Hollywood Accounting Rears Its Ugly Head Again: Fox's 'False Testimony' And 'Aversion For The Truth' Leads To $179M Fine

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For years, we've talked about bullshit Hollywood Accounting, in which the big studios make boatloads of money on films and TV shows while declaring publicly that those works never made a dime in profit. As we've discussed, in its simplest terms, the studios set up a separate "corporation" for the film or TV project, which then it charges massive fees -- and the sole purpose of those fees seem to be to send all the money to the studio, while claiming that the film or TV project is "losing money" and thus they don't have to pay out any profits to the actual creative people.

Remember this the next time the MPAA goes around talking about how its mission is to "protect creators."

Over at the Hollywood Reporter, Eriq Gardner has the latest bombshell example of Hollywood Accounting, which has resulted in Fox being told by an arbitrator to pay $179 million for repeated and obviously intentional dishonesty in reporting on the profits of the TV show Bones:

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."

What is clear in reading through the details is that this scam works because everyone at the studio is on it. This is not some scam that came out of nowhere. This is the standard operating procedure used by the big Hollywood studios to screw over the people who were actually behind the creative aspects of the show, who were promised a cut of the profits that never arrive.

In this version of the scam, Fox also roped in Hulu, the online streaming platform it owns 30% of. In this case, it used Hulu to suppress the money coming in for the show, so it could show lower income for the sake of hiding profits.

In arbitration, Fox attempted to justify the low license fees that Fox Broadcasting, Hulu and Fox’s foreign affiliates were paying its studio division for rights to air the series.

“Bones was a middling show with middling ratings,” wrote Fox’s lawyers in an opening brief, adding that a higher fee from the $2 million per episode paid would have led to the show’s cancellation.

As Lichtman discovered in the course of the arbitration, though, Fox’s studio executives were never really interested in finding out the series’ fair market value.

“We were not allowed to get that information from the network,” testified Walden, who at the time ran the Fox studio but not Fox Broadcasting, when asked about the possibility of finding out what the network paid for similar shows in their middle seasons.

Given that the profit participants had self-dealing protection in their contracts that “deals must be as good as marketplace deals,” the arbitrator found Walden's lack of knowledge to be “either shocking if true, or disingenuous if false,” adding, “Interestingly, both Ms. Walden and Mr. Newman testified that they engaged in tough negotiations and fought for the [Profit] Participants. However, the evidence belies these assertions. How could they fight if they were not properly armed with the requisite information? What negotiations were there if the information mandated by the contract was not examined, called for or even investigated?”

It also comes out that Fox threatened to cancel the show unless those who contractually were supposed to get a cut of the profits signed a special agreement promising not to challenge the self-dealing licensing fees that Fox negotiated. As the story notes, other Fox actions at the time -- including signing on the showrunner of Bones at an expensive new contract to continue the show -- made it clear that this was a total bluff by Fox just to get the profit participants forced into a position where they couldn't challenge the sham licensing deals. The arbitrator calls this out directly:

The answer is self-evident: The show was not going to be canceled and there never was an intent to do so. The intent was to continue with the show and at the same time bar any chance for a lawsuit to be brought.

Also, there appears to be significant evidence to suggest that Fox tried to buy off a former executive who had organized a plan to avoid paying out profit sharing, by offering him insanely lucrative "deal" right before he was set to testify about the Bones situation:

And all of this activity was coming as Fox Entertainment’s then-chairman Peter Liguori sent a memo in 2009 to Fox Broadcasting’s then-chairman Peter Chernin outlining a “legal action plan” to avoid paying license fees covering the full cost of show production.

Shortly after sending this plan, Liguori would leave Fox and would later become CEO of Tribune Media, stepping down in 2017. The ruling reveals something new and startling: After his stint at Tribune and in the heat of this arbitration, Liguori signed a "First Look Agreement" with FX, which provided him contingent compensation far exceeding that of top executive producers in Hollywood. According to IMDb, Liguori's sole credit is a 1996 film, Big Night. Nevertheless, and with absolutely no public fanfare whatsoever that he now has a deal with FX, he is apparently getting profit points surpassing the industry's top showrunners.

"Why and how did this come about?" asks the arbitrator. "FX apparently issued no press release reporting its deal with Liguori. When viewed in light of these circumstances, the Liguori 'legal action plan' is far from innocuous. If one juxtaposes the First Look Agreement with Mr. Liguori's testimony at the hearing (where he downplays the significance of the plan itself), it seems coincidental that Mr. Liguori disappears for nine years (from Fox's radar) and then magically reappears with a First Look Agreement seven months before he is to testify in these proceedings with a deal in hand that most producers in Hollywood have strived to have their entire entertainment career."

There is a lot more in Gardner's article, which makes it incredibly clear that this was all standard operating procedure at Fox. Basically, the company appears to do anything possible to avoid an official "profit" on its works, to avoid paying out to the creatives involved in the show who signed on to participate in any profit. From this story alone, the company clearly had a detailed plan to avoid such payouts, and then bolstered it with sham deals, bogus threats, forced contracts, multiple levels of lying, and even potentially buying off a key witness.

Yeah, and Hollywood wants to paint the internet companies as bad?

Perhaps it shouldn't be shocking that the very same people who rush to the press and politicians to whine about some kids getting a free copy of their tv show or movie online would be in the midst of a massive multi-million dollar scam to defraud actual creators -- but it does seem like maybe (just maybe) we shouldn't be so quick to take those folks at their word when they complain about the internet and "piracy."

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