A story has been unfolding on the West Coast that is as difficult to parse as a poorly directed Reality scene. It first came to my attention when Deadline announced that the FBI had raided the offices of Reality production company LMNO Entertainment on June 30, 2016. Titillated by such escándalo, I clicked on a link to the article and was confronted by the following hyperbole …
Two major players in reality TV, Discovery Communications and independent production company LMNO, are locking up in litigation that has the potential to be one of the messiest breakups in the genre’s history. It’s a tale of intrigue and betrayal worthy of a segment of one of their crime show collaborations, complete with allegations of extortion and a scheming accountant who actually might not be a licensed CPA.
All of which sounds very exciting but the reporting out there is scattershot, so I’ll endeavor both to lay things out in a somewhat chronological manner and explain to the non-Industry readers what this all means.
First some backstory about these “major players.” On the one side you have Discovery Communications whose stable of channels include TLC, Discovery, and Animal Planet among many others. On the other you have LMNO Entertainment based in Encino, CA. Discovery channels air and provide budgets for many of the shows hitherto produced by LMNO.
Anyhoozle, back in 2015 LMNO allegedly became aware that their accountant, Paul Ikegami, had embezzled up to 1.5 million dollars from them. Per Variety when the company attempted to fire him…
Ikegami allegedly told LMNO that he would return the books in exchange for $800,000 and a release of wrongdoing. If LMNO did not pay, he allegedly threatened to go to its biggest customer — Discovery Communications — with allegations of financial impropriety.
What, you might ask, might such financial improprieties be? The answer, I suspect, lies in how shows were being budgeted.
Broadcasters provide the money with which we produce Reality programming. For instance, Discovery paid LMNO a “flat fee” of $127,035 for each episode of TLC’s The Little Couple, based on a court filing. That was likely the budget for a whole episode, including costs like labor, equipment rental and other production-related expenses. Also included in that budget was likely a ten percent (this is industry standard) production fee. So, in the case of Little Couple, that would mean LMNO itself might only have received $12,500 per episode for producing each episode of the series.
However (now I haven’t worked for LMNO but I have seen a budget or two in my time) companies generally skim additional revenue from other lines in their budgets to boost their profits. So they’ll claim, say, $7,000 for the camera department labor for a week, but actually only pay out $5,000, pocketing the difference. They similarly recoup revenue by “renting” out equipment or editing facilities to the show. So they’re potentially making a lot more than $12,500 a show.
In my opinion, broadcasters are aware that this kind of “accounting” goes on, but tend to look the other way; in fact, I doubt many shows could weather an actual audit. If LMNO’s retelling of events is to be believed, Ikegami assumed the company would do anything to avoid an audit. If LMNO’s retelling of events is to believed, Ikegami also assumed there was something worth paying $800,000 to hide.
Whatever the reality, LMNO called Ikegami’s bluff. Only it wasn’t a bluff. Dude actually WENT TO DISCOVERY. And Discovery, in turn, decided to perform an audit.
In a Press Release dated June 30, 2016, Discovery claims that this audit…
… revealed procedures and practices inconsistent with Discovery’s contractual rights. Earlier this month, Discovery made the decision to terminate certain of our contracts with LMNO, based on the results of our own review.
The contracts (shows) in question include The Little Couple, 7 Little Johnstons, Unusual Suspects, Killer Confessions, Hollywood & Crime, and The Coroner: I Speak for the Dead; that is: the bulk of LMNO’s slate. That’s a devastating blow for any production company and, in fact, LMNO responded by laying off 20 staff members. They also, on June 22 of this year …
… filed a $7 million breach-of-contract and copyright infringement lawsuit against Discovery (read it here), accusing the giant media company of conspiring with a “criminal extortionist” to squeeze LMNO out of six of its shows…[Deadline]
I have no idea what the nature of the agreements were between Discovery and LMNO, but based on the language of the suit LMNO is claiming they weren’t in violation of those contracts. Of greater interest, at least to me, is the reference to copyright infringement. It implies that LMNO intends to claim creative ownership of at least some of the shows. That’s what I want to spend a little time discussing.
See, quite often the production company that makes the show doesn’t in fact own it. Without knowing the history of the shows in question, it’s hard to say how they ended up on Discovery channels. However, it ‘s most common for production companies to pitch a show concept to the broadcaster. Once these shows are picked up they are often “owned” by said broadcaster. An example is TLC’s Say Yes to the Dress. That show was pitched to TLC by Half Yard Productions and, when it was picked up, Half Yard produced it. However, once TLC decided to expand the franchise they tapped North South Productions to produce Say Yes to the Dress: Atlanta.
LMNO’s suit is likely an attempt to block Discovery from doing the same thing with the shows they have hitherto produced. They don’t want “their” shows to be produced by someone else. Per Deadline again …
When asked for comment, a Discovery spokesperson told Deadline, “While it’s not our practice to comment on ongoing litigation, we will vigorously defend against LMNO’s lawsuit.”
LMNO also brought a suit against the allegedly embezzling accountant Paul Ikegami on June 30, 2016, the same day, as it happens, that they were raided by the FBI.The reason for that raid remains obfusc at present. Nor was the FBI inclined to enlighten us…
“A federal search warrant is being served at that location,” said FBI spokesperson Laura Eimiller. “The affidavit in support of that warrant has been sealed by a judge, so I’m prohibited from commenting on the nature of the investigation.” [Deadline]
Who involved the FBI? Discovery after their audit? Or did LMNO bring in the authorities when they were purportedly being extorted by Ikegami? All I can say to that is: shit is getting real.
And since on one hand you have a LMNO, also known among crew as “Leave My Name Off Productions,” and on the other you have child abuse-enabling Discovery, it’s pretty difficult to pick sides.
Either way, I’ll keep you posted!
Meanwhile enjoy this image of LMNO documents seized by the FBI on June 30, 2016 … [Deadline]