Producers, PBS claim Pacific Arts owes them $2 million-plus
Baseball a home run for Turner, new video partnerOriginally published in Current, Feb. 20, 1995
By Steve Behrens
PBS and major producers have combined their legal efforts to seek more than $2.3 million from video publisher Michael Nesmith, who operated PBS Home Video for three years.
Nesmith is expected to file a countersuit [later article], and his company, Pacific Arts, has alleged, in a response to Burns's suit, that PBS violated and nullified the 1990 agreement. PBS and the producers withdrew from their deals with Pacific Arts in 1993.
Both sides have agreed that the U.S. District Court in Los Angeles should consolidate separate suits filed by Ken Burns's production companies, WGBH and WNET, Children's Television Workshop and, most recently, PBS. Judge John Davies, who presided in the second Rodney King trial, is expected to handle the combined case, and the plaintiffs have all engaged Burns's lawyers, the New York firm of Hall, Dickler, Kent, Friedman & Wood.
PBS and the producers contend that Nesmith, a video innovator, former rock star (a Monkee) and heir to the Liquid Paper correction-fluid fortune, personally guaranteed to pay overdue debts of Pacific Arts Video Publishing in exchange for rights to use the PBS logo.
Nesmith attorney Karen Dillon declined to comment on the lawsuits.
Video catalog due out from PBS
While public TV tries to reduce its losses from its partnership with Nesmith's company, since April 1994 it has moved ahead with a financially stronger retail distributor, Turner Home Entertainment.
Turner sold so many videocassettes of Burns's Baseball over the Christmas season that the release may meet its three-year goal in six months, according to Eric Sass, head of the newly renamed PBS Learning Media division that oversees home video. Sales of Civil War tapes are right on target, he said.
PBS apparently kept a line on rights to the two Burns series. In December 1993, after the network broke off with Nesmith, the PBS Board approved a guarantee of $4.5 million as a minimum payment to an unnamed "producer of two PBS series" in exchange for certain video rights for six years, according to board documents. One-third of the guarantee will be paid at the end of 1995. Sass declined to discuss the advance.
The only other PBS Home Video series yet distributed by Turner is WHYY's Dinosaurs, but Sass said Turner will release several more every month, starting this month. Among them will be Covert Bailey Fit or Fat programs; bios of Frederick Douglass, Albert Einstein and Edgar Allen Poe, "The Internet Show," Eyes on the Prize, and the Lincoln bio series that aired on ABC-TV and was put on tape by Pacific Arts. PBS holds the video rights on that Lincoln series, Sass said.
PBS will also begin mailing its first home video catalog for consumers in April--a 64-pager with about 200 titles, he said. Though the network relies on Turner for distribution of PBS-logo cassettes to stores, it retained the right to sell cassettes through direct marketing, and it will offer some PBS Home Video titles that Turner doesn't. The catalog will also list titles from dozens of other distributors, such as CBS/Fox, which outbid PBS for video rights to I, Claudius, Sass said.
A test mailing of a prototype catalog through Minnesota Public Radio's Rivertown Trading Co. subsidiary last October "had a tremendously positive impact on sales, more than anybody would believe," Sass told Current.
Later this year, probably in July, PBS plans to unveil its Home Video Club, which will operate much like a mail-order record club, he said.
Unpaid royalties, advances, reimbursements
Papers filed in the lawsuits against Nesmith and Pacific Arts indicate for the first time how much public TV may have lost in its failed relationship with them.
WGBH and WNET together claimed that Nesmith owed them more than $650,000, and CTW sought more than $250,000. In Burns's papers provided to Current, his attorneys did not name a figure.
The PBS complaint, filed Jan. 20, asked for about $1.4 million--approximately the $1.2 million that it wrote off for delinquent video payments in fiscal year 1993, giving it a net loss on home video of about $900,000 that year, according to board documents.
