‘Millionaire’ may cost Disney

To use a phrase from “Who Wants to Be a Millionaire,” the game show handed ABC a lifeline.

Now the network could be on the hook.

The Walt Disney Co.-owned network had been trailing in the ratings in the summer of 1999 when “Millionaire” premiered, offering a $1-million prize for the contestant who could answer increasingly challenging questions. “Millionaire” was an overnight sensation — and would become ABC’s first top-rated prime-time show in more than a decade. Former Disney Chief Executive Michael D. Eisner proclaimed it “the most important thing to happen to ABC since I don’t know when.”

As big a hit as “Millionaire” was for ABC — the network at one point slapped it on the air five nights a week — the one thing the British import didn’t do was make a profit for its creator, according to a lawsuit and trial now underway in Riverside County that is seeking up to $395 million in damages.

The legal battle over “Millionaire” is the latest case of what is derisively called “Hollywood accounting,” in which TV shows that become monster hits, mysteriously, never earn a dime. These disputes became increasingly frequent after a wave of media consolidation that brought buyers and sellers of television programming under the same corporate umbrella.

Four weeks of trial included testimony from Disney CEO Robert Iger, former ABC executive turned TV producer Michael Davies and a raft of talent agents that included former NBC program chief Ben Silverman. A jury is scheduled Wednesday to enter its third day of deliberation in what could turn out, if the plaintiff prevails, to be a setback in the raison d’etre behind the media giants: the merger of program production with program distribution.

“While we doubt that the economic consequences of losing this trial would be material to the Walt Disney Co., it would set a bad precedent for all large entertainment companies, because they’re all vertically integrated,” said Laura Martin, senior media analyst for Needham & Co. “It would encourage lawsuits.”

Although such contract quarrels rarely play out in open court, the legal wrangling in this case began six years ago, when the creator of “Millionaire,” Celador International Ltd., sued Disney, ABC and two affiliated companies involved in producing and distributing the show. Celador alleges a series of “sweetheart deals” among a clutch of Disney companies that allowed ABC to pay below-market rates for the hit show, while depriving Celador of millions in potential profit.

Roman Silberfeld, a lawyer for Celador, said “Millionaire” generated $515 million in revenue from license fees for its run in prime time starring Regis Philbin on ABC and in new episodes starring Meredith Vieira for TV stations over the last eight years, not including $70 million in merchandising revenue.

Over the course of the game show’s three-year network run, “Millionaire” collected nearly $1.8 billion in advertising for ABC, according to research firm Kantar Media.

According to Disney’s accounting, “Millionaire,” now on the air more than a decade, has run a $73-million deficit.

“This is a shell game about millions, maybe billions of dollars, moving money around and keeping it from the parties who are subject to the contract,” Silberfeld said in closing arguments. “What ends up being shared is an empty pot.”

Disney has maintained, in court and in documents, that it scrupulously adhered to its contract with the show’s creator. It argued that Celador was richly compensated, collecting more than $21 million in executive producer fees alone over the course of the game show’s network life and in subsequent television syndication.

The entertainment company contends the creator is coming back, years after the show’s heyday, because it is unhappy with the deal struck by William Morris Agency.

“If Celador Productions is unhappy with the deal they got, they have the wrong defendant,” said Disney’s attorney, Martin Katz, in closing arguments. “If they were unhappy with the deal negotiated on their behalf, the responsibility goes to William Morris.”

Such legal clashes have grown more common since the 1990s, when the government phased out rules that prohibited networks from owning prime-time shows. The change in the “financial interest and syndication rules” paved the wave for the merger of broadcast networks with Hollywood studios and suddenly forced producers and networks, which historically had negotiated against each other, to the same side of the bargaining table.

“The whole concept used to be that the producer would go out and try to get the highest possible license fee for a show, would renegotiate that license fee, go to different networks to shop it to make sure they got the highest [rate],” said entertainment lawyer Stanton Stein, who initially represented Celador but declined to comment about the specifics of the case.

The incentive of a producer to extract the highest fee from a network for a successful show went away, Stein said, once studios and television networks were under the same ownership.

Stein brought the first of the so-called vertical integration suits on behalf of Wind Dancer Productions — creator of the hit ABC television series “Home Improvement” — against Disney. It alleged that Disney sold the show to ABC at below-market rates after the corporation’s acquisition of Capital Cities/ABC in 1996. The matter was settled out of court for an undisclosed amount.

Similarly, the creators of “Will and Grace” sued NBC Studios for $65 million in 2003, alleging it had negotiated unfavorable terms with its sister network for broadcasting rights to the hit sitcom. The parties settled in 2007, under the threat of a mistrial at the conclusion of a three-month jury trial.

And the duo behind “Smallville” sued Warner Bros. in March, maintaining they had been cheated out of millions in profit for the series. Creators Miles Miller and Alfred Gough allege that, because Warner Bros. makes the show and sells it to its own networks, the CW and, before that, the WB, the show about a teenage Superman never received a fair market price.

“The notion that you can have an arms-length negotiation with yourself is like suggesting you could play chess against yourself and not know what your opponent’s next move is going to be,” said Larry Gerbrandt, a television industry consultant who has been called as an expert witness in earlier disputes.

dawn.chmielewski@latimes.com