convey those rights to Hulu. But the arbitrator says this executive’s testimony was “impeached” by others. Additionally, the arbitrator points to how the studio was selling past seasons of Bones to Netflix as further evidence that certain digital rights had been reserved.

From 2008 to 2010, Fox Broadcasting licensed the first season of Bones to Hulu. In return came what is described as a “share of speculative advertising revenue.” Witnesses couldn’t identify any previous time when a studio had granted rights based on future ad revenue, and one Fox executive testified that in the Hulu negotiations, the possibility of getting fixed episodic license fees, or any minimum guarantee, didn’t come up.

In his decision, Lichtman then addresses what he considers “perhaps the most shocking piece of evidence related to the Hulu issues. … Fox actually signed both sides of this agreement. Mr. Dan Fawcett signed the Fox Content License Agreement on behalf of both FEG [Fox Entertainment Group] and Hulu.”

Fox had to defend being on both sides of the same transaction.

Chernin, former head of Fox Broadcasting and now one of the most powerful producers in Hollywood, was asked how this was possible. He answered, “I have no idea.”

The arbitrator concludes, “The obvious inferences of self-dealing, conflict of interest and the lack of any arm’s length negotiations leap off the page.”

Soon thereafter, Lichtman adds, “It is undisputed that the Fox conglomerate had an equity stake in Hulu, and the evidence established that ‘Fox writ large’ essentially handed over the digital rights at a low cost to build up value of that enterprise.”

The ad revenue share to the studio amounted to less than $1 million, yet the Fox network made more than $70 million in revenue for a current season.

It's highly unlikely that Bones was the only series licensed to Hulu under possibly fishy economic auspices. The ruling amounts to the opening of a Pandora’s box for attorneys in the entertainment industry. It also raises the prospect that licensing content may suddenly become a whole lot more expensive for Hulu should other profit participants in Hollywood make their own challenges.

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Joined: 23 Mar 2008
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PostPosted: 02/27/19 8:15 pm    ::: Reply Reply with quote

I remember when that suit was filed. I'm not surprised it took so long but I somehow doubt any of the people in the suit will see all that money actually come to them.

Fox is apparently appealing the 128 million part of the award.

Joined: 08 Jul 2012
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PostPosted: 02/27/19 8:31 pm    ::: Reply Reply with quote

It is exceptionally hard to overturn an arbitrator. I will be shocked if the courts do so. Since the decisions themselves cannot be appealed, the appeals are about procedural issues like exceeding scope. And nearly 100% of those overturned happened because the arbitrator made am amateur mistake. And this arbitrator was a former superior court judge with a ton of experience.

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