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When is building a shopping mall like making a television game show?

The Mouse Factory is under attack having lost a major Jury decision regarding their accounting practices. Having claimed that "Who wants to be a Millionaire" was kept in the Red despite its tremendous success was too much for a Jury to stomach, awarding a huge settlement to the game's creator.

How can producing a film or television show be like building shopping mall?  Read on....

Let's say that you own a piece of property but don't have the wherewithal to develop it to its full potential.   Now say a huge conglomerate comes along and offers to build a mall on your property and offers you a percentage of the profit in exchange for the rights.  After some consideration you decide that this is fair and you go ahead and strike a deal with your new partners. 

Seems like a win-win doesn't it?   Well, not really, specially if your partner does business like our large media companies that have elbowed their way into every cranny and niche of the entertainment landscape, squeezing out any and all competition with the arrogant presumption that might is right and profit trumps all if you are a public company.

So let's return to the mall.  The Megabucks Corp. builds the mall and quickly leases out all of the space.  People flock to the new mall and you are feeling good.  You believe you have made the right decision and look forward to sharing in the profits once the mall gets into the black.  You congratulate yourself and smile modestly as others tell you how shrewd you were to find such a big and powerful partner.

Two years go by and you begin to wonder how long it will be before the mall goes into the black and you can start drawing your share of the profits.  Your partners explain that the mall is still in the red.  A small doubt begins to form and you wonder if the deal you made was really as good as you had thought...

Now four years have passed and the mall is still is the red, according to the accountants.  At last you are upset and you ask to examine the books.  Your partners are happy to show you the books, after all, they are a very huge conglomerate and are very careful to do everything in a most legal and lawful manner.  Your not dealing with some sleazy scam artists here, this is the Megabucks Corp. and the books have been carefully kept.

You're mad now.  You're ready to bite off someone's ear or tie someone to a chair and make them watch episodes of The Kardashians round the clock. You're really steaming.You bring your accountants in and turn them loose.  You know that the books must have been cooked!  How could this so very, very busy mall still be in the red after four years of full occupancy and parking, and food court revenues... ?

Your accountants and lawyers spend several (billable) weeks going over everything and then call you in for a meeting.  You come in with a bounce to your step and fire in your eyes.  Your guys give you a weak smile and suggest that you sit down.   One of them walks over and softly, rests his hand on your shoulder as he starts to explain...

So here's what happened.  Megabucks Corp. signed the deal to build and manage the mall, once built.  You (Schmuck) agreed to assign the property to the venture in exchange for a percentage of profits.  Your problem is that on paper the mall is still deep in the red and looks to remain there for the foreseeable future.  Your people in going through the books have found that all the contractors that Megabucks Corp. brought in to build the mall had wonderfully generous deals.  The deals did not profit Megabucks Corp. but Lotabucks Inc. and Bagsofbucks LLC and many other companies that were all part of the same family.  All of these, and here's the big term, Vertically Aligned companies did very well and earned huge profits while Megabucks Corp. was left still trying to recoup, thus keeping the mall project in the red and escaping any obligation to give you any of their bucks.  All the subcontractors were like sister or brother or aunt and uncle companies that in turn used materials and services of yet more related companies, all at huge markups....  This big family all did very well, except of course for your partner Megabucks Corp..Now let's leave the mall and return to the film and animation business.  Following the mall template let's say that Megabucks Corp. is like..... ummmm, say Disney.  And to continue to follow this model let's say that your real estate property is like a television show, like.....ummmm, say Who wants to be a Millionaire

Moving along, let's call you... Celador.  Like the Schmuck with the land, you gave your property to a huge company that took it over.  And like the mall guy, years have passed and you've received nothing as your partner keeps telling you there has been no profit.  And the same thing that happened with the mall has happened with your intellectual property - your partner contracted work out to members of their own family who charged huge fees for their services driving the expenses above the revenues no matter how successful the show. 

If this sounds familiar it is.  The L.A. Times reported that a federal jury yesterday awarded Celador, the creator of "Who wants to be a Millionaire" an award of 269 Million dollars in their suit against the Walt Disney Co.  Wow! Hooray for the Schmuck.

So why should any of us normal, work for a living people, give a hoot about this case and what, if anything could it mean for us? 

Well in truth it probably won't change any of our lives much but it may prove to be a first and important step in bringing some form of sane and fair regulation to an industry that like banking, oil, insurance and drugs has operated pretty much as it pleased since then President Ronald Regan decided that business always did better if left alone.   Jeeeeze, let the people that know how to make money, make money and let the regulators find something else to do.

There was, long ago and far away, a place and time where Producers produced, Networks broadcast, Toy Companies made toys, Marketers marketed, Distributors distributed, Ad Agencies advertised, Musicians made music and they all made a living.  What they didn't do was muscle everyone out of the way and control every aspect of the industry thus keeping all possible revenues under one roof - theirs.  There used to be a word for this, Monopoly.   At one time we made regulations limiting the excesses and imbalances that were brought about by allowing a small number of parties in one industry from controlling all the business.  Now we call it vertical integration and it sucks.

This court decision, if it can withstand the army of lawyers Disney will marshal against it with a long stream of appeals, could encourage others to take the same course and may begin to erode the very foundation of the beast.   If a company like Disney (Sony, Time-Warner, NBC-Universal, or Fox they're all the same.) is prohibited from using their affiliate companies for charging stupid-crazy fees for goods and services - the whole benefit of vertical integration is weakened or ar least brought into question.

It has been a long time since the little guys have won anything and although I won't say that Celador is a little guy, their victory is everyone's victory.   I have nothing against Disney in particular but I have a much easier time identifying with Celador than the mammoth Walt Disney Co. 

So let's keep our eyes on this and see if David can really take on Goliath....