Disney Settles Out of Court Again
Several of Disney’s pandemic-related business practices have caused headaches for investors and financial partners alike.
Lawyers for The Walt Disney Company have worked overtime in trying to get Disney’s house in order in the wake of Bob Chapek’s mistakes.
Now, we have another lawsuit that Disney has settled out of court. Here’s what we know about the battle for Avatar profits.
Who Is TSG, and Why Should You Care?
Let’s start with the obvious. Disney has gotten sued a LOT over the past three years.
Obviously, a company as popular and far-reaching as Disney faces lawsuits each day, but many of these have differed from the norm.
Disney has faced scrutiny from people who ostensibly should be allies in their business dealings. And yes, a lot of it ties back to Chapek.
However, the lawsuit we’re about to discuss actually dates back to Bob Iger’s first tenure…and really didn’t have much to do with him.
TSG Entertainment Finance began in 2012 as a way to perform funding for big-budget Hollywood tentpole releases.
Due to the odd nature of these endeavors, some film studios hire outside investor firms to raise money for the projects.
TSG finds the money to make the movies by handling the debt financing with banks. It’s super-dry economic stuff.
You can read TSG’s Wikipedia page to view the full list of films the company has co-financed.
TSG has held a stake in recognizable projects like The Martian, Gone Girl, some X-Men films, Deadpool 2, and The Shape of Water.
Before Disney acquired Fox’s assets, TSG had signed a deal with the former Fox.
Disney inherited this deal with the other Fox assets, which is the vital part of this conversation.
TSG had a stake in various projects, including the Academy Award-winning The Shape of Water.
Disney became the owner of some of these titles, and the two parties had differing goals.
TSG wanted to maximize profits on its investments, while Disney needed to accelerate the growth of its new streaming service, Disney+.
As the two companies worked at cross purposes, a rift formed, which often happens with Hollywood financing.
About the Lawsuit
TSG Entertainment Finance sued Disney last fall, but it listed Fox throughout the filing.
That wasn’t a mistake. Many of the titles in question had come via TSG’s Fox agreement.
When Disney gained the assets of the former 20th Century Fox, it changed the studio’s name to 20th Century Studios.
This modification in no way altered the existing contracts, though.
TSG had signed a contractual obligation with Fox. The financing partner expected Fox to maximize its revenue.
Soon after Disney took over the assets, the pandemic occurred. At this point, Chapek pivoted to Disney+ as a priority.
Disney took its Fox titles like The Shape of Water and heavily marketed them on streaming.
With theaters closed, TSG missed several opportunities to make money from its films.
Meanwhile, Disney+ benefited financially from the content while TSG struggled.
Specifically, Free Guy debuted during the pandemic and was available on streaming within 45 days.
This decision undeniably cost TSG millions of dollars.
Soon afterward, TSG hired an independent analyst to evaluate how much money it lost from several of its key titles.
In the analyst’s evaluation, three films alone should have earned TSG $40 million or more.
Overall, the outside evaluator believed that Chapek’s decisions had cost TSG nine figures.
Even worse, TSG suffered a financial shortfall that prevented it from investing more in Avatar: The Way of Water.
As you know, that title became one of the most successful projects ever…and TSG missed out on the money train.
So, TSG sued Disney for the revenue shortfall.
At the time, I indicated that Disney’s most likely options were to settle quickly or stall…
Disney Settles
Well, we have our answer now, and it’s the easiest one for everyone.
While Chapek absolutely did make decisions that negatively impacted TSG financially, he was transparent about the moves.
So, Disney could argue in court that TSG should have known what would happen. Also, Disney had the legal ability to do it.
Conversely, TSG could use Bob Chapek’s unpopularity during his failed Disney tenure to prove that a desperate company screwed up.
Both sides had plenty to lose, and the only reason I wasn’t sure Disney would settle was that it might face other lawsuits.
Apparently, Disney has decided to make this problem go away.
According to The Hollywood Reporter, Disney and TSG have settled this breach of contract lawsuit.
The companies filed in court on January 5th, indicating that they had agreed on this settlement.
Unsurprisingly, neither party disclosed terms.
If they had done so, other co-financier companies might have come out of the woodwork to sue Disney. In fact, that may yet happen.
As the article mentions, Hollywood financial disputes like this one rarely reach the court system, as neither party seeks financial scrutiny.
That’s what made this filing so combustible and problematic for Disney.
I’m confident both parties are glad that it’s over, and neither company came out of this one looking particularly good.
Perhaps the funniest aspect of this ordeal is that the same two lawyers battled in this case as in the Scarlett Johansson tiff.
John Berlinski argued on behalf of TSG, while Daniel Petrocelli defended Disney…just as they did when Johansson sued over Black Widow.
Berlinski has become quite the thorn in Disney’s side.
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