Bloomberg News

Paramount Sued Over Profit on ‘Dreamgirls,’ ‘Transformers’

November 30, 2011

(Updates with Paramount spokeswoman in fifth paragraph.)

Nov. 29 (Bloomberg) -- Viacom Inc.’s Paramount Pictures unit was sued by an investment group that said it put up $375 million to help produce 29 films including “Dreamgirls” and “Transformers” and claimed the studio has failed to share any profit from the movies.

The films have grossed close to $7 billion and Paramount has underreportSed revenue and overstated production and distribution costs for the films to withhold money from equity partners, Melrose Investors 2 LP said in a complaint filed today in state court in Los Angeles, where Paramount is based.

Paramount, DreamWorks Studios, now known as DW Studios LLC, and Melrose entered into an agreement in 2006 under which Melrose would own as much as a 25 percent copyright interest in as many as 30 movies in exchange for financing 25 percent of production costs, the investors said in the complaint, which also names DW Studios as a defendant.

Paramount routinely understates revenue for the films through a variety of tactics that violate the terms of its agreement with Melrose, including deducting payments to affiliates and failing to count payments from overseas licensees, Melrose said.

“The Melrose 2 investors have already received almost 90 percent of their investment back under the financing agreement, and a number of films in which they participate (such as the successful Transformers 3) remain in the earliest stages of their earning potential,” Virginia Lam, a Paramount spokeswoman, said in an e-mail.

‘Ordinary Course’

“While we intend to vigorously defend this lawsuit, the differences between the parties’ positions are relatively modest in amount and we are confident they can be resolved in the ordinary course,” Lam said.

Chip Sullivan, a DW Studios spokesman, didn’t immediately respond to a phone message seeking comment on the lawsuit.

The case is Melrose Investors 2 v. Paramount, BC474310, Superior Court of the State of California, County of Los Angeles.

--Editors: Andrew Dunn, Mary Romano

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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