By Gary Symons
TLL Editor in Chief
Sony Pictures Television is suing CBS, claiming the network failed to meet its contract obligations for popular game shows Jeopardy! and Wheel of Fortune.
As well, Sony alleges CBS entered into unauthorized distribution deals in foreign markets.
“As stated in our complaint, CBS has been egregiously undercutting the value and profitability of these shows in favor of its own self-interest,” Sony said in a statement. “CBS has pocketed millions in distribution fees from unauthorized deals, licensed the shows domestically well below market value, and favored its wholly-owned shows in advertising sales and distribution, among other things.
“Further, CBS has gutted the teams responsible for fulfilling its contractual obligations, requiring us to step in at our own expense. After repeated attempts to resolve this matter amicably, we are left with no choice but to take legal action today.”
CBS has denied these allegations, saying it has acted throughout the parties’ relationship as a ‘thoughtful steward’ of the long-running and still popular brands. In fact, CBS says its work turned the two shows into global hits that earned Sony billions of dollars in licensing revenue.
“For more than 40 years, CBS and its predecessor company King World have been accomplished distribution partners and thoughtful stewards for Wheel and Jeopardy! in the syndication market,” CBS argues. “This work has helped build shows into franchises, transform popular series into cultural icons and deliver Sony billions of dollars of revenue.
“Our contract is clear that we hold the distribution rights to these series in perpetuity,” CBS added, making it clear they will fight any attempt to take the shows out of their hands. “We strongly refute any claims by Sony that we did not use our best efforts in distributing the programs or otherwise failed to abide by our obligations under the agreements.
“Sony’s claims are rooted in the fact they simply don’t like the deal the parties agreed to decades ago. We look forward to vigorously defending this lawsuit in court.”
So, what’s behind this lawsuit? Let’s dive into the details.
Sony Pictures Television (Sony) produces both of the game shows, which have been among the most-watched syndicated programs on broadcast TV for decades. Jeopardy!’s first episode aired in 1964, while Wheel of Fortune lit up TV screens in 1975.
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Under the deal, CBS’ syndication arm, CBS Media Ventures, licenses the shows to local stations and sells national advertising spots in exchange for 35 percent to 40 percent of receipts.
But Sony claims that CBS has failed to live up to its contractual duty to make its “best efforts” to make those receipts as large as possible.
“For more than 35 years, Sony Pictures has been responsible for producing and financing the Shows, delivering over 400 high-quality and top-rated episodes per year,” the complaint says. “Sony Pictures entrusted CBS, by contract, with the obligation and duty to distribute these prized shows. CBS expressly undertook the duty to use its “best efforts” to license the Shows to local television stations and to sell national advertising in a manner that would maximize the receipts that could be obtained from distributing these very valuable properties.
“In return, CBS gets a 35% to 40% share of the receipts. Unfortunately, it is now clear that CBS has fallen woefully short of holding up its end of the bargain,” the filing alleges. “The reality is that CBS has been egregiously undercutting the value and profitability of these shows in favor of its own self-interest and in violation of its contractual obligations.”
On the matter of unauthorized licensing deals in overseas markets, the filing alleges, “Rather than live up to its obligations under the terms of the parties’ agreements, CBS recently admitted that it entered unauthorized licensing deals, in plain violation of a negotiated, two- year limit for such licenses under the agreements, and then paid itself a commission on those deals.
“These unauthorized deals are just the tip of the iceberg,” the complaint adds. “In fact, CBS has licensed the Shows at below-market rates; has failed to maximize advertising revenue; has undercut Jeopardy! and Wheel of Fortune through self-preferencing; and has rendered itself incapable of administering its obligations under the agreements, including by its far-reaching layoffs that have decimated teams responsible for the Shows’ distribution, marketing, and advertising sales and its decision to abandon its partnership with ratings provider Nielsen, whose ratings are critical for CBS to maximize advertising sales and syndication licenses. CBS’s failures and pattern of financially self-interested behavior—which at bottom come down to putting its own business interests over its contractual obligations to Sony Pictures—are straightforward breaches of the agreements’ express best-efforts clauses and the implied covenant of good faith and fair dealing.”
As an example of the alleged practice of unauthorized licensing, Sony claims it recently learned CBS had entered into unauthorized deals in New Zealand and Australia, and had pocketed $3.6 million in fees. Sony demanded the money but was refused, as CBS claimed Sony had already received its fair share of the fees, according to the suit.
Finally, Sony also accuses CBS of acting preferentially toward shows that it owns, at the expense of “Wheel” and “Jeopardy!” in its licensing negotiations. For example, Sony claims the game shows have been offered as a package with less popular CBS shows like “The Hot Bench” and “The Drew Barrymore Show.”
“CBS’s bundling of ‘Jeopardy!’ and ‘Wheel of Fortune’ with comparatively unpopular CBS-owned shows lowers the gross receipts that CBS would otherwise secure for the Shows had they been sold independently,” the suit alleges.
Similarly the suit accuses CBS of putting its wholly-owned shows, like “Entertainment Tonight,” at the top-ranked stations in certain markets, while putting “Wheel” and “Jeopardy!” at lower-ranked stations. Over time, Sony alleges that this has had a detrimental effect on the shows, and on Sony’s bottom line.
“The most popular network affiliates generate more in advertising dollars, and typically also pay higher licensing fees,” the suit alleges. “Placements at the highest-rated network affiliates also contribute to maximizing revenues for a show in the long term, by ensuring that the series is exposed to the largest market audience, and in turn higher advertising rates in the local market.”