Or no Hobbits at all...

[William Cloud Hicklin]

Jacksons attorneys used a figure of $4 billion US in revenues from the films and other sources. The Tolkien Estate figure of $6 billion is a good 33% higher than that. Why the difference?

The difference between US and worldwide.

this is the first time I can remember hearing about a 7.5% profit sharing arrangement.

The existence of a percentage deal has been long known. The surprise to me at least was that it was gross rather than net- revenues not profits-- the latter being the usual Hollywood method of fobbing off authors with worthless promises. JRRT must have been too smart for that.

They want to strip New Line of the rights to both LOTR and HOBBIT. Okay. They flex some legal muscle and show they are no pansies. But if those rights go back to Saul Zaentz and he is free to sell them to anyone else, how does the Estate profit from that? What do they gain?

If the Estate succeeds in having the court set aside New Line's license, then the rights should indeed revert to Zaentz. What the Estate gains is is not having the Hobbit rights in the hands of approved chiselers who can be expected to cheat them again.

However, I suspect that that part of the complaint is a tactical maneuver, the easier to leverage judicial or third-party oversight of the Hobbit movies' books.

[Sauron the White]

WCH - the figure used by New LIne of a total of $4 billion is indeed their worldwide figure. That comes to $3 billion in film receipts and another $1 billion in DVD and ancillary sales. If you check boxofficemojo, you can see that those are worldwide figures.

Jacksons attorneys used that figure of $4 billion in the suit they had filed as the figure to figure his percentage of profit. If the estate is using a figure that is a good one-third over that one I would be interested in seeing how that was determined. The figure of 6 billion is double what the films grossed worldwide. Thats a great deal of additional income.

If you check the press releases on the lawsuit you will see that it is not a true percentage of the gross. Even the statement from the Estate mentions deductions for expenses. So expenses such as cost of making the films, cost of marketting the films and cost of DVDs will most likely come off of that figure. It is unclear as to what other things can reduce that figure.

So apparently, JRRT was wise in getting a percentage but not as wise as you may have thought when you though it was gross.

[davem]

Originally Posted by Sauron the White

If you check the press releases on the lawsuit you will see that it is not a true percentage of the gross. Even the statement from the Estate mentions deductions for expenses. So expenses such as cost of making the films, cost of marketting the films and cost of DVDs will most likely come off of that figure. It is unclear as to what other things can reduce that figure.

Yes, but...the Estate's lawyer states:

The plaintiffs are asking for at least $150m, representing 7.5% of gross revenues, after deduction of certain costs. They claim New Line excluded certain revenues from its calculations, and artificially inflated costs so that it did not have to pay the money owed to it.

Seems NL have been indulging in creative accounting - plus weren't there accusations that NL destroyed some of the accounts? If there's any truth in all that it would be down to NL to prove that they didn't make six billion!

I can see yet another out of court settlement looming. Of course, we'll be able to see how much NL shell out to the Estate if it comes to that - as a charity the Tokien Trust will have to declare all income in its accounts for this year...

[Sauron the White]

The blog by Kristin Thompson titled The Frodo Franchise has a detailed account of all this.

http://www.kristinthompson.net/blog/?p=191#more-191

She points out that there are several versions of all thedifferent claims being made and its not clear at all what terms like GROSS, and EXPENSES mean to the parties involved.

I guess that is the kind of stuff that gives lawyers very broad smiles.

from davem

If there's any truth in all that it would be down to NL to prove that they didn't make six billion!

Would not it make more sense to state this in terms of a positive? It would be up to New Line to prove what their revenues were and what their costs were. The way you state it arouses all those old cliches about proving a negative.

In the Thompson blog she seems to say that the Estate is adding up the receipts of every single thing sold from LOTR films. I guess that would include ancillary licensing like clothing, toys, statues, games, cards and the whole ball of wax. It is not clear if the estate is entitled to a percentage of those sales or just the fees that were paid to get the licenses. Usually its the fees and not all revenues on ancillary items like toys.

Of course, if Tolkiens contract had the foresight to ask for what nobody else ever has gotten, then that really would be a stroke of genius.

As I have said from the start, I hope they get every penny owed to them.

[davem]

Bit more here http://www.vfxworld.com/?sa=adv&code...=news&id=22202

including the interesting snipet

The Tolkien Trust is a U.K.-registered charity that has made grants to charitable causes all over the world totaling over $8 million in the last five years.

Anyway, I don't think either Zaentz, Jackson, the Estate or anyone outside of New Line Cinema would shed any tears if NLC lost this case & the rights to make the movies. Zaentz wants Jackson to do a Hobbit movie, but I strongly suspect that he doesn't much want NLC involved - & for all those who are annoyed or upset that a Hobbit movie might now be delayed I can only point out that there would already have been a Hobbit movie (& sequel probably) by now if NL had behaved decently from the get go.

[Mithalwen]

there is just one accountancy joke:

Client: What is 2+2?

