Or no Hobbits at all...

[davem]

http://biz.yahoo.com/ap/080211/tolki...suit.html?.v=2

- The estate of "Lord of the Rings" creator J.R.R. Tolkien is suing the film studio that released the trilogy based on his books, claiming the company failed to pay a cut of gross profits for the blockbuster films.

The writer's estate, a British charity dubbed The Tolkien Trust, and original "Lord of the Rings" publisher HarperCollins filed the lawsuit against New Line Cinema on Monday in Los Angeles Superior Court.

The lawsuit claims New Line was required to pay 7.5 percent of gross receipts from the films to Tolkien's estate and the other plaintiffs. A call to a spokesman for New Line, a unit of Time Warner Inc., was not immediately returned....

The plaintiffs seek more than $150 million in compensatory damages, unspecified punitive damages and a court order giving the Tolkien estate the right to terminate any rights New Line may have to make films based on other works by the author, including "The Hobbit."

Such an order would scuttle plans New Line has in the works to make a two-film prequel based on "The Hobbit."

Well, I thought it was funny....

[Sir Kohran]

Hold on a sec - Christopher Tolkien spends year remaining neutral on the topic of the movies and has nothing to do with them, but now the companies he is related to are demanding money from the movies? Isn't this somewhat contradictory?

Could someone better explain this, please..

[davem]

Well, it looks like New Line have tried to get out of paying the Estate & the Publisher what they're due to - mush like what seems to have happened with Jackson.

Note though - this is simply aimed at stopping New Line making any sequels...

[William Cloud Hicklin]

If the Estate is in fact legally owed millions of dollars, it would be a breach of fiduciary duty for its executors not to try to enforce payment of the debt. That's a fundamental obligation imposed by the law regardless of personal feelings.

It's worth noting that The Tolkien Trust (which holds the US copyrights of LR) is the charitable arm of the Estate.

[Quempel]

I was under the impression Tolkien sold all his rights to LoTR/Hobbit, so why is the estate getting anything at all? And if he did sell all his rights, what claim can they make to NL. Doesn't Saul Zaentz own the rights? And if anything shouldn't the estate being suing him instead of NL?

[davem]

Originally Posted by Quempel

I was under the impression Tolkien sold all his rights to LoTR, so why is the estate getting anything at all?

This report has more detail http://www.sfgate.com/cgi-bin/articl...4S35.DTL&tsp=1

Main point is:

The lawsuit claims J.R.R. Tolkien established a trust through which he signed a film deal in 1969 with United Artists. After Tolkien's death, his heirs created the charity in the author's name.

[William Cloud Hicklin]

Tolkien sold all his rights to LoTR/Hobbit, so why is the estate getting anything at all?

Well, yes, JRRT sold those rights; but the purchase price he got for them was some amount of cash up front *plus* a promised share of the income. Apparently New Line rather neglected that bit. Just like they did with Peter Jackson, and Saul Zaentz, and the actors, all of whom have had to sue New Line to get their share.

[Sauron the White]

This should be a cut and dry matter of what the contract language says the filmmakers are obligated to. Up until now, they only information I ever saw said that JRRT sold the rights for a specified cash payment. No mention of royalties or profit sharing. If the contract does include profit sharing or royalties then New Line clearly owes money to the Estate. And in that case they deserve it.

The one thing that really disturbs me is the mention of this in the story

The plaintiffs seek more than $150 million in compensatory damages, unspecified punitive damages and a court order giving the Tolkien estate the right to terminate any rights New Line may have to make films based on other works by the author, including "The Hobbit

AHHHH!!!!! So thats is then. The Estate does not want two more movies taking away all the attention that they themselves want for the books. The attention they tried to grab by agreeing to publish the CHILDREN OF HURIN as a "new book" in an obvious fraud.

If the Estate deserves money, fine.... they are entitled to it and I hope they get it. If this is just some legal ruse to abort rights that JRRT already sold and now the Estate regrets, forget them.

[William Cloud Hicklin]

The attention they tried to grab by agreeing to publish the CHILDREN OF HURIN as a "new book" in an obvious fraud.

Scurrilous and beneath contempt.


