A ring of mire

SO "THE LORD OF THE RINGS" made no money.

Let me amend that. The film trilogy, which grossed $2.96 billion worldwide at the box office and $3 billion or so more in DVD and ancillary markets, has not made any money for the heirs of J.R.R. Tolkien, author of the famous books.

Tolkien obviously isn't Peter Jackson, who directed the franchise, or Liv Tyler or Viggo Mortensen, who starred in it, or New Line Cinema, the studio that financed it, or Miramax, which owned the film rights for a second but couldn't get the movie made, or producer Saul Zaentz, who bought the rights in 1976. He's just the guy who dreamed up the cosmology, the whole shebang of hobbits and dwarfs, orcs, ents, wargs, trolls, whatnot. "Three rings for the Elven-kings under the sky, Seven for the Dwarf-Lords in their halls of stone, Nine for Mortal Men doomed to die, One for the Dark Lord on his dark throne." Those were old John Ronald Reuel Tolkien's words.

But he's dead, so why should Hollywood share any of the dough?

I wondered if that's what the Time Warner empire must be thinking when I waded through the lawsuit filed against New Line in February by Tolkien's children on behalf of two Tolkien trusts. There are only two Tolkien children still living -- Christopher, age 83, and Priscilla, age 79 -- and the case is not scheduled to be heard until October 2009. Days after the filing, New Line folded and became a division of Warner Bros. -- some might call that karma.

Maybe I'm naive, but I find it hard to believe that not a sliver of gold could be found in all of Middle-earth for not only the aged Tolkiens but also the charitable trust that gets 50% of their fortune and distributes money to such causes as Save the Children, the Darfur Appeal, the National Campaign for Homeless People and UNICEF.

According to their lawsuit and lawyer Bonnie Eskenazi, Tolkien licensed motion picture rights to United Artists back in 1969 for a low six-figure sum and 7.5% of the "gross receipts." Gross receipts are the money the distributor actually gets from the theaters and ancillary markets. (In the case of theatrical income, it's usually about 50% of the box-office take.) "This is a deal under which we get a percentage of the gross once an artificial break-even is reached. The artificial break-even is essentially 2.6 times the negative cost of the film," says Eskenazi.

New Line, which eventually secured the rights, was allowed to deduct some costs from its "Lord of the Rings" income such as taxes, but not the big-ticket expenses that studios like to take -- such as distribution fees or overhead, according to Eskenazi. So even with all the loot that New Line has pocketed on the films, there is not a shekel, a ducat, a baht, a euro or a dollar for some elderly Tolkiens? Eskenazi estimates the family is owed $150 million, but even that number is a little fuzzy, because according to the lawsuit the family has never been allowed to audit the second or third films.

I guess they're supposed to just trust the studio.

Eskenazi explained that the family tried to settle their dispute with New Line for years, to little avail. "There were meetings and discussions out the wazoo, but New Line was entrenched. . . . We literally have gotten not a single penny of participation. New Line has said to us that, based on their reading of the contract, it doesn't matter how much money the films make, they'll never have to pay us anything, which is impossible."

Multiple lawsuits

The Tolkiens are hardly the only ones who've had to take New Line to court to get what they see as their fair share.

In 2005, writer-director Jackson sued the studio, claiming he'd been underpaid by as much as $100 million because the company sold ancillary rights to other divisions of Warner Bros. at discounted prices, meaning there was less gross for gross-profit participants like Jackson. He also claimed he hadn't been allowed to audit the books. That suit flared into an ugly personal battle between Jackson and then New Line chieftain Bob Shaye, and at one point the judge angrily fined the New Line legal team $125,000 for failing to produce (and potentially even destroying) relevant documents and e-mails. Still, that case was ultimately settled, as everyone wanted to get back to the serious business of making the double-film "LOTR" prequel, "The Hobbit," with Jackson on board as producer.

Producer Zaentz also sued New Line -- twice. The first time he claimed the studio cheated him out of $20 million in royalties received from foreign investors. That suit was settled, and last December he sued again, claiming New Line wouldn't let him audit their books.

"It's Lord of the Lawsuits," jokes attorney Pierce O'Donnell, who famously represented humorist Art Buchwald in his victorious "Coming to America" lawsuit against Paramount. "How much have these movies grossed? Hundreds of millions of dollars? You know what they say: The most creative people in Hollywood are accountants."

Personally, I think Jackson deserves whatever he's owed, although my tears stopped flowing down my cheek when I read in the New York Times that he'd already received $200 million from New Line even before the lawsuit started. And Zaentz, who did produce Ralph Bakshi's animated "LOTR," holds the record for biggest payday earned for movies he didn't produce -- $188 million and counting.

According to the Tolkien lawsuit, part of the reason the Tolkien family has received no kwan from the films is that New Line has had to shell out so much money to previous rights holders Zaentz and Miramax (who both had 5% of the gross). New Line is including their fees in the cost of the negative, much as "a salary paid to the film's editor or gaffer."

Respectful disagreement

All of New Line's litigation has been assumed by its corporate owner, Warner Bros., which is making pains to at least sound more conciliatory. A spokesman gave us the following statement: "The Tolkien estate is currently auditing New Line's books and records for the 'Lord of the Rings' films and we are working closely with the estate's accountants and lawyers to facilitate and expedite this process. While we respectfully disagree with some of the estate's positions, we are hopeful that the dispute can be amicably resolved once the audit has been completed."