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Clause & Effect

By Stan Soocher
August 26, 2003

If a TV network makes a non-recourse loan to a production company to produce a TV series, could the production company nevertheless be required to pay back the loan? Assume that the agreement with the network provides for a license fee to the production company as well as a loan for production costs that exceed the license fee, and that the loan will be repaid only from the series' net profits. What happens if the series is never syndicated and thus earns no net profits?

This was at issue in a suit by CBS Broadcasting against the Carsey-Werner Co. over the latter's failure to secure a syndication deal for the TV series 'Cybill' starring Cybill Sheperd. CBS had ordered a minimum of 13 episodes of 'Cybill' for the 1994/1995 TV season for a per-episode license fee of $550,000, plus a non-recourse loan equal to the difference between final production cost and the license fee. Carsey Werner produced 87 episodes of 'Cybill' and CBS loaned the production company $53,325,000. Carsey-Werner began to but abandoned efforts to syndicate the series. CBS filed suit in Los Angeles Superior Court for repayment of the loan alleging negligence, and breach of the implied covenant of good faith and fair dealing. Carsey-Werner argued that a good faith effort to syndicate the series couldn't be implied because the contract didn't obligate the production company to do so. The trial court dismissed the complaint.

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