*****************

This after all is the same New Line that refused to pay PJ his cut, refused to pay Zaentz his cut, refused to pay actors their cuts......


-

[Sauron the White]

WCH - YOu are an attorney for heavens sake.
Go look up the definition of NEW in any dictionary. I defy you or your mods or your purists or the Estate themselves to show how a tale which has been on my shelf for year after year can be advertised as "the first new novel by JRRTolkien in thirty years".

Have we truly entered the age of Newspeak where words are defined by idealogy or belief instead of their true meaning.

I am abiding by the rules here 100%.
It is your post which is

Scurrilous, beneath contempt, and inappropriate on this forum.

William - you are not in a court of law and I am not on trial here. I merely posted my thoughts on the highly questionable ethical decision and business practices of being party to advertising a book as NEW when it clearly was already in existence on many of our shelves. How is that any violation of the rules here?????????????

[davem]

Originally Posted by Sauron the White

AHHHH!!!!! So thats is then. The Estate does not want two more movies taking away all the attention that they themselves want for the books. The attention they tried to grab by agreeing to publish the CHILDREN OF HURIN as a "new book" in an obvious fraud.

If the Estate deserves money, fine.... they are entitled to it and I hope they get it. If this is just some legal ruse to abort rights that JRRT already sold and now the Estate regrets, forget them.

Carefully avoiding the side argument....as I pointed out, they are not (CAN NOT) seeking to prevent a movie of TH or a possible sequel/sequels being made. They are attempting to prevent New Line Cinema making any further Tolkien movies - from the sound of it on the grounds that they haven't received the profits they are due from the LotR movies & probably wouldn't receive any profits from further movies - ie that New Line are abusing their rights & so should have those rights taken away from them.

None of this would prevent a Hobbit movie being made by someone else. I was just being a bit provocative with the thread title

EDIT Latest on the One Ring site seems to imply that New Line may be slapped down hard by Time Warner & reduced to making cheap 'n' nasty junk while leaving the blockbusters to Warner Brothers.

[Lalwendë]

Actually, according to today's news reports, they ARE seeking to halt The Hobbit from being made by New Line!

From The Grauniad:

In the complaint, the plaintiffs accuse the studio of "unabashed and insatiable greed" and of engaging in the "infamous practice of creative 'Hollywood accounting'."

Perhaps more worrying for Tolkien fans looking forward to seeing the planned Lord of the Rings prequel, The Hobbit, hit the big screen, the suit also calls for "a declaration from the Court that the plaintiffs have a right to terminate any further rights New Line may have to the Tolkien works under the agreements, including The Hobbit, due to the serious and material nature of the breach of the agreements".

http://film.guardian.co.uk/news/stor...255880,00.html

I have highlighted the most damning statement made!

EDIT:

Story from The Times: http://business.timesonline.co.uk/to...cle3354936.ece

Seems several family members are involved, plus 'two of Tolkien's children' - probably including Christopher and Priscilla.

[Mithalwen]

One thing I had been wondering generally was how long a "shelf life" the film rights had. Given that copyright on books and songs expire after a certain period of time it would seem unlikely that film rights could be held in perpetuity. Is there a general rule or would it be contract specific?

[Lalwendë]

It looks like there was a clause in the original sale which entitled the estate to a share of profits.

New Line don't sound like they're run by very clever people, do they? They've also had legal cases brought by Jackson, and by the actors, and they sold the foreign rights to The Golden Compass, which could have earned them a lot of money, especially now it's winning awards!

[Azaelia of Willowbottom]

What on earth is wrong with New Line? Lal must be right--the heads of the company must not be particularly bright. You'd think that after the actors sued, and Peter Jackson sued, they'd go through their records and make sure that everyone else had been paid their due so that they didn't get dragged back into court for the very same problem a third time. What's next? Are the gaffers and cinematographers, sound and CGI teams going to come out of the woodwork with a complaint that their contracts aren't being followed, either? Bad form, New Line.

...They must think they're above the law.

TH could still be made, just not by New Line, assuming this goes through. I'm not expecting it by 2010 anymore, that's for certain. *sigh*

[Quempel]

Ok I must be just not getting it. How can the Tolkien Estate stop the movie? They don't have the rights to the movie at all, but only rights to the profits from the movie...is this correct in my assumption?

