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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
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