Main Line Pictures v. Kim Basinger: breach of contract lawsuit over Boxing Helena

¶ … Kim Basinger

It is difficult to see how the jury could reach an intelligent decision in this case because the defense's profit-sharing argument left so much information missing from the production costs. The jury was not given the nature of the costs: variable vs. fixed in incremental production costs for the movie; discretionary vs. non-discretionary costs, which would tend to be unreliable because the Plaintiff is the expert about them; committed vs. avoidable costs.

Based on scant testimony from the Plaintiff's expert:

Plaintiff's Minimum Damages (in $ Millions)

With Basinger

Without Basinger

Difference

Foreign Pre-Sales

Domestic Pre-Sales

Total Revenue

Production Costs

(7.60)

(4.80)

(2.80)

Profit (Loss)

(2.10)

(Albrecht, Stice, Stice, & Swain, 2008, p. 1114).

Should Main Line's maximum and minimum lost profit amounts be revised downward for the following? Why?

a. The domestic distribution revenues of $3 million because the deal had not been finalized.

No, the $3 million domestic distribution revenues, estimate of future cash flows from domestic distribution, should not be used to revise Main Line's maximum and minimum lost profit amounts downward because the deal had not been finalized. According to the narrative, the $3 million domestic distribution revenues were potential; not contractual. Consequently, they are too speculative to include in lost profit amounts (Khan, 2007, p. 9).

b. The $800,000 of foreign pre-sales because they were "probable" not actual.

Yes, the $800,000 of foreign pre-sales should be used to revise Main Line's maximum and minimum lost profit downward because, though still "probable" and therefore speculative, according to Plaintiff's expert -- unrefuted by Defendant's expert -- foreign pre-sales are relatively reliable: "[T]he foreign pre-sale markets are very well organized. They meet in well-defined places....Buyers and sellers come together. The products are there. The transactions take place. Not down in the pit the way the stock market works, but in a relatively short period of time. Information is very good." Therefore, the foreign pre-sale markets (e.g., Cannes Film Festival, American Film Market, MIFED-International Film, TV Film and Documentary Market, etc.) possess greater market efficiency [than do domestic pre-sale markets]"

c. The loss of $2.1 million on the "Without Basinger" film.

No, the loss of $2.1 million on the "Without Basinger" film should not be used to revise Main Line's maximum and minimum lost profit downward because the multiple variables contributing to that figure make it so speculative that it is meaninglessness. According to Arthur De Vany of NYU, "Kim's non-appearance is only one of immeasurably many elements of the system. The jury could no more trace the final result, in revenue or other terms, of the movie's run back to a single factor than they could trace a particle of water in a wave at the seashore to its location a mile into the ocean (De Vany, 1997, p. 19).

2. Are the following relevant to the determination of lost profits to Main Line? Why?

a. Basinger's $3 million salary for "Final Analysis."

Yes, Basinger's $3 million salary for "Final Analysis" is relevant to the determination of lost profits to Main Line. According to Khan, "Salary can [be] used as measure of box office drawing power" (Khan, 2007, p. 11), in which case a ratio of Basinger salaries vs. Fenn salaries could be used to help assess the ratio of Basinger-movie-revenues vs. Fenn-movie-revenues (Khan, 2007, p. 11). Even so, Kahn cautions that Basinger's "Final Analysis" salary might reflect Basinger's "star power synergies with [her] leading man" (Khan, 2007, p. 12), in which case that salary would not be "representative."

b. The comparison of revenues for Basinger films with revenues for Fenn films.

Yes, a comparison of revenues for Basinger films with revenues for Fenn films is relevant to the determination of lost profits to Main Line because it allows an appraisal of revenues with and without each actress (Khan, 2007, p. 7). Khan cautions, however, that the comparison should include only the movies in which the actresses played leading roles because movies in which they played supporting roles are much less accurate for attributing revenue to an actor/actress (Khan, 2007, p. 7).

De Vany disagrees with Khan's and my assessment: " Past is not future. What Ms. Basinger's other movies earned is irrelevant because "Boxing Helena," like every other movie, is unique. Taking averages over unique movies is meaningless. Further, complexity means that average revenue from the past is a poor predictor of tomorrow's outcome (De Vany, 1997, p. 20; (FAO: Agriculture and Consumer Protection).

3. Is plaintiff's expert correct in not attempting to estimate revenues for "Boxing Helena" beyond pre-sale amounts? Why?

Plaintiff's expert is correct in not attempting to estimate revenues for "Boxing Helena" beyond pre-sale amounts because there are so many variables in estimating movie revenues that the result would be meaningless. In addition to stating that Basinger's absence is only one of "immeasurably many elements" of the movie system, De Vany states, " Even if the theoretical expectation exists and can be estimated, the variance is essentially infinite. An estimate of the expectation completely lacks precision and contains no information. It is completely misleading as a forecast of the outcome" (De Vany, 1997, p. 20).

Kahn essentially agrees, stating that Defendant's attorney probably should have stalled to see the revenue results of the Fenn-movie because that "should reduce estimation errors"

(Khan, 2007, p. 5).

4. Should Main Line's lost profits be adjusted downward to include an estimate of domestic revenues for the "Without Basinger" film? Would it have been valid to use the $1.7 million advance against domestic revenues as the estimate? Explain.

No, Main Line's lost profits should not be adjusted downward to include an estimate of domestic revenues for the "Without Basinger" film because there are too many other variables in play to determine whether and to what extent the domestic revenues would have improved with Basinger. According to De Vany, "The world was a very different place when the movie was released from what it was on the date it was going to be released with Kim in it. The non-linearity of the information cascade would take the movies to very different places given even slight difference in initial conditions. (De Vany, 1997, pp. 19-20). De Vany also believes that Basinger's presence in the film may have actually hurt revenues. Her presence may have resulted in more initial screenings, harming profits in two ways: any unfavorable information would have started from a larger audience, with stronger negative publicity further reducing audiences at an even greater rate than would a Fenn movie; more initial screenings in more theaters dilutes total revenue over all those theaters, "putting more of them below the critical level at which they drop the movie (De Vany, 1997, p. 21).