Village Roadshow Entertainment Group Files Lawsuit against Warner Bros

Village Roadshow Entertainment Group Files Lawsuit against Warner Bros.

Village Roadshow Entertainment Group announced today that several of its entities (“Village Roadshow”) have filed suit against long-time partner Warner Bros. Entertainment and related entities (“WB”) in Los Angeles Superior Court.

The complaint filed this morning alleges “deliberate and consistent coordinated efforts” by WB “to eviscerate the significant value of Village Roadshow’s intellectual property in order to prop up the new HBO Max streaming service owned by WarnerMedia, the ultimate parent of WB, without providing any accounting, and shut Village Roadshow out of its legal and contractual rights to co-own and co-finance the sequels, prequels, spinoffs, and other derivative works of the nearly 100 films that Village Roadshow funded and co-owns” with WB.

Over the past 25 years, Village Roadshow has paid WB over $4.5 billion to produce and distribute 91 films, for which Village Roadshow co-owns all intellectual property rights, including a share of the films’ global copyrights, according to the complaint. Those films include blockbuster hits such as The Matrix trilogy, Joker, the Ocean’s series, Charlie and the Chocolate Factory, and Edge of Tomorrow. The complaint also notes that “That depth and length of [the parties’] relationship—with not a single litigation between them (until now)—was unique in the entertainment industry.”

“As detailed in the complaint, Village Roadshow’s copyright ownership gave it the most sought-after rights in Hollywood: the perpetual right to co-create, co-invest and co-own the derivative rights to extremely successful tent pole films and franchises,” said Mark Holscher, a Kirkland & Ellis litigation partner who represents Village Roadshow. “Warner Brothers has a fiduciary duty to account to Village Roadshow for all earnings from the exploitation of the films’ copyrights, not just those it can’t hide through sweetheart deals to benefit HBO Max.”

The complaint alleges that WB is required to “distribute each film in a manner ‘consistent with industry standards‘ and ‘consistent with customary commercial practices in the motion picture industry‘,” and that “WB expressly agreed not to make sweetheart deals with its affiliates.” But WB abided by none of those requirements. Instead of following “industry standards” or the “customary commercial practices in the motion picture industry” of having an exclusive theatrical release window, WB released The Matrix Resurrections, the highly anticipated fourth installment of The Matrix franchise on its sister company’s new HBO Max streaming service on the same “day and date” as the film’s theatrical release “in the sweetest of sweetheart deals: for nothing.”

The complaint further alleges that WB entered such a non-customary, “sweetheart deal” in order to pump up HBO Max’s subscriber base, and that WB knew that doing so would cannibalize box office sales and pave the way for massive piracy, thereby decimating the film’s value.

WB also used other Village Roadshow films, including Joker, the highest-grossing R-rated movie of all time, to boost the HBO Max subscriber base and raise the market capitalization of—and “create[d] billions of dollars in enterprise value”—for its parent company WarnerMedia, presently an AT&T subsidiary but soon to be spun off as its own separate entity. Village Roadshow’s complaint alleges that WB shared none of this value with Village Roadshow.

In support of its allegations, the complaint quotes WB and WarnerMedia executives, including WarnerMedia CEO Jason Kilar, boasting of the success of its effort, code named “Project Popcorn.” Per the complaint, Kilar is quoted as saying its “day and date” release plan “is going to optimize the economics” in part because of “what we anticipate to be more subscribers coming into HBO Max who choose to do so because of the presence of these films.” The complaint also quotes Kilar as saying “We’d make the same decision again,” even though that decision “ensured that The Matrix Resurrections would be a bust at the box office . . . [and] inflicted serious harm to the entire Matrix franchise.”

The complaint further notes that while WB points to the pandemic as part of its rationale for releasing The Matrix Resurrections simultaneously on HBO Max and in theaters, other films, such as Spiderman, were released in late 2021 without a simultaneous streaming service release, and broke box office records. Meanwhile, WB advanced the release date of The Matrix Resurrections, previously slated to be released in 2022, so that it could be included with the slate of films that it planned to release simultaneously on HBO Max and in theaters, all while moving WB’s wholly-owned films to 2022 so that they would not suffer the same decimating fate.

The complaint also alleges, in detail, other ways in which WB is seeking to deprive Village Roadshow of its contractual rights. First, although Village Roadshow co-financed and co-owned Charlie and the Chocolate Factory in 2005, and therefore has the right to co-finance and co-own all derivative works from that film, WB has taken the position that not only is Village Roadshow not entitled to such rights, but that the upcoming WB film, Wonka is not a prequel to Charlie and the Chocolate Factory, even though Wonka tells the backstory of Charlie and the Chocolate Factory’s main character, Willie Wonka. Neither of WB’s arguments has any merit. Second, even where WB has expressly acknowledged Village Roadshow’s co-finance and co-ownership rights, as on Edge of Tomorrow, WB has insisted that Village Roadshow relinquish those rights.  According to an email quoted in the complaint, WB executive Dave Brown told Village Roadshow that “I’d like to get to a place where we are setting expectations,” that “WB would not ‘proceed on any project with Village Roadshow as a co-financier’,” and that, because Village Roadshow would not relinquish its rights voluntarily with respect to Edge of Tomorrow, WB would “‘forgo further development of this title’,” thus effectively depriving Village Roadshow of the right to own extremely successful tent pole films and franchises and their derivative works. “In other words,” as the complaint alleges, “if Village Roadshow won’t give up its rights, WB will make sure they are worth nothing.”

Village Roadshow seeks declaratory relief, injunctive relief, and specific performance, which the complaint alleges is expressly allowed under the terms of the parties’ agreements. The complaint further alleges that Village Roadshow notified WB of its intent to seek a declaration of its rights and that WB then filed a confidential arbitration without fully following the parties’ contractual dispute resolution procedures “[i]n an attempt to preempt this authorized declaratory relief action.”

https://vreg.com/