Peter Jackson: The Hobbit Goes To Mordor – And Wins Big

By John Bowie
It was a battle scene potentially as dramatic as anything from Lord of the Rings. Peter Jackson’s dispute with New Line Cinemas, a division of the world’s largest media monolith, Time Warner, was like a troll taking a fiercely-held belief to Mordor.

It looks like the troll won, pocketing a $40 million settlement and a lucrative deal to co-produce two “Hobbit” movies, starting pre-production next year.

Jackson settlement ends an acrimonious battle that saw him pitching himself against the largest media company in the world, Time-Warner, together with the chief of one of the most powerful film companies, Time-Warner’s New Line Cinema and their co-chairman Bob Shaye.

Luckily for Jackson he had the support of major players, like MGM’s Harry Sloan, who wanted Jackson to direct ‘The Hobbit’ over anyone else.

He also had lawyers who had previous experience in dealing with cases involving dubious Hollywood accounting practices, where profits and revenue streams can be obfuscated through a variety of accouting devices.

The lawsuit involved a so-called ‘vertical’ action, which involves the potential for a large media group like Time-Warner to secure various streams of income from different sources through publishing, films, merchandising, recordings and other entertainment media without putting the rights up to the highest bidder.

Peter Jackson’s claim was launched in 2005 when he claimed the studio had miscalculated his share of receipts from the “Lord of the Rings” trilogy, which had grossed nearly USD3 million worldwide. An application to have the lawsuit thrown out was itself thrown out by a US District Judge in September this year.

MGM’s role in the suit is its involvement with New Line in helping to finance and distribute the films, but powerful MGM chairman Harry Sloan, whose company holds the film rights to “The Hobbit” and who wanted Peter Jackson and Fran Walsh to make the movies.

An earlier example of such litigation occurred in 1999 when X-Files actor David Duchovny, now appearing in Californication, sued 20th Century Fox for his share of profits from the X-Files. A settlement occurred in 2000 with a $20 million settlement.
The lawyer in both cases was Stanton “Larry” Stein, from LA law firm Dreier Stein & Kahan, who is rated as an “A-List” entertainment litigator.

New Line’s defense was handled by mega-firm O’Melveny & Myers, who have represented the defence for a number of large entertainment companies including not only Time-Warner, but also Sony.

Under the deal agreed between Jackson and New Line and MGM, the “Hobbit” movies will be financed by New Line and MGM, the latter now being a privately owned company whose shareholders include Harry Sloan, Sony’s media division and Comcast Corp.

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