Disney hit with suit by film financing partner

Walt Disney Co.'s main film financing partner Kingdom Films LLC is suing the Burbank studio for allegedly breaching a 2005 contract guaranteeing it a share of profits from the recent hit "High School Musical 3: Senior Year" and next year's release "Hannah Montana: The Movie."

In the suit, filed in Delaware Chancery Court, Kingdom contends that Disney sought to deprive Kingdom of "bargained-for rights" in the two movies, excluding those pictures from the slate of 32 films that it had agreed to help finance. In 2005, Disney and Kingdom formed Magic Films as a vehicle to finance the slate. Disney owns 60% of Magic; Kingdom owns 40%.

Kingdom claims that in exchange for its commitment to provide $135 million in equity financing and a revolving credit line of up to $370 million, it was to "receive certain rights" to movies in the slate and the "attendant benefits" of their success.

"The clear understanding was that, except for certain films and categories of films that specifically were carved out, Magic Films would benefit from the value of Disney's properties." Kingdom contends that the exclusion of the two films "is part of a concerted effort to eliminate from the slate those films that defendants believe may be profitable as a result of their association with the Disney Channel."

Indeed, "High School Musical 3," the first theatrical release of the movie series that originated on the Disney Channel, stands out as one of the few home-run hits for Disney this year. The movie has generated $234.5 million in worldwide ticket sales since opening in theaters Oct. 24. "Hannah Montana," also based on a Disney Channel show, is due out in theaters on April 10.

Kingdom disputes Disney's claim that "HSM3" is not eligible for inclusion in the slate because it is a sequel to the "High School Musical" and "High School Musical 2" television movies that aired on the Disney Channel and were not released in theaters. Under terms of the deal between the studio and Kingdom, sequels are excluded from the fund.

Disney declined to comment beyond a brief statement: "We believe we have acted in accordance with the terms of the contract and that this suit has no merit."

It is not unusual for studios with co-financing slate deals to hold out films that they prefer to finance fully themselves in order to reap all the profits. For example, Disney carves out its "Pirates of the Caribbean" movies; Warner Bros. its "Harry Potter" franchise and Sony Pictures its "Spider-Man" series from the financial partners who help fund their pictures.

Being sued by your principal source of film financing isn't exactly good news for the "happiest" place on Earth (or any other studio for that matter) at a time when third-party financing is increasingly difficult to obtain. Just ask Viacom Inc.'s Paramount Pictures, which earlier this year saw a potential $450-million film financing pact with Deutsche Bank go up in smoke because the terms were too onerous for the studio.

The last thing studios want when profit margins are under pressure amid flat movie attendance and shrinking DVD sales is to assume 100% of the risk in financing their movies. After all, the favored Hollywood way is to rely heavily on OPM --other peoples' money. But if you upset the other people, then you risk losing their money.

-- Claudia Eller

Digital music track sales surpass 1 billion

Annual sales of digital songs will surpass 1 billion downloads this year, a first for the struggling music industry.

Nielsen SoundScan predicted in April that music downloads would reach this milestone, and with two weeks remaining in the year, that forecast appears to be proving accurate.

Individual song downloads will reach about 1,040,000 for the year, with the top 200 tracks accounting for 17% of sales. The best-selling digital song of the year is Leona Lewis' "Bleeding Love," which sold 3.3 million downloads.

Still, that's not enough to offset the decline in CD sales. This year's album sales are off 45% from the same time in 2000. A recent Forrester Research report projects that disc sales will continue to fall by an annual rate of 8% a year over the next five years.

-- Dawn C. Chmielewski

Chart Source: Nielsen SoundScan

Disney to launch family channel in Russia

Walt Disney Co. plans to launch its Disney Channel in Russia.

Disney, through one of its subsidiaries, has formed a joint venture with Media-One Holdings Ltd., a broadcaster with assets in the region, to start a new family channel on 30 stations throughout the country.

Anchored by familiar Disney Channel shows for kids and families, such as "Hannah Montana" and "Wizards of Waverly Place," the venture also plans to create original Russian programming. The launch is slated for next year, pending approval from Russian government authorities.

"This has been an effort to move deeper in the market and deliver Disney-branded programming, wrapped in a package that is very Disney, and appeals to local kids and families," said Rich Ross, president of Disney Channels Worldwide.

