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Economic Damage Claims in the Entertainment Industry – Speculative or Beyond a Reasonable Certainty

Expert Witness: Kathryn Arnold
The large majority of lawsuits that involve individuals in the entertainment industry revolve around lost wages or fees. These claims often allege millions of dollars in lost earnings depending on the role the person plays within the industry. Given the exorbitant amount that some actors, writers, directors and producers earn, it’s easy to understand how often these claims get made. However, the operative word in this scenario is some.

The question one should ask is how do you best determine whether a particular individual should be categorized into that rare group of earners? In other words how do you determine whether the claim is purely speculative or can be proven within a reasonable degree of certainty?

When investigating lost wages claims, one must understand that the entertainment industry is nothing like the traditional job market. A lawyer, banker, or accountant will have tax statements that show their earning capacity to date, and they can expect their salary to increase as they steadily progress up the ladder and gain vital experience
and contacts. This is not the case in the entertainment industry. Due to the volatile nature of the business, many outside factors affect one’s marketability and earning capacity. As a matter of fact, in some positions, particularly the producer and actor, there is no guarantee that you will ever get another job. There’s a reason why the phrase, “You’ll never work in this town again,” was coined in this industry. The competition is stiff, buyer’s tastes shift on a dime and there are thousands of people ready to pounce on your position at any given moment. Even taking maternity leave can severely damage your worth in the marketplace. Additionally, so many people are party to the decision making process that one can be weeded out of contention for countless reasons entirely out of one’s control and unrelated to one’s talent or ability.

Million dollar earners are rare and even rarer still are those that can earn that type of income consistently over a long period of time. It is critical to look at: 1) The earnings history and work consistency of the plaintiff; 2) Awards or accolades that may boost future earnings; and 3) Comparable earning capacities of the individual’s peers. This last point is crucial because it is important to compare apples to apples in terms of actual work history and money earned. The amount of money the plaintiff thought they would make throughout their career, based on self-comparisons with high achieving players of similar age and looks (the case of an actor) and tastes/genres (as in the case of a producer,) does not often play out in real life to their satisfaction. How many good looking young talented actors achieve the career status of Julia Roberts?

To illustrate the difference between a claim that seemed highly speculative versus one that was more grounded in reality, let’s look at two actual cases. Both are wrongful deaths with males in their early 40’s, one a producer, the other a photojournalist/director.

Case 1: Wrongful Death of a Feature Film Producer

In the case of the producer, the family/estate was the plaintiff and they were seeking damages in the high eight figure range. The producer had been involved in the production of a very successful film franchise, and had earned $2M-$5M per year over a four year period prior to his death. Although he had no other discernable credits, before or after that hit franchise, the estate was making a claim that he would sustain that kind of earnings over the course of the next 20 years of his life. This claim was highly speculative for the following reasons:

1) He was not the sole producer on that franchise; his partners had significant credits before and after the franchise, had financed the film with their own money, and had set precedents that allowed them to negotiate a very high revenue split which he, by association, was allowed to participate in. 2) He had not a single producing credit before the franchise was produced. 3) The two films he subsequently produced with those same partners flopped. 4) He had no projects in the development pipeline that would have indicated--had he lived--that his future earnings potential would be significant. 5) He had won no awards or nominations to give credence to his excellence as a producer.

Plaintiff’s attorneys mounted their eight figure claim based on the concept that because his name was associated with this large franchise, any future projects would carry the glow of the prior hit film, and thus would surely be produced and achieve equal success. Two problems, he had NO projects in the development pipeline and the industry is extremely mercurial, as we have previously discussed when it comes to continued success.