And not that I believe NL wouldn't rip off the Estate, since they have a track record of ripping off everyone else. I am just wondering what legal leg they can stand on to claim stoppage of the The Hobbit, because it seems to me they don't have any rights to if the movie gets made, but only have rights to the profit of the movie, if and when it gets made.

My other question is this, once Christopher dies, who will be the 'Estate' that will stop the selling of the movie rights to the Sil? Because it seems that once he dies that the other children might not be such 'sticks in the mud' as it were.

[William Cloud Hicklin]

Quempel:

The doctrine invoked by the Estate (to the extent I can judge by the press reports) is that when a party to a contract breaches it materially, outrageously and in bad faith, the aggrieved party can ask the court to nullify the contract.

Let's look at it this way: suppose Farmer Jones contracts to sell this year's and next year's crop to a wholesaler. After Year 1 the wholesaler doesn't pay a penny- it's hardly unreasonable then for Farmer Jones not to give them Year 2's crop for nothing as well.

Mind you, this applies only to New Line- Saul Zaentz would still be free to license TH to any other studio. MGM/UA might be interested because they already own the distribution rights. And this other studio would be free to hire Peter Jackson if desired.


The Board of the Tolkien Estate* comprises Christopher, his wife Baillie, and JRRT's grandson Michael George Tolkien. All three appear to have the same attitude towards visual (as opposed to audio) adaptations. There's no telling in advance who might take up Christopher's vote on the board, but the most likely candidate is son Adam, whose position is also very book-centric and anti-exploitation.

*That's not strictly accurate- it's actually the board of The Tolkien Company Ltd, whereas the Estate is run by its executors, CRT and Cathleen Blackburn; and the Tolkien Trust has its own Board which includes JRRT's daughter Priscilla.

[alatar]

I don't know if it's the lawyers, accountants, the movie industry, etc (and I'm not tarring anyone who may be or be associated with such), but what fun seemingly can be had with reality in Hollywood. Remember the movie starring Eddie Murphy called Coming to America? Art Buchwald won a lawsuit against the studio as it was his idea that they stole. He was awarded damages on settlement of the appeal (or something). Anyway, the studio claimed that the movie never made a profit (though in the US alone it made $350 million), and so they could never pay up. You can read more here.

New Line may just be like everything else in that unreal world.

[Sauron the White]

I have a serious question about this development.

To what end (other than the obvious financial one) is The Tolkien Estate pursuing this? What is in it for them besides the $150 million that they feel they contractually deserve?

As I said in my first post, if the contract says they get the money then they certainly should get every penny they are owed. No problem there - at least from me. New Line has a had record of cheating nearly all concerned and it would not surprise me to find out the Tolkien Estate is in that line also.

I do find two things interesting about the money however. First, this is the first time I can remember hearing about a 7.5% profit sharing arrangement. Second, 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?

But back to my main question....... what is the Tolkien Estate really angling to do here other than collect money? 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?

Or do they then claim in court that Zaentz failed to exercise some type of due dilligence or responsibility and he too should be stripped of those rights and they should revert totally to the Estate?

Unless that is the ultimate plan and goal, I suspect that what they gain is time. It would push back the two Middle earth films a good year or two and that may be important to them. I have thought all along that what the Estate resents most about these films is their success has supplanted the books in the minds of the world when it comes to what LORD OF THE RINGS is. The Ali G skit comes to mind where he attempts to sell a British publisher on the idea of "LOTR- the books" due to the films success. Shoving these two films even further on the back burner advances their goal of no more movies at all and only having the books out there.

If I am missing something, please respond.

[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.

[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?

[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?

[William Cloud Hicklin]

It's tactical leverage. If New Line is looking at the possibility of losing the Hobbit rights and getting nothing for them, they may well be amenable to getting something for them by selling them back to Zaentz or to a third party in whose hands they would not be at risk. Once those rights are no longer connected to NLC or Warners they are out from under the cloud, and production could proceed- even using PJ if desired. MGM/UA, who already have the distribution rights, might jump all over that.