The network gave Nesmith the right to use its logo as well as to sell tapes of certain programs. PBS said Nesmith owes it $551,155 through March 1993 and has submitted none of the required reports since then. In addition, the company is overdue on payments of at least $443,556 for "Eat Smart," Leo Buscaglia programs and others for which PBS held video rights, plus at least $143,673 that PBS paid to stations for mail and phone orders fulfilled by Nesmith. And PBS alleged that Nesmith has not repaid $275,000 advanced to Nesmith to help it acquire rights to sell boxed sets of Eyes on the Prize.
WGBH claimed more than $250,000 from seven titles from Masterpiece Theatre and Mystery! plus more than $27,269 for American Experience: "Geronimo and the Apache Resistance."
The Boston pubcaster also alleged that Pacific Arts has distributed five Frontline programs without authorization, exceeded its rights in sublicensing seven This Old House programs, and threatens to continue distributing four House titles. WGBH further alleges it was never reimbursed more than $10,000 for clearing rights to two American Experience programs, "Last Stand at Little Big Horn" and "George Washington: The Man Who Would Not Be King" and that Pacific Arts continues to distribute them without written permission.
WNET told the court that Nesmith had failed to pay more than $400,000 due to it for 30 Nature programs.
CTW said it was still waiting for $250,000 that Pacific Arts allegedly pledged for "What Kids Want to Know About Sex and Growing Up" as well as the $70,363 in due royalties that Nesmith acknowledged in August 1993 and smaller amounts for ads in Sesame Street Parent Guide Magazine.
Nesmith's own guarantee
The lawsuits name Nesmith himself as well as his companies, based on a personal guarantee that PBS claims he gave as part of the original February 1990 contract.
CTW said in its complaint that Nesmith guaranteed "the proper payment as and when due of all amounts that become payable to rights holders" and said "that he has the personal financial ability to fulfill said guarantee and that he will honor such guarantee in the event that [Nesmith Video] fails or is unable to do so."
PBS claims the guarantee permits the network to seek fees from Nesmith himself when they are overdue, even before "exhausting its remedies" against Nesmith's company.
PBS and most producers terminated their contracts with Pacific Arts in October 1993 after months of delays in payments for royalties and advances. Video industry sources speculate that the company could not meet its obligations while waiting to recoup costs of launching a broad line of cassettes in the $20 range.
Sass points out that Ted Turner's Turner Home Entertainment is in a different class.
What pubcasters hope is that Nesmith himself still has deep pockets, too, in case Pacific Video doesn't. Even before Nesmith became a musician and video entrepreneur, his family had tens of millions from Liquid Paper, which his mother invented in the 1950s, according to the Wall Street Journal.
The family-backed Nihon Foundation uses some of that money to host biennial Council on Ideas seminars in which prominent people try to "determine and articulate the singular issue of overriding importance of our time," the Journal said.
Nesmith reply blames PBS for video label's failureOriginally published in Current, April 3, 1995
In his first detailed response to lawsuits by public broadcasters, Michael Nesmith and his video publishing companies have blamed PBS for the collapse of the first incarnation of the PBS Home Video label in 1993.
The counterclaims, including charges of fraud, are Nesmith's contribution to a legal struggle over royalties claimed by PBS and program producers. The U.S. District Court in Los Angeles on March 13 consolidated separate suits by Ken Burns' production companies, WGBH and WNET, Children's Television Workshop and PBS, according to James E. Daniels, an attorney for Burns who now represents all of the plaintiffs.
Nesmith and his companies owe more than $4 million in royalties, advances and other debts from the three-year period when he distributed the PBS Home Video line, Daniels said.
He predicted Nesmith and the public broadcasters probably will try for a settlement before trial. The trial date may be set April 24, when Judge John Davies has scheduled the next conference for attorneys in the case.
In Nesmith's counterclaim, filed Feb. 28, the California entrepreneur/singer seeks damages of $35 million or more from PBS, plus punitive damages and protection from producers' damages. He and Pacific Arts alleged that the network failed to live up to its part of the deal, drove up their costs and made it impossible to pay royalties or stay in business.
Their allegations, however, are based on "conversations that supposedly took place that are not documented and are vigorously denied by the people who supposedly had the conversations," Daniels told Current.