Andy Bird, chairman of Walt Disney International, says Disney Channel has had great influence in helping to deliver the classic characters, as well as new franchises, to global markets. This deal, in which Disney took a 49% stake in the joint venture for an undisclosed sum, is a continuation of that strategy.

Because the cable and satellite television audience is limited, Disney Channel will be broadcast over the airwaves for free in most of Russia, Bird said. In big cities, such as St. Petersburg and Moscow, it will be delivered by cable. The channel could ultimately reach 70% to 75% of Russian television viewers, he said.

Disney has been active in Russia since 2006. The studio formed a joint venture with Sony Pictures Releasing International to distribute films in Russia, and Walt Disney Studios International just finished filming its first Disney-branded Russian movie, "The Book of Masters," a lighthearted comedy based on traditional children's stories. Walt Disney Interactive Media Group provides children's content through the largest Russian and Ukrainian mobile phone operators. And the musical "Beauty and the Beast" has been playing to sold-out audiences in Moscow.

"The Russians, as a people, have a great history and fondness for storytelling. They have great stories of their own, and they have a great appreciation and affinity for Disney, both our classic stories and our modern franchises," Bird said. "So we feel that the brand is very well placed in the Russian market already. We feel with the addition of Disney Channel, this can only enhance and build off the foundations we've laid today."

-- Dawn C. Chmielewski

Photo: Actress-singer Selena Gomez poses aboard Cinderella's Golden Carousel at the Magic Kingdom in Lake Buena Vista, Fla. Gomez is the star of the Disney Channel series "The Wizards of Waverly Place." Credit: Todd Anderson / Disney

Chris Weitz will direct 'Twilight' sequel

It's official: Chris Weitz is taking over the director's chair for the "Twilight" sequel "New Moon."

"Twilight" author Stephenie Meyer confirmed the news on her official website Saturday morning in a post designed to calm the rising anguish among fans who loved the first film adaptation. After bidding a fond farewell to "Twilight" director Catherine Hardwicke, Meyer went on to praise Weitz and to let fans know that "torches and pitchforks are not going to be necessary."

On the one hand, Weitz has shown his skill at adapting popular modern novels for the screen -- "About a Boy," from the Nick Hornby novel, won Weitz and co-scripters Paul Weitz and Peter Hedges an Oscar nomination for best adapted screenplay. On the other hand, Weitz also directed last year's "The Golden Compass," which was an expensive mess that failed to capture the fan base of the books.

Weitz seems to be very aware of the tricky situation he's stepping into and does his best to let fans know that he's no dummy when it comes to making sure he gives them what they want to see. "I promise to remain responsive to your hopes and fears," he writes in a letter that Meyer includes in her post. 

-- Patrick Kevin Day

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Photo: Rahav Segev / For The Times

Court compels Yari Film Group's releasing unit into Chapter 11

Yari Film Group, the producer behind such films as “Crash” and “The Illusionist,” said four creditors had forced its releasing division into Chapter 11 reorganization.

"A legal procedure prompted by the actions of four creditors with disputed debts was successful in forcing YFG into involuntary bankruptcy," the company said in a statement late Friday afternoon.

The company, headed by Hollywood financier Bob Yari, said in a statement that the action left the company "with no other option but to commence substantial layoffs and to suspend its releasing activities." It is unclear how many people will be let go at Yari’s Westwood-based company.

Yari said the company's production operations are "distinct entities with separate financing which remain unaffected by the legal proceedings."

YFG said it planned to “continue without interruption” its plans to produce two movies in the first quarter of next year, “Killing Pablo,” starring Javier Bardem as narcotics kingpin Pablo Escobar, and “The Governess,” a romantic comedy with Jennifer Lopez.

The company also has at least two unreleased movies in the can, “The Maiden Heist,” a comedy starring Morgan Freeman and Christopher Walken, and “The Assassination of a High School President,” a comedy with Bruce Willis. Those films will presumably have to find new distributors.

YFG said it was moving forward with limited release of two other films for awards qualification, “What Doesn’t Kill You,” which debuted today in New York and Los Angeles, and “Nothing but the Truth,” which stars Kate Beckinsale as a journalist who is imprisoned for not giving up a news source. It will open next week.

“Our goal is to aggressively work towards reorganizing our debt so that we can become a stronger company,” Yari said in a statement.

-- Claudia Eller

Photo: Bob Yari. Credit: Frederick M. Brown / Getty Images

New York yells 'cut' on SAG strike vote

The campaign to oppose a strike authorization by members of the Screen Actors Guild got a boost today when members of the the New York Division Board of Directors issued a statement calling for their union to halt the upcoming referendum.

