Hollywood Accounting Strikes Again: Universal Sued For Screwing Over Its Own Sister Company

from the family-feud dept

We've discussed a few times the concept of Hollywood Accounting, which covers the various tricks of the trade pulled by the big studios to basically keep all the money for themselves, and guarantees that the movie is never, ever seen as "profitable," as that would mean they would need to share some of the profits. It appears that we may be about to see significantly more dirty laundry revealing some of that Hollywood Accounting in detail. And this time, it's extra special because it involves two companies who were corporate siblings for much of the time in dispute, as both were owned by Vivendi. However, StudioCanal is now suing Universal, claiming that Universal pulled accounting tricks to deny giving StudioCanal many, many millions of dollars that were owed.

For nearly ten years, Universal was delighted to accept StudioCanal's investment of hundreds of millions of dollars to offset Universal's financial obligations. During most of this period, StudioCanal and Universal were corporate siblings through common ownership by the French company Vivendi. The StudioCanal/Universal joint venture financed forty-four Working Title motion pictures, including About A Boy, Bill Elliot, Bridget Jones Diary, Frost/Nixon, Love Actually, O Brother Where Art Thou?, Pride And Prejudice, and United 93.

Last October, StudioCanal concluded an audit of the joint venture's development and overhead expenses, which Universal had managed. StudioCanal also concluded audits of Universal's distribution of several of the joint venture-produced motion pictures, in several (but hardly all) Universal-assigned territories and in several (but hardly all) media.

Those audits revealed that Universal was violating its fiduciary and contractual obligations to StudioCanal. For example, based on the audit reports, StudioCanal is informed and believes, and based thereon alleges that: (a) Universal intentionally hid from the partnership and kept for itself benefits it derived from off-balance sheet financing arrangements; (b) Universal failed to report, or reported negligible amounts of, ancillary revenues from sources such as music publishing, only to somehow "find" several million dollars in such revenues after receiving the audit reports; (c) Universal retained for itself financial benefits from vendors, thereby profiting for itself at the expense of its partners; (d) Universal double-charged the partnership for producing and other fees paid to Working Title without StudioCanal's knowledge or approval; and (e) Universal deducted millions of dollars in unsubstantiated expenses before reporting the results to its partner StudioCanal.

Of course, none of this should be remotely surprising. We've seen so many stories of movie financing shenanigans that these stories hardly sound unique. It's just that the lawsuit might make some of the actual details public, which would certainly be educational.