Who had Civil War rights?
In Nesmith's view, PBS began misrepresenting the deal in 1989, before he agreed to the distribution pact and signed a personal guarantee covering debts to public broadcasters in February 1990.
He charged that PBS brought him into the deal, telling him that the network "could convey" to him the home video rights for Ken Burns' forthcoming Civil War series. But Pacific Arts claimed that it did not learn until late 1990 that Time-Life had bought the home video rights, by which time Pac Arts had invested $2 million in marketing the series.
Pac Arts found it was "compelled to agree" to pay $1.35 million for rights to sell the series in "limited retail stores"--a price that precluded profit, according to the counterclaim.
PBS contends, however, that "it was always clear" to Nesmith that PBS did not have rights to The Civil War, according to Daniels. He said that no one expected the history series to be such a great success at the time when Nesmith and PBS signed the pact, seven months before the series aired. Time-Life held limited direct-marketing rights to sell cassettes of the series until fall 1991, according to PBS.
Nesmith said PBS required him to sign the guarantee "at the 11th hour," adopting a "take it or leave it" position. He pictures himself thereafter as PBS's victim.
Pac Arts charged that the network failed to follow through on promises to help sell the cassettes, coordinate broadcasts with home-video release dates, give Pac Arts the lists of contributors to stations, and operate an 800 number to help sell tapes.
On one error Nesmith appears to agree with the hindsights of PBS officials: that PBS Home Video developed titles more quickly than it could afford. Each side blames the other.
Instead of gradually developing the label, releasing 12 to 24 titles a year, as Nesmith had planned, PBS soon after the deal "began 'dumping' numerous titles on Pacific Arts," his counterclaim alleged. Pac Arts said it ended up releasing 143 titles before ceasing operations in its third year. Because of the unexpected pace and costs, Pac Arts said it lacked the income stream to pay royalties and buy new titles as well. PBS also required the company to pay unreasonably high advances and to pay royalties to producers of poor-selling titles, the company alleged.
"Modifications to the relationship"
The counterclaim contends that the network acknowledged causing the bad situation, agreed to enter new negotiations "in or about January of 1992" to change the deal and invest $2 million in the venture. PBS led Pac Arts to believe it had agreed on "all material points" in a new deal, the counterclaim said.
But then PBS began a series of "additional escalating last-minute concessions," including a 1993 demand that Pac Arts direct its distributor, Uni Distributing Co., to put royalties into an account controlled by PBS. Nesmith had "no reasonable choice but to acquiesce."
Daniels acknowledges that there were "discussions between Pacific Arts and PBS about possible modifications to the relationship" but that PBS had not given any assurances about changing it.
Pac Arts "didn't keep their side of the bargain," Daniels told Current.
PBS, for instance, says that Pac Arts' royalty payments to the network--for the use of the PBS logo and several programs--fell behind by $551,000 by March 1993, and after that the video company stopped providing the sales reports required by the PBS contract. In summer 1993, the PBS Board formed a committee to monitor the failing relationship.
Finally, in October 1993, shortly before the network broke off the contract with Nesmith, he alleges that the network defamed him by falsely informing producers that Pac Arts would declare bankruptcy on Oct. 12, causing them to withdraw their deals.
Now he argues that PBS has gone into "unfair competition" with Pac Arts--presumably a reference to the network's April 1994 pact with Turner Home Entertainment, the new retail distributor of PBS Home Video. PBS also has hired away former Pac Arts executive Harry Haber and several other associates, the counterclaim said.
The counterclaim begins to clarify the tangle of names and corporate entities surrounding Nesmith. Pacific Arts Corp. Inc., formerly Nesmith Enterprises Inc., did business as Pacific Arts Video. Nesmith Video Publishing Inc., did business as Pacific Arts Video Publishing. And Pacific Arts Publishing Inc. sold cassettes through catalogs and other direct-response channels.
Earlier news: PBS and producers drop Nesmith, 1993.
Later news: With his countersuit, Nesmith wins $47 million judgment against PBS, 1999.
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