Or no Hobbits at all...

[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.

[Mister Underhill]

As a practical matter I don't see this suit slowing down TH movies. Suits over profit-participation on successful movies are unfortunately all too common. I would be extremely surprised if the Estate could convince a judge to nullify a contract on a different property and make it stick. Of course, I'm not an entertainment lawyer, so...

In the meantime, now that the strike is over, I'd expect formal announcements of a director and a writer soon. If Del Toro becomes official, it's possible he could take on writing duties as well.

[William Cloud Hicklin]

OK, I've seen the Complaint.

Couple of interesting points:

1) JRRT's original 1969 contract with UA awarded him 7.5% of *gross* revenues (not profits, StW), after such revenues exceeded 2.6 times production costs, and after certain specified cost deductions. The $6B figure alleges $3B boxoffice and $3B video, TV and merchandising etc.

2) the $150M figure is a minimum, as in "At least $150M and probably a whole lot more;" the actual sum isn't known because New Line won't let the plaintiffs see the books. (The contract entitled JRRT to *monthly* financial reports!)

3) The plaintiffs are only seeking a court declaration that they have the *right* to terminate the Hobbit licence, not necessarily actually to terminate it (the Complaint alleges that the original contract gave JRRT the right to void it in the event of nonperformance).

4) There isn't complete detail on the creative accounting techniques, but some of those specified look familiar: especially New Line allegedly contracting services to its own subsidiaries at obscenely inflated rates. Another dodge, if New Line did it as alleged, is dead meat: subtracting out Zaentz', Miramax' and Jackson's cuts and trying to claim that what's left is 'gross.'



Given that NLC has already been sanctioned for concealing and destroying documents in the Peter Jackson suit, I expect Shaye & co are in for some very, very rough litigation. Basic Fact No. 1- these movies have generated billions of dollars, yet according to NLC 7.5% of billions somehow = zero. They don't dare let a California jury get hold of that.

Frankly they would be smart to consider selling the Hobbit rights to somebody else right now, since I don't see any way NLC or Warners could possibly proceed with it while this is pending.

[William Cloud Hicklin]

I would be extremely surprised if the Estate could convince a judge to nullify a contract on a different property

It's not really a separate property in that both were assigned under a single contract, which by its own terms JRRT could cancel in the event of material breach.

[Sauron the White]

This quibbling about I definegross versus expenses and how you define it is a matter of semantics. Gross, usually refers to every dollar taken in from day one. It allows nothing for deductions. The formula you cite allows for the costs to be deducted which is basically the same thing I explained in my post above. What you are calling GROSS is not the normal film definition of gross. But it looks like we are talking about revenues less expenses which is the important figure to determine what their 7.5% is.

In fact, by the formula you cite, basic production, marketting and distribution costs would easilly surpass $1 billion dollars.

Do you know how the contract defines or lists what you call "certain specified cost deductions"? That would seem to be all important here.

Do you really think that NL took in every penny of the $3 billion in box office receipts? Well over half of it was kept by the theaters in distribution costs. Add that to the $450 million in production costs and marketting costs and you have a tidy sum in legitimate expenses.

Consider just these three main items:
actual production cost of filming the three movies $300 million
marketting and advertising costs $150 million
cut of theaters to show the films 50 to 65% of box office revenue estimated at between $1.5 billion and almost $2 billion.
Those three figures alone add up to between $2 and 2.5 billion dollars.

You are saying that the contract allows that expense figure to be multipled by a figure of 2.6 before profits have to be shared?

And remember that the figure Jackson was using for revenue was $4 billion dollars. This Estate figure of $6 billion is a good $2 billion higher, thats 50% in addition to what the Jackson attorneys could document. Thats quite a difference not just in money but in the estimate of revenue.

I still think the amount we are talking about is more in line with 100 million or so. Unless the estate can prove their much higher revenue figures as the bas to begin calculating their percentage.
Even $100 million is a great deal of money. New Line should be ashamed for not having paid it already.

Okay - not a lawyer myself. Is not the purposes of damages to "be made whole"?
In this case, would not "whole" be what they should have gotten if the payments had been made?

As I said, I hope the Estate gets every penny legally due to it.

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?

What would the Estate have to prove in court to get that type of award? And I am NOT speaking about the money but the stripping of rights from NL.

Isn't NL simply going to claim that they did not breach the contract but the differences are merely accounting differences?