When New Line Cinema announced that it had committed to a three-picture deal with a relatively unknown director from New Zealand to bring the epic Lord Of The Rings to the screen, people wondered whether New Line management had lost its mind. Estimates of the budget ran to $450 million, a huge investment for any film project, especially for a genre series -- a genre which had disappointed Hollywood and the box office on many previous occasions. Peter Jackson and New Line wound up winning the gamble, making three of the most successful films ever, commercially and artistically, and generating billions in revenue.

Now success appears to have brought out the worst in everyone, as so often happens in Hollywood. Jackson filed suit against New Line for cooking its books to keep millions of dollars it owes to Jackson under the terms of its deal:

What if Frodo Baggins, instead of confronting the evil empire in "The Lord of the Rings," just got himself a lawyer and sued? ...

The suit does not specify a damage award. But in an interview last week, his lawyers said that, after New Line applied its contract interpretation from "Fellowship" to the other two movies, Mr. Jackson was underpaid by as much as $100 million for the trilogy.

Lawsuits in Hollywood are as common as hobbits in Middle Earth. What makes Mr. Jackson's suit draw such widespread interest here, other than his clout in the industry and the amount at stake, is one specific allegation about New Line's behavior. The suit charges that the company used pre-emptive bidding (meaning a process closed to external parties) rather than open bidding for subsidiary rights to such things as "Lord of the Rings" books, DVD's and merchandise. Therefore, New Line received far less than market value for these rights, the suit says.

Most of those rights went to other companies in the New Line family or under the Time Warner corporate umbrella, like Warner Brothers International, Warner Records and Warner Books. So while the deals would not hurt Time Warner's bottom line, they would lower the overall gross revenues related to the film, which is the figure Mr. Jackson's percentage is based on.

This looks bad, and to a certain extent, it is bad. However, New Line needed to gather investors willing to risk a hell of a lot of capitol in order to get Jackson's production financed. To get that capital, it had to structure the deal so that the investors could get a decent return even if the performance didn't gather the audience it later did. Corporations like Time Warner and others had the deep pockets to cough up the half-billion bucks required, but they didn't do that out of a love for J.R.R. Tolkien; they wanted to make a profit, and so they insisted on the best possible terms in exchange for a lot of risk.

That doesn't mean that Jackson doesn't have a case, but it does mean that "pre-emptive bidding" isn't the fraud that the New York Times seems to paint in Ross Johnson's article. Johnson unfortunately tries to balance out the picture by anonymously quoting an attorney for New Line that goes out of his way to insult Jackson:

A litigator for New Line, speaking on the condition of anonymity because he is working on this lawsuit, said the money paid to Mr. Jackson so far is in line with the contract he signed.

"Peter Jackson is an incredible filmmaker who did the impossible on 'Lord of the Rings,' " this lawyer said. "But there's a certain piggishness involved here. New Line already gave him enough money to rebuild Baghdad, but it's still not enough for him."

If Jackson wasn't informed of the manner in which New Line structured the back end, then it's not piggishness on his part to expect to be compensated properly according to the explicit terms of his contract. That sounds like a communication issue between Jackson and New Line. However, given all the trouble that Jackson had selling this project -- most studios wouldn't touch it because of the cost -- it seems that Jackson had to be singularly naive to have expected New Line to have avoided vertical integration with its investment group.

And why is the New York Times allowing an attorney involved in the case to comment anonymously, especially to insult the plaintiff in the case? Since when does the Paper of Record allow itself to provide cover for corporate attorneys without the courage to speak on the record? Jack Shafer would also like to know how that got past the Times' editors, given that it appears to violate its editorial standards:

Whoa! That's great dish, but shouldn't there be a Times policy against giving a partisan source, in this case a defense attorney, the cover of anonymity to call the plaintiff in a case against his client piggish? As a matter of fact, there is such a published policy limiting what anonymous sources can say in Times articles. In "Confidential News Sources," on the paper's corporate Web site, the policy reads in part:

We do not grant anonymity to people who use it as cover for a personal or partisan attack. If pejorative opinions are worth reporting and cannot be specifically attributed, they may be paraphrased or described after thorough discussion between writer and editor. The vivid language of direct quotation confers an unfair advantage on a speaker or writer who hides behind the newspaper, and turns of phrase are valueless to a reader who cannot assess the source.

The cheap shot mars what is an otherwise good piece. Johnson reports that in similar "vertical integration" suits, Hollywood has negotiated settlements rather than allowing its top executives to be deposed and reveal their accounting secrets.

Shafer's right; the quote does nothing for the story except to turn the lawsuit into some sort of personal vendetta. It detracts from the fact that this problem will increasingly become a hurdle for major projects in Hollywood, where astronomical star salaries and expensive special effects require more lucrative back-end deals to get greenlighted.

Addendum: Not to expose myself as a Tolkien geek -- as if my 12-hour marathon viewing of the entire trilogy hasn't already done that -- but Johnson also betrays his lack of knowledge on Rings with this glib metaphor:

Lawsuits in Hollywood are as common as hobbits in Middle Earth.

One of the plot points encountered over and over again in The Hobbit and LotR was that hobbits weren't common at all; in fact, most of the other characters had never encountered one, except for Gandalf and a handful of the Elves. It's not a big deal, but if Ross Johnson wants to use cute little statements like that, it would be nice if he had his information correct.

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Tracked on June 28, 2005 1:08 PM