Or no Hobbits at all...

[Mister Underhill]

Originally Posted by WCH

It's not really a separate property in that both were assigned under a single contract...

Ah, this I did not know. That makes things more interesting.

Originally Posted by StW

so using the normal 50/50 theater split

This is a small point but I've mentioned it before and I'll mention it again. The distributor/exhibitor split is usually calculated according to a sliding formula that typically favors the distributor in the early weeks and the exhibitor later on. So it could be as much as 80% of receipts going to the distributor for the first few weeks. Don't know what the exact formula was for LotR, of course, but I can pretty much guarantee you it wasn't a straight fifty-fifty split.

[William Cloud Hicklin]

The idea of getting the rights taken away seems to be something that does not pass the smell test. It seems like a convenient excuse just to stop something they never liked in the first place - (Middle-earth movies which supplant the books in the minds of hundreds of millions of people) - but were powerless to change since JRRT himself sold those rights.

Can you cite a precedent where claims such as these were honored in a court of law and rights were stripped?

Thousands, if I could be bothered. Courts set aside contracts every day when there is material breach in bad faith. Don't make your car payments? Here comes the repo man.

The formula I cite (as I can glean it from the Complaint, which does not have the contract attached) provides for 7.5% of the gross. Nothing gets paid unless and until the gross reaches 260% of production costs, but when that threshhold is crossed the 7.5% is based on the whole kit and caboodle.

It is *not* subject to deductions for distribution, marketing, etc etc etc.

[Sauron the White]

WCH - This is getting very interesting. Of course, it is difficult to understand this without the legal papers in front of all of us. So I am depending on you and your inside knowledge here.

According to what you are saying, let us say that the expenses on the film were $1 billion dollars. Times 2.6 would equal a figure of $2,600,000.00. Once the gross receipts hit that level, then the Tolkien Estate gets their 7.5% of that figure and everything after that figure. Is that correct?

So if the receipts were only 2.5 billion, the Estate gets nothing because that threshold was not reached.

So no expenses are deducted from the total but are only important in figuring if the threshold to pay royalites has been reached.

Is that correct?

One more question: is there an agreement or specified listing of what constitutes both income and expenses for New Line?

Is that not what this is going to come down to? It is in the interest of the TE to get the income figure as high as possible while keeping the expense figure as low as possible. It is in the interest of NL to get the income figure as low as possible while keeping the expense figure as high as possible.

If NL can show that their end of that $4 billion revenue stream was actually only half of that in their pocket, and can demonstrate expenses that when multipled by 2.6 fall short of that threshhold, can't they make the case that there is not breach and no royalties are owed at this time due to JRRT making "a bad deal"?

from THE HOBBIT by JRR Tolkien

In ancient days they had wars with some of the dwarves, whom they accused of stealing their treasure. It is only fair to say that the dwarves gave a different account, and said they only took what was their due, for the elf-king had bargained with them to shape his raw gold and silver, and afterwards had refused to give them pay.

[William Cloud Hicklin]

I have not seen the contract. Given what little I know about the through-the-looking-glass world of showbiz accounting terms, I would expect that 'production costs' is equivalent to what the industry calls 'negative cost'- ie what it costs to shoot and assemble the finished master print of the movie, before distribution, marketing etc. The usual figure reported for the 3 PJ films is about $300M.

Again, I haven't seen the contract; it might or might not include the notorious clause under which the studio gets to use whatever bizarre accounting methods it likes.

BUT

1) In at least one famous movie-percentage case, Buchwald v. Paramount, the court found that clause to be 'outrageous' when coupled with the studio's shameless accounting practices, and threw it out.

2) This contract is governed by New York, not California, law, and NY is a real stickler for 'accepted standards of accountancy.' I wouldn't be surprised if the court ordered NL to produce its tax returns and SEC filings- in which the books have to play by tight Federal accounting rules. After all, New Line was reporting record profits to its shareholders the whole time it was claiming the movies were losing money!

3) Greenberg, Glusker is a major-league LA entertainment-law firm, and I would reckon they know exactly what they're doing. Remember, New Line ignominiously settled the previous LR-share suits it's defended; and, like Peter Jackson and Saul Zaentz and unlike most authors, the Tolkien Estate (and HarperCollins) have the money to hire bigtime lawyers and fund bigtime litigation.

4) Interestingly, the plaintiffs are not asking the court to strip New Line of the Hobbit rights- they just want a ruling that they have the right to do so. This provides some wiggle room, as in perhaps the Estate agreeing to allow some studio not connected with NL to buy the rights.

[Sauron the White]

In the absence of defined language in the contract which clearly specifies what is income and what are expenses, I would expect this is going to come down to a definition of both of those terms by armies of very well paid accountants and attorneys. I would expect NL to list every single dollar they have spent on behalf of LOTR in any capacity that it was done. I would expect them to mitigate their income by using every conceivable accounting device that they can get in under New York law, if that is the applicable standard.

In the end, I would not be surprised is NL takes the tact that yes the film did indeed make a profit and stockholders, Jackson and Zaentz did share in the profits HOWEVER the levels of profit did not meet the threshhold of that magic number times the 2.6% in the contract with JRRT.

Or perhaps we will see a out of court settlement. I expect nothing at all to happen with the demand for a stripping of rights from NL. Not one thing.

from WCH

This provides some wiggle room, as in perhaps the Estate agreeing to allow some studio not connected with NL to buy the rights

.

Why would the Estate have any voice at all in which studio gets the HOBBIT or LOTR rights if NL is stripped of them. Those rights will soon revert to Saul Zaentz who owns them and can make that decision on his own. How can the Estate get back what does not belong to them and has not belonged to them for three decades now? Saul Zaentz also claimed to be an injured party at the hands of NL and had to sue them. How can the Estate leapfrog over the rights of Zaentz when he is not the one who injured them?

Or is that what this is all about?

[William Cloud Hicklin]

Accounting terms don't exist in a vaccum*: definitions and acceptable methods are rigorously defined in the 'generally accepted accounting practices' established by the American Institute of Certified Public Accountants.

Moreover, I take 'certain specified costs' in the contract to mean that only certain expenditures can be counted.

I would be utterly *un*surprised if New Line loses the Hobbit rights or is forced to sell them. Courts generally always refuse to enforce contracts in favor of fraudsters and deadbeats.


*No, they don't exist in a cow any more than they do in an airless void

[Sauron the White]

from WCH

Accounting terms don't exist in a vaccum*: definitions and acceptable methods are rigorously defined in the 'generally accepted accounting practices' established by the American Institute of Certified Public Accountants.

If that is so cut and dry, what do these rigorously defined standards say and mean as it applies to film revenue and expenses?
Until we know that, all this is just idle speculation based on next to nothing.

Moreover, I take 'certain specified costs' in the contract to mean that only certain expenditures can be counted.

And until we know if those "certain specified costs" are listed, enumerated or defined in the contract, such statements are merely speculation.

I would be utterly *un*surprised if New Line loses the Hobbit rights or is forced to sell them. Courts generally always refuse to enforce contracts in favor of fraudsters and deadbeats.

Fraud must first be proven in a court. We are light years away from that. And even if those rights are eventually stripped from New Line, they revert to Saul Zaentz. The Tolkien Estate has no claim on Saul Zaentz.

Or is that what they are going to try to do in the end? Leapfrog over the rights of Zaentz to somehow, someway claim that they want them back?