Or no Hobbits at all...

[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.