The New York board, which has 14 representatives on SAG's 71-member national board who have often clashed with the guild's leadership, demanded that the national board hold an emergency meeting to appoint a new negotiating task force to replace the current negotiating committee in order to jump- start contract talks with the studios that have stalled for months.

In October, the New York board members supported plans for a strike authorization if mediation failed. But they contend SAG leaders gave short shrift to mediation and that the worsening economy has now made that course of action unwise.

In its statement, the New York board said: "Negotiations failed. Then something else failed, too. The American economy. With that collapse, everything has changed. Our members and our industry are struggling through the worst economic crisis in memory. While issuing a strike authorization may have been a sensible strategy in October, we believe it is irresponsible to do so now."

Regional branches around the country, which often align with their counterparts in New York, were expected to issue similar statements opposing the strike authorization vote, guild insiders said.

The opposition underscores how deeply divided SAG is, making it tougher for union leaders to present a united front as they wage an "education campaign" to muster support for the strike authorization. Ballots will be sent out Jan. 2 and tabulated on Jan. 23, the day before the national board is scheduled to meet. A strike authorization requires 75% approval from voting members, with the board having ultimate say over whether a walkout would occur.

UPDATE: SAG President Alan Rosenberg said in a statement he was "shocked and troubled" by the New York Board's demand to cancel the strike authorization vote, noting the New York board previously supported the idea in October. But he agreed to their demand to schedule an emegency national board meeting, the purpose of which would be to discuss "the ramifications of this extraordinarily destructive and subversive action."

-- Richard Verrier

ReelzChannel cancels 'Dailies,' lays off 40 in L.A.

ReelzChannel, the cable and Web network launched two years ago to feed the seemingly insatiable appetite of movie aficionados, has canceled its flagship show, "Dailies," and laid off more than 40 people in its Los Angeles studios this week in another sign of the troubling times in media.

The Minnesota operation, owned by Hubbard Media, still employs about 125 people in Los Angeles, where the company is nearly three years into a five-year lease for space at the sprawling Los Angeles Center Studios just west of the 110 Freeway in downtown.

Reelz has been hurt by the company's business plan. Unlike a lot of cable channels, Reelz made a strategic decision to depend solely on advertising, and not cable TV subscriber fees, for revenues. The strategy was adopted to encourage cable operators to carry the channel. But the economic downturn is severely crimping advertising spending, leading to an economic crunch at the channel.

Gary Thorne, ReelzChannel's president and chief operating officer, said that instead of producing the half-hour program, "Dailies," the network would provide its entertainment news in shorter segments throughout the day.  He said the company remained "fully engaged" in its cable channel and online operation.

"We took this occasion to look at everything that we are doing to find efficiencies and make some adjustments," Thorne said.  "We don't have a crystal ball, but as we look going into 2009, it doesn't look too good."

-- Meg James

Holy DVD sales, Batman

The major promotion behind the DVD release of Warner Bros.'s summer blockbuster "The Dark Knight" appears to have worked -- at least out of the gate.

The film, which brought in $530 million in ticket sales in the U.S., sold nearly 3 million copies Tuesday, the first day of its DVD release in the United States, Canada and Britain.

"The Dark Knight's" retail reception is reminiscent of first-day sales for "The Matrix" and "Titanic" (any debut of 1 million or more units is considered a home run). At the present rate, "Dark Knight" looks to be on pace to catch Paramount Pictures' "Iron Man," which sold 7.2 million units in its first week on store shelves this year.

Hollywood has been anxiously watching home entertainment sales, as the recession deepens. Sales are off by about 2.6% this year compared to a year ago, according to Adams Media Research, with Blu-ray high definition disc purchases helping to offset some of the decline.

As much as 25% to 30% of the "Dark Knight" discs sold -- or 600,000 copies -- were purchased in the new Blu-ray high definition format. That surpasses the previous record set by  "Iron Man," which sold 260,000 Blu-ray discs upon its first day of release. Studio executives say it's a sign the format is gaining traction with consumers.

"It's encouraging," said Ron Sanders, president of Warner Home Video."The Blu-ray sales of 'Dark Knight' were exceptionally strong and much higher than our projections."