Accountant: What do you want it to be?

I would imagine that the Estate are fairly bullish about this given the legendary scale of US legal fees and the fact that other charities have come unstuck over rights issues (DPOW Trust and the Franklin Mint...?). From what I remember of the Trusts accounts they were admirably frugal on admin so this is quite a big thing not just taking a punt with funds that could go to better things than making lawyers rich.

[Sauron the White]

After digesting all that has happened in the last 48 hours, it looks like one thing is clear: these events will cause THE HOBBIT to at least delayed. The combination of New Line and its leaders fighting within their corporate structure for the very existence and the suit by the Estate seem to indicate that there is no longer a bright green light for the next two ME movies.

Which one will shake out sooner? That would probably depend on how Warners decides to resolve the New Line as a studio situation. Reports weeks ago said that Shaye was out and yet he is still there. Reports from two weeks ago said New Line was going to be completely absorbed by Warners but the latest reports seem to say otherwise.

How much money is Warners willing to part with to settle with the Tolkien estate and get the films back on the fast track? If we use conservative figures, we see that the sum could be considerable.

Lets look at the numbers.

Th films took in $2,956,000 US dollars according to boxofficemojo.com. The lions share of that was outside of North America. In fact, some 64% of revenues came from outside. To make it easy, lets take 64% of 3 billion dollars which equals $1,923,000 dollars. New Line sold the foreign rights in many territories for less than the normal 50/50 split before the films ever came out as a way to finance and pay for them. Lets pretend that the money NL did end up with was closer to 35% of that foreign take. That would give NL $675 million dollars from foreign sales of the film.

US sales equaled just over a billion dollars, so using the normal 50/50 theater split, figure on $500 million to NL.

Add those two figures together and you get a total of $1,175,000 in their pockets. Then there is the ancillary income from things like DVD sales and licensing. Attorneys for Peter Jackson in his lawsuit said that was $1 billion dollars.

So what we have to work with is a pot of money of almost $2,200,000 more or less as money NL put in its coffers.

Now what about expenses? This is where studios always padded the books to lessen the shares of others profit participation shares. But lets use some conservative numbers.

The films had an itial budget of $270 million plus some add on costs for film pick-ups. Lets call it $300 billion for the three. Marketting and advertising costs were said to be $50 million per film for another $150 million. Thats a total of $450 million.

So take the revenue profit of $2,200,000 and subtract that figure of 450 from it and you get $1,750,000.

The Estate claims 7.5% of that which equals $131 million.

But then the lawyers really earn their money. Peter Jackson was cut in for almost $200 million dollars in profit sharing. The Weinsteins got a big chunk as did Saul Zaentz. Question: are those legitimate "expenses" which are taken off the revenue before the Estate gets their share or are they consided as after cost expenses? If NL can take another $300 million off the top of their revenue stream, that gets the revenue down to $1,450,000.00.

That would reduce the Estate share to about $109 million. And knowing how these accounting tricks worked in other cases there are all kinds of costs, both real, semi-real and totally bogus which NL will attempt to say they incurred and are legit.

Even using a worst case scenario, where NL is able to get all payments and profits sharing listed as legit and gets their so called profit down to $1.2 bilion, that would still leave the Estate claiming some $90 million US dollars. That is a great deal of money.

So even with every single possible expense being figured in and deducted from the profit calculation, the Estate is in line for about a $100 million dollar payday.

Peter Jacksons attorneys figured he was owed about that same amount. They looked to settle for about 40 cents on the dollar. Will the Estate do the same and still get the single biggest payday in the history of JRRT and his Estate? Will a check get them to back off on claimsto strip NL of rights? Or is it in the interests of the Estate to tie this up in years of litigation hoping to stop the films altogether?

[davem]

Originally Posted by Sauron the White

Will a check get them to back off on claimsto strip NL of rights? Or is it in the interests of the Estate to tie this up in years of litigation hoping to stop the films altogether?

Hmm....'Cash or kudos' as Humphrey Carpenter had it...

The Estate could accrue a lot of money from more movies - except they may not trust NLC to pay it. Its a gamble. If the only way they could get profits out of NLC for a Hobbit movie & sequel is to go through this kind of , er, hassle all over again they may feel they don't want to bother & stop NLC producing any more movies & try their luck with whoever leases the rights from Zaentz next.

[Sauron the White]

Yes, I thought of that exact same thing. Maybe one way around that is to structure some sort of contract which spells out in detail the ins and outs of the whole thing with specific dates for payment checks and some mechanism for a fairly speedy resolution of differences of opinion. The Estate has some power now in this matter and they could use it not only to benefit themselves and the charities they give to but also establish some sort of template that could open up the door for other authors in the future when it comes to profit sharing.

In past disputes over profit sharing, everyone is looking back at how much money is involved. The Estate has the advantage of also needing to look forward in this regard to the next two movies that the stuiod has announced. They could use this to the advantage of all authors, future profit sharers and strike a blow for fairness.