Tuesday, July 10, 2012

"Seek legal advice..." - How Hanna-Barbera Took Millions From DC Comics

Ever heard the joke about how, when Beatlemania was at its peak, the Beatles manager, Brian Epstein was approached by some canny Americans who wanted to license the group’s images and names for merchandising?  The joke goes like this – the Americans sent representatives to meet with Epstein in the hopes that they’d be able to cut a good deal.  Epstein listened to their presentation, which amounted to the reps stating how they were going to plaster the Beatles images onto everything from towels to tea trays to toilet paper to underwear, cans of Beatle Breath, egg cups, wigs, shirts and more - if it could carry the Beatles name then it did.  After they finished their pitch they began to discuss the financial split and Epstein reportedly said, with a flourish, that they’d not accept anything less than 10%.  Net.  The Americans couldn't get the paperwork signed quickly enough.

Well, it’s not a joke really.  You see in 1963 Brian Epstein did sign away the rights to the Beatles for the American market, for merchandising, for a 10/90 split in favour of the merchandisers, Seltaeb, who promptly outsourced and on-sold the license as they saw fit and sat back and watched the cash roll in.  It cost the Beatles several tens of millions, if not hundreds of millions and by the time the deal was fixed in late 1964 (giving the Beatles a 49/51 split) it was far too late – the horse had bolted and the money was forever gone.  People got very, very wealthy off that deal, but the Beatles and Epstein saw next to nothing, having to split their 10% five ways.  It’s still hotly debated as to if the deal called for net or gross profits, but it’d not have made much difference – due to Epstein’s lack of business savvy and knowledge they got shafted.  By all accounts it was one of the many nails in Epstein’s coffin, especially when the group saw how much crap was being produced and how little money they got.  The moral of the story, and the lesson that everyone learnt, was to never sign a deal that called for net profits – even Eddie Murphy knew this and famously called net profits ‘Monkey Points’ for Hollywood accounting.  And in Hollywood accounting net profits equals zero money.  There’s people who had net profit points in some of the most lucrative movies ever – Star Wars, Titanic and the like – who will never see a cent.  But, by the early 1970s the lesson of the Beatles was well known in entertainment circles, but that didn’t stop DC from signing one of the worst deals that they’ve ever entered into, with Hanna-Barbera.

In 1973 HB approached DC with the view of licensing it’s biggest names for an animated television series called Super Friends.  HB didn’t want second stringers – it wanted the Justice League and, in particular, the Big Three: Superman, Batman and Wonder Woman, and they got them.  And better yet it was, as Guy Ritchie once scripted, "...a deal, a steal, it was sale of the f&^king century!"  How so?  The deal called for HB to pay DC Comics 25% net.  To explain, in simple terms, DC's deal was for 25% AFTER production costs, overheads, residuals, copyrights, censorships, advertising, incidentals and more.  By the time you take all of those factors out of the equation, 25% net profits equals virtually nothing, as DC discovered when it finally had an audit done in 1984.

But it got worse.  In 1978 HB negotiated another deal which allowed them to produce live action shows, based upon the DC Comics characters but with one notable exception - Superman was already tied up in a separate deal with the Salkinds and work was progressing on long awaited Superman: The Movie, thus HB couldn't use him.  This was no big deal as HB merely substituted Captain Marvel (now Shazam to you) - they replaced Big Blue with the Big Red Cheese.  Two shows were produced and aired in early 1979 and anyone who has seen either of them will agree that they stank so much that the smell is still firmly embedded in the nostrils of all concerned.  What has been seen cannot be unseen, and that adage is never so apt when it comes to the shows.  Superhero Roast indeed – it was more like Superhero Overcooked And Burnt To A Crisp.  Again the deal was for net profits, and also royalties, but by this stage the deal makers at HB must have been laughing themselves stupid, as they revised the original deal between themselves and DC three separate times and, in 1982, committed DC to a ten year deal, STILL on 25% net.  To add to DC’s woes was a clause that stated that HB only had to pay DC for each show and the first five repeats, meaning that, from repeat number six onwards, HB pocketed all of the cash.

The 1984 audit of the HB/DC deal threw up some amazing numbers.  In the ten year time period from 1973 through to 1983, HB grossed an approximate amount of $20,000,000 from the Super Friends animated show alone.  That’s a lot of cash, especially in the 1970s and early 1980s.  DC Comics 25% should have amounted to $5,000,000, however after all of the expenses were taken out of the gross, their total came to a whopping $706,000 plus and extra $497,000 in royalties.  Ignoring the royalties, which were separate, and you’ll see that HB claimed $4,294,000 in total in production costs, overheads, residuals, copyrights, censorships, advertising, incidentals and more, which brings DC’s cut down to around 4% in real terms.  Add the 25% net and the royalties together and that total ($1,203,000) then hovers around the 6% gross mark – all in all it still adds up to a nice chunk of change for HB.

In 1984 DC Comics called for an audit of Hanna-Barbera and their deal to ensure that the numbers were correct.  The audit, which DC had to pay for, initially focused on an 18 month period, which had seen DC paid $547,000 as part of their 25% with an additional $98,000 in royalties but soon broadened to cover the entire ten year period.  The first problem the DC auditors encountered was HB’s refusal to allow them to look at all of their books, as such the audit wouldn’t be complete or accurate.  In particular HB refused to allow the auditor’s access to logs that contained cash receipts, meaning amounts paid to DC might well have been under-reported.  The audit also found some alarming numbers for the eighteen month period, with claims of under-reporting and thus underpayments, and HB claiming an approximate amount of $6,007,800 in production costs for the life of the entire contract against DC’s profits, a claim that the auditor’s, in a classic understatement, claimed as ‘excessive’.  You can see from the audit as to DC’s reaction to these figures and claims.

"My career could not get any lower..."
As you’d expect from such an audit legal action was recommended, but, ultimately the failure of the deal to produce anything meaningful for DC Comics should have fallen back onto the people who negotiated the original deal with HB.  The audit found copious examples of alleged underpayments but, ultimately, the findings and failures fell squarely onto DC and their, “...failure to monitor terms of the agreements,” in the original contract.  I’m not sure who signed the original deal between DC and Hanna-Barbera, but whoever agreed to those terms, on DC’s half, cut a deal that was almost on a par with Brian Epstein giving away the Beatles for 10%.  Net.

"Baby on board, something, something Burt Ward..."
See them come to live and die the death on the screen
Oh dear...even Ed McMahon was up and over like a pan of boiling milk


cartoonjoe said...


Mark Mayerson said...

The final irony is that now Hanna-Barbera and DC are both owned by Warners.

Norm Breyfogle said...

"...up and over like a pan of boiling milk."


rnigma said...

Karma indeed, after what DC did to Siegel and Shuster.

benjaminherman said...

Considering how many creators DC has screwed over throughout the years, I find it difficult to feel much sympathy for them in this situation.

Daniel Best said...

Absolutely. Karma is a bitch at times.