By some accounts, DVD and Blu-ray disc sales outperformed other retail categories. While overall spending on Black Friday was up 3% compared with a year ago, home video sales rose 15%, according to DEG: The Digital Entertainment Group, an industry-supported trade group. (DEG bases its estimates on surveys of retailers, studios and industry data providers).

But Nielsen VideoScan offered a more bleak assessment of Thanksgiving week, reporting that home video sales fell 8.2% compared with a year ago. However, Nielsen's data don't include sales from Wal-Mart Stores Inc., which by some accounts represents 40% of the DVD market.

Retailers did brisk business in Blu-ray players. Researcher NPD Group reported that retailers sold 150,000 players, a 300% increase from a year ago, when two incompatible high-definition disc formats were duking it out for supremacy.

Blu-ray received a tremendous retail boost from Wal-Mart, which reportedly sold out of Magnavox players priced at $128.

-- Dawn C. Chmielewski

Photo: Heath Ledger as the Joker and Christian Bale as Batman in "The Dark Knight." Credit: Stephen Vaughan / Warner Bros.

Scene Stealer: Turning Frank Langella into Richard Nixon for 'Frost/Nixon'

Though the greatest special effect of "Frost/Nixon" came from Frank Langella's haunting ability to channel the essence of disgraced former president Richard Nixon, he did have some help from hair and make-up. Hairstylist Colleen Callaghan used old pictures of Nixon and a 1977 cover of Time magazine, in particular, to work with wig-maker Favian Wigs by Natascha  in recreating the exact wave of the president's hair. The $5,000 wig, which was made from real human hair, was applied to the actor in a 45-minute process that ended with Langella transforming himself internally. "Toward the end [of the application], he would start to pull into Nixon," Callaghan says. "On the set, everyone addressed him as Mr. President."

The second key aspect to Langella's appearance was his nose, a gelatin-mold created by makeup artist David Anderson. "I created five different noses," Anderson says. "Choice 1 was basically Langella's nose with two bumps. Choice 5 was a full-blown Nixon nose, but it looked a little gross on Frank's face." The production went with Choice 4  -- something just shy of the full-size presidential schnoz. The challenge was keeping the set cool enough. "If his body temp got too high," Anderson said, "the nose would melt." Tricky indeed.

-- Patrick Kevin Day

Photo courtesy Universal Pictures

So you've called in 'gay.' Now what?

Today, December 10, 2008, has been dubbed "Day Without a Gay" by equal-rights activists. Inspired by Latino immigrants' 2006 Great American Boycott, gay activists encouraged the gay community to "call in gay" to work today, to show how central the gay community is to American society. So, great! You've called in gay. Now what?

1. Turn off your computer

Why are you reading this? JoinTheImpact.com urges people to stay off the Internet today since "advertising is everywhere and a simple page load could cause money to be spent."

Instead, catch up on your back issues of the Advocate. In the latest issue of the LGBT news magazine, comedian and ex-Mormon Chelsea Handler calls herself "a gay man trapped in a woman's body."

2. Volunteer

The "Day Without a Gay" website suggests you spend the day giving back and has a handy tool for finding local LGBT and human rights organizations.

3. Turn off the TV.

Sorry, but it's one of the rules.

Even the gay-hosted "The Ellen DeGeneres Show" is off-limits. Watch "Ellen" Thursday instead, when she interviews Courteney Cox, and Common performs with Cee-Lo.

4. Don't buy anything.

But nobody said you couldn't window shop.

If you spend today perusing the Barney's racks, chances are you'll see clothes by iconic gay designers like Marc Jacobs, who has been in the spotlight lately, appearing in magazines such as Out and Harper's Bazaar.

5. Don't go to the movies.

Going to the movies lands under the no-spending-money umbrella. Instead, make a plan to go see "Milk" with a friend Thursday, when the boycott is over.

In the new biopic, Sean Penn plays Harvey Milk, one of the first openly gay men elected to major public office in this country.

Added bonus: Director Gus Van Sant is gay.

6. Read!

It's free, and you probably have an unread book or two lying around. Then Thursday, pick up the audio book of "When You Are Engulfed in Flames."

The new book by renowned gay humorist David Sedaris is even better on CD; Sedaris reads the stories, and his comedic timing adds another layer of wit to the already hilarious prose.

Also in honor of “Call in Gay Day,” we built a photo gallery, imagining Hollywood without its many gay contributors. It's a grim picture.

-- Stephanie Lysaght

Photo credit: Getty Images (Handler and Jacobs); Jean Baptiste Mondino / Handout (Sedaris)