Fox hit with $179-million judgment in dispute over profits from ‘Bones’ TV show

In a stunning decision that could have widespread repercussions in the TV industry, Fox has been hit with a $178.7-million judgment in its profit participation dispute with the team behind the hit series “Bones.”

The ruling, which was decided in arbitration, excoriated senior Fox executives and criticized the studio and network for its conduct. The decision has also rattled other studios, including the highest echelons of the Walt Disney Co., which is bringing aboard some of the same executives in its $71 billion acquisition of Fox.

Hulu is also at the center of the storm, with accusations that Fox withheld revenues from “Bones” when the series became available for streaming on the digital platform. Fox owns a 30% stake in Hulu, along with other major studios.

The “Bones” award is among the largest of its kind and is the latest case to spotlight disputes over the accounting practices of major studios and whether they shortchange talent. The biggest award came in 2011 when a jury ordered Disney to pay $319 million in a profit participation case over “Who Wants to Be a Millionaire.”

Arbitrator Peter Lichtman wrote in his decision that Fox engaged in “reprehensible conduct” and that top executives including 21st Century Fox President Peter Rice, and Fox TV Chairmen and Chief Executives Dana Walden and Gary Newman gave unconvincing testimony.

“The more these individuals testified,” he wrote, “the more incredulous their testimony appeared.” He criticized Fox for taking a “cavalier attitude toward its wrongdoing.”

21st Century Fox said Wednesday it was seeking to void the punitive damages of $128.5 million, arguing that the arbitrator exceeded his powers. But the studio said it wasn’t contesting the actual damages of $50.2 million.

“The ruling by this private arbitrator is categorically wrong on the merits and exceeded his arbitration powers,” the studio said in a statement.

“Fox will not allow this flagrant injustice, riddled with errors and gratuitous character attacks, to stand and will vigorously challenge the ruling in a court of law,” the company said.

The arbitration decision was made Feb. 4 but wasn’t made public until Wednesday. One individual with knowledge of the dispute said that when Fox failed to pay the damages, the plaintiffs decided to make the decision public in hopes of putting pressure on the studio.

“The only reason this went public is because Fox didn’t pay,” said the individual.

The battle pitted “Bones” stars and producers — including actors David Boreanaz and Emily Deschanel and executive producer Barry Josephson — against Fox, which both produced and aired the comedy-drama crime series from 2005 to 2017.

At the heart of the dispute was whether Fox engaged in so-called “self-dealing” — hiding profits from the show to avoid compensating key talent and producers.

Media companies that produce and air their own series have faced criticism that the studio divisions undercharge their corporate siblings for broadcast rights. As a result, a series will record less profit on paper, which means there’s less money to share with stars and other talent.

“Bones” is one of the latest shows to become embroiled in a profit dispute involving so-called vertically integrated media companies. AMC’s “The Walking Dead” is currently inching toward a trial over its profit dispute with creator Frank Darabont.

In a rapidly consolidating media landscape, talent often feels like it is at a disadvantage at the negotiating table, according to Elsa Ramo, an entertainment attorney who isn’t involved in the “Bones” dispute.

“It begins to feel like there is no protection for the intellectual property or rights holder or producer. They’re sort of at odds with everyone else who is on the same side,” Ramo said. “At the end of the day, it’s about making sure these corporate entities have the checks and balances when it comes to how people are treated in these transactions.”

The “Bones” decision was especially shocking for the pointed criticism that the arbitrator leveled at Fox’s Rice, Walden and Newman. Both Rice and Walden will join Disney following the close of the acquisition that is expected this year.

“The Arbitrator is convinced that perjury was committed by the Fox witnesses,” the ruling stated. “Accordingly, if perjury is not reprehensible then reprehensibility has taken on a new meaning.”

Disney chairman and CEO Bob Iger signaled his support for Rice and Walden on Wednesday.

“Peter Rice and Dana Walden are highly respected leaders in this industry, and we have complete confidence in their character and integrity,” Iger said in a statement.

“Disney had no involvement in the arbitration, and we understand the decision is being challenged and will leave it to the courts to decide the matter.”

A hearing on the dispute is expected in April, according to one individual with knowledge of the case.

Like a zombie, profit dispute over AMC’s ‘The Walking Dead’ refuses to die »

david.ng@latimes.com

@DavidNgLAT