The co-creators and producers of the hit cable TV series “The Walking Dead” and “Fear the Walking Dead” have filed suit against AMC over the network’s calculation of profits in a case that could change the definition of “Hollywood accounting.”

The zombie series’ co-creator Robert Kirkman and producers Gale Anne Hurd, Glen Mazzara and David Alpert filed suit Monday against AMC Entities and related companies, claiming in the complaint the studio and network “exploited their vertically integrated structure to combine both the production and exhibition of TWD, which allowed AMC to keep the lion’s share of the series’ enormous profits for itself and not share it with the plaintiffs, as required by their contracts. Plaintiffs and the other talent behind TWD are the ones whose work to create, write and produce the series has brought it huge success, but the fruits of that success have not been shared as they should be.”

Scene from "Fear the Walking Dead"
A scene from "Fear the Walking Dead" Richard Foreman, Jr/AMC

The lawsuit follows a similar accounting suit by another co-creator of the series, Frank Darabont, which has now reached the summary judgment phase, according to the Hollywood Reporter. He is suing for $280 million, and the potential damages in the new lawsuit could reach as high as $1 billion.

In the complaint, they noted that “The Walking Dead” is owned by AMC Studios and airs on the AMC Network, which are both owned by the same parent company. They pointed out that “The Walking Dead” is the most successful cable TV series in history, and for most of its run on the AMC Network has been the highest rated program in the 18-49 demographic on both broadcast and cable TV, rivaled only by “Sunday Night Football.” The series premiered in 2010 and the spinoff, “Fear the Walking Dead,” debuted in 2015.

In its contracts with the series co-creators and producers, according to the complaint, AMC Studios agreed, if the series was successful, to pay them a share of the profits based on a percentage of the “modified adjusted gross receipts,” or MAGR. But while the two series have been extremely successful, AMC hasn’t met its contractual obligations, according to the complaint. The plaintiffs claim that AMC engaged in self-dealing in related-party transactions. “The measure of profit, for the purposes of profit participation in the series, is typically realized at the production company level—if the production company makes a profit, it has to share it with the participants—the conglomerate can keep all the profits for itself,” said the complaint. “As a consequence, when the production company and the network are part of the same conglomerate, as AMC Studios and AMC Network are here, there is a powerful financial incentive to keep the lion’s share of the profit at the network level and not pay a fair-market-value license fee to the production company—thereby depriving profit participants, like Plaintiffs, of their fair share of the series’ profits.”

AMC Networks defended its practices. “These kinds of lawsuits are fairly common in entertainment and they all have one thing in common—they follow success,” said a statement forwarded to Accounting Today by spokesperson Sarah Chaikin. “Virtually every studio that has had a successful show has been the target of litigation like this, and 'The Walking Dead' has been the #1 show on television for five years in a row, so this is no surprise. We have enormous respect and appreciation for these plaintiffs, and we will continue to work with them as partners, even as we vigorously defend against this baseless and predictably opportunistic lawsuit.”

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.