TSG Entertainment, a key co-financier behind successful productions like “Avatar: The Way of Water” and the “Deadpool” franchise under Twentieth Century Fox, has initiated legal action against both the studio and its parent company, Disney, alleging breach of contract.
In a lawsuit filed on Tuesday in the Los Angeles Superior Court, TSG asserts that the movie studio, now under Disney’s ownership, deliberately withheld profits and engaged in preferential agreements to bolster its streaming platforms, Hulu and Disney+, as well as its stock value, to the detriment of its partners.
TSG further contends that these actions resulted in the depletion of essential funds required to exercise investment options in specific films, obstructing TSG’s efforts to divest stakes in other films to facilitate additional investments.
Over the past decade, TSG claims to have invested $3.3 billion in co-financing over 140 films, encompassing acclaimed works such as “Hidden Figures,” “JoJo Rabbit,” “The Shape of Water,” and “The Banshees of Inisherin.”
The lawsuit outlines TSG’s allegations that Disney and the studio have employed a range of financial tactics to unjustly divert “hundreds of millions of dollars” from TSG.
As of now, Disney representatives have not issued an immediate comment on the matter.
While disputes over profit-sharing between entertainment companies and artists are relatively common, legal confrontations between film financiers and studios seldom reach the courtroom, often being resolved through confidential negotiations.
Pursuant to the terms of the agreement between TSG and the movie studio, any disagreements are initially brought to court before being adjudicated by a private judge upon mutual consent. This legal move provides both parties the option to appeal the judgment if deemed necessary.
Led by Chip and Robert Seelig, Wall Street veterans, TSG has established enduring affiliations with multiple Hollywood studios, including Warner Bros. and Sony Pictures. The partnership with the Fox movie studio was forged in 2012 and has since undergone multiple amendments.
Typically, such partnerships involve the financier investing in a slate of films, followed by the potential for further investment in specific titles within a predetermined timeframe governed by the terms of the agreement.
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Amidst escalating controversies, TSG Entertainment recently initiated an audit in response to observed profit diminution. After scrutinizing the financial records of three undisclosed films, TSG contends that it discovered instances of “pervasive self-dealing” and manipulative accounting practices, revealing a shortfall of $40 million in its rightful earnings.
Additionally, TSG claims that certain revenue due to it was unaccounted for. Furthermore, the financier asserts that it was subjected to distribution fees amounting to tens of millions of dollars, which lay outside the purview of the agreed revenue-sharing arrangement.
Notably, the legal recourse pursued by Scarlett Johansson, involving a breach of contract due to an exclusive theatrical release clause, resonates with TSG’s claims. The litigation brought forth by Johansson ultimately led to a resolution.
TSG is being legally represented by John Berlinski, a partner at Bird Marella, who notably represented Scarlett Johansson in her legal dispute.
In the present case, TSG asserts that the renegotiation of the Fox movie studio’s agreement with Warner Bros. Discovery’s HBO channel and Max streaming service had analogous repercussions on its potential earnings.
Under the original agreement terms, HBO paid a premium for an exclusive window to feature Fox movie studio’s films on its platform.
In 2021, around two years subsequent to Disney’s acquisition of the Fox studio along with other entertainment assets, the terms of the deal underwent modifications. This alteration granted Disney the prerogative to concurrently release films on Disney+ and Hulu alongside HBO. In exchange for relinquishing exclusivity, HBO’s license fees for the films were curtailed.
TSG’s lawsuit contends that the revised HBO arrangement incurred significant financial loss for the Fox movie studio, a segment of which TSG would have otherwise received.