New Line may get lift from ‘Hobbit’

Now that New Line Cinema and director Peter Jackson have settled their legal dispute over “The Lord of the Rings,” the movie adaptation of “The Hobbit” may finally come to life.

Tuesday’s surprise announcement that the warring parties put aside their differences is welcome news for New Line, which has seen its new fantasy genre movie, “The Golden Compass,” sputter at the U.S. box office. Hopes for a new franchise modeled after the success of “Rings” are rapidly fading.

The settlement also could boost struggling Metro-Goldwyn-Mayer Inc., which will co-finance “The Hobbit” and distribute it overseas. MGM is looking to “The Hobbit” to help revive the studio after a rocky start since it was acquired by an investor consortium three years ago.

Jackson sued New Line in 2005, claiming that he had not received a proper accounting of the first “Lord of the Rings” film’s income. The “Lord of the Rings” trilogy grossed $3 billion in worldwide ticket sales and $1 billion in domestic DVD sales.

The suit soured relations between New Line and Jackson, prompting studio Co-Chief Executive Bob Shaye to declare this year that Jackson would never work for New Line again.

Caught in the middle of the dispute was “The Hobbit,” the prelude to J.R.R. Tolkien’s book trilogy “The Lord of the Rings.” “The Hobbit” follows Bilbo Baggins as he ventures through mountains, forests and dragon lairs on a journey of self-discovery. New Line has the movie rights to the book. Jackson, who directed and co-wrote “Rings” with his wife, Fran Walsh, and Phillipa Boyens, was seen as the logical choice to make the movie.

Also caught between the bickering parties was MGM, which retained the distribution rights to the film adaptation. After struggling at the box office, MGM is in need of some traction. MGM Chairman Harry Sloan said he saw “The Hobbit” as a crucial component to giving his studio a much-needed franchise beyond the James Bond series.

In an effort to forge a settlement, Sloan invited Jackson and Walsh to dinner at his Bel-Air home to discuss “The Hobbit” nearly a year ago. Their vision of the film, which would be made in two parts, convinced Sloan that the movies could not be made without Jackson.

Putting pressure on New Line, Sloan told the studio that MGM would not sign off on any version of “The Hobbit” sans Jackson.

“From that day on MGM took the position that we had to have Peter and Fran involved,” Sloan said. “One party can sit and pout or get together and work it out. We are very grateful they were able to come together. . . .”

At April’s Cannes Film Festival, Jackson, Shaye and Michael Lynne, New Line’s other co-chief executive, spoke by phone for the first time since the Academy Award ceremony in 2004 where the third film in the trilogy, “The Lord of the Rings: The Return of the King,” won 11 Oscars.

“It was difficult, and a lot of wells got poisoned in the process,” Shaye said of the suit and its aftermath. “The phone call was ecumenical, and we began to talk creatively and substantially about ‘The Hobbit.’ ”

News of the agreement could not have come at a better time for New Line. In September, a federal magistrate fined the studio $125,000 in sanctions for failing to produce evidence of receipts in the Jackson suit.

The studio’s big expensive gamble this year, “The Golden Compass” has performed disappointingly at the U.S. box office. Although New Line says the film has done well abroad, already taking in more than $100 million, it is a tenuous time for Shaye and Lynne: Their contracts with the parent company expire next year.

“The Hobbit” films are slated for release in 2010 and 2011, but they are now hampered by the writers strike, which prevents anyone from writing the screenplay until the dispute is settled. Although details have not been worked out, the two films will have a combined budget of $300 million to $400 million -- about same as the three “Lord of the Rings” films. The studios will co-finance the pictures, with New Line handling domestic distribution and MGM distributing it overseas through its international distribution partner, News Corp.’s 20th Century Fox unit.

However, Jackson is not expected to direct the films because he is in the middle of making two movies, “The Lovely Bones” and “Tintin.” Jackson and Walsh will serve as executive producers and will have approval over all creative elements. Although no decisions have been made, Sam Raimi, director of the “Spider-Man” movies, has expressed an interest.

“Peter felt the fans have waited long enough for ‘The Hobbit,’ ” said Ken Kamins, Jackson’s manager. “It will take the better part of every day of the next four years to write, direct and produce the two Hobbit films. Given his current obligations to both ‘The Lovely Bones’ and ‘Tintin,’ waiting for Peter, Fran and Philippa to write, direct and produce ‘The Hobbit’ would require the fans to wait even longer.”

Jackson said in a statement, “I’m very pleased that we’ve been able to put our differences behind us so that we may begin a new chapter with our old friends at New Line.”

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lorenza.munoz@latimes.com