Nothing in the entertainment industry is “de facto” and moreover, without a tremendous amount of the proverbial spaghetti thrown against the wall, an enormous amount of effort applied in moving projects forward, and a big dose of luck, many producers, and particularly “one hit wonders,” never produce a second hit. Here are some statistics:

Looking at 10 of the top independent production companies (companies that consistently produce at minimum1-2 movies a year over a 5-10+ year period,) there was an average 10-1 development to production ratio. This means they had at least 10 projects in development for every 1 film that was produced. In the case of the Plaintiff he had no projects in development, even 4 years after the first film of the franchise was a box office success, and thus no prospects to produce a film in the near future, let alone a successful one that would garner him $4M a year. (Note: The average time to develop a project to production is 12-36 months per picture.)

Another interesting statistic to look at is the number of producers who had one significant hit and no other successes versus those producers who have had more than one hit in their career. I looked at 20 producers with at least one film considered an unqualified hit, (a 10 -1 revenue to cost ratio or better.) Out of the 20, only 2 had a second or third film that garnered considerable box office success. Even those producers whose names were associated with phenomenally successful films, (i.e. SOMETHING ABOUT MARY,) did not produce a second successful film. Empirical evidence such as this reinforces the fact that there is no certainty of success for anyone working in the entertainment industry.

This case did not go to trial and settled for a much lower amount than was originally demanded. The settlement amount was in line with the levels of real projected revenues derived from the existing franchise rather than from speculation of what could have occurred.

Case 2: The Wrongful Death of a Photojournalist/Documentary Filmmaker

In the case of the photojournalist/documentary filmmaker, the Plaintiff was his surviving family who was seeking damages for lost earnings in the mid seven figures. The lost earnings would have come from his work as a photojournalist/director for hire, as well from producing and directing. Although the potential damages in this case were much less than the previous case, and the criteria for establishing reasonable certainty was lower, the deceased had other merits that made the case less speculative and more credible.

1) He was a 4 time Emmy winning photojournalist and had won several other awards from his peers and authoritative industry bodies. 2) He had a consistent track record of work history and of being hired for the top projects in his field and region. 3) The first project he initiated as a Director/Producer with his own company was a high profile project on the same level with successful, award winning documentary filmmakers of the time, and he was already in discussions with interested buyers. 4) He had been given accolades by his employer and was viewed as an asset to the team and someone with an upwardly mobile career. It was clear had he continued in his field, he would have been quite successful.

Furthermore, the world of documentary film differs from that of feature film in that the costs of production are much lower and the director/producer has more control over the marketing and distribution of the film because the recoupment costs are smaller. Thus the earning ratios are more in line with the traditional job market, and more likely to be predicted over the long run, than the enormous fees potentially available to the feature film world.

The attorneys and economist on this case developed a moderate range of earning potential for the deceased, and were conservative in their overall damage claim. Moreover the claim was supported by relevant work history, awards and industry documentation. Thus overall, the claim was within the realm of reasonable certainty and did not show signs of speculative excess on every front.

The case went to trial and the Plaintiff won the wrongful death suit. Although the jury did not award the family the full requested amount, the settlement was well within the mid range of the earnings pro forma and they walked away feeling well served by justice.

Clearly, the validity of any claim should be judged on a case by case basis and on its individual merits. Certain key elements need to be examined within the specific context of the individual case and its particulars, in order to determine the viability and merit of the claim. Because the industry can provide such high paydays, and the career trajectory of certain rare individuals can be so meteoric, it is enticing for a person, with even a little bit of experience or credibility, to assume that they will be the next big thing. A single successful project, a few good reviews or a string of good references, do not automatically translate into future box office success or consistent high salaries. It’s important to do extensive due diligence and work with professionals in the industry who have significant experience in the related field to help you navigate the wild and wooly world of film.

Copyright Kathryn Arnold

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

ABOUT THE AUTHOR: Kathryn Arnold
Award Winning Film Producer and Executive with over 15 years professional experience, including Feature Film Production, International Sales, financing, and fund raising. One of the highlights of my life was directing the Documentary on the iconic band Earth, Wind & Fire - A perfect blend of history, soul and music.

Copyright Kathryn Arnold

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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