Suing Hollywood's Suits

The truth is out there. Yet in "The X-Files's" bizarre world of alien invaders, FBI Agent Mulder has yet to find it, even after seven seasons in the starring role in the hit Fox television series. David Duchovny, who stars as Mulder, however, believes he has stumbled upon a disturbing truth about Fox. He claims that the entertainment empire has shortchanged him at least $25 million in profits. Fox, he contends in a lawsuit, cheated him by, among other things, selling "The X-Files" at below market prices to the studio's sibling cable network.

Duchovny generally attracts attention for his moody good looks and his heartthrob status. But his high-profile lawsuit is one in a series pitting some of Hollywood's most commercially successful talent--including the creators of "Home Improvement" and producer Steven Bochco ("L.A. Law" and "Hill Street Blues")--against the entertainment giants that control more and more of the Hollywood food chain. While the joke in L.A. is that it's hard to show pity for millionaires suing billionaires, the legal maneuvers aim directly at the heart of Hollywood's massive media conglomerates. Time Warner, Walt Disney and Rupert Murdoch's News Corp. emerged during the 1990s and reshaped the business, each creating a self-contained empire of movie studios, TV channels and TV stations. The buzzword for the strategy is "vertical integration,'' which refers to a single vast company that does everything, from creating shows at in-house studios, to airing them on company-owned networks, to then reselling the lucrative rerun rights to their own cable networks.

That's all great if you are Rupert Murdoch. But there is a dark side to the huge empires, according to the people who actually make and star in the hit shows that make the media monoliths hum profitably. The creators complain that the system is ripe for abuse and self-dealing, particularly on the critically important issue of the sale of reruns. While other parts of the entertainment business are far more glamorous, selling a show into reruns is the industry equivalent of hitting the jackpot. In the wake of the mergers, however, Duchovny and others maintain that the companies are cheating by selling rerun rights at below fair market prices to the studio's own cable channels. If the juicy rerun rights were auctioned on the open market, the star's take would be far greater. "This vertical integration is just the latest way for studios to screw talent out of their fair share of the profits," says Larry Stein, a Duchovny lawyer. The studios say the suits are meritless, but decline to discuss them in detail.

Documents filed in the Hollywood suits provide a tantalizing inside glimpse into the immense fortunes being made in the entertainment industry. In the latest lawsuit, filed last month, producer Bochco charges Fox with defrauding him of almost $16 million. Bochco's dispute stems back to a 1988 deal he cut with Fox. In exchange for a $45 million payment, Bochco granted a division of Fox sweeping authority to peddle reruns of his future TV shows. In 1995 Fox sold 132 reruns of Bochco's "NYPD Blue" at $400,000 each to--you guessed it--Fox's FX channel. Not one cable outlet unrelated to Fox got to bid, Bochco alleges. Given the show's high ratings, "NYPD Blue" reruns on the open market should have fetched at least $600,000 an episode, according to Bochco. That's $48 million for him rather than the $32 million he earned on the FX deal. Bochco says "vertical integration seems to sort of make the act of self-dealing an irresistible situation."

Duchovny's "X-Files" suit involves similar mind-expanding amounts. The actor, who reportedly earns about $250,000 per episode, claims he is owed more than $25 million by Fox, according to people familiar with the case. The suit discloses that the hit show has generated more than $800 million in profits for the Fox network.

Since the media giants are loath to have the inner workings of their deals laid out in court papers, some of the suits have been quietly settled. Days before Duchovny sued in August, Fox settled a lawsuit brought by actor Alan Alda (Hawkeye of "M*A*S*H"), alleging that self-dealing had reduced his profits from that series. In April, Disney settled with Wind Dancer, which created the studio-owned "Home Improvement," a show that Disney later sold at an alleged discount to its own ABC network.

Although every media conglomerate is vulnerable, Fox is most prominently in the cross hairs. Insiders say that's because Fox is the biggest supplier of television shows to itself, a position that invites close scrutiny. A Fox insider defends its transactions, noting that both the "NYPD Blue" and "X-Files" sales were record amounts at the time. "You can't come back five years later and say it was a bad deal," the Fox executive says. To some, the talent are ingrates who don't remember the companies huge losses on flops. Bochco's crime-show musical "Cop Rock," for one, failed miserably. "We lost lots of money on that; Bochco didn't lose any," a Fox exec says.

Here's one truth even an alien could find out there: Hollywood is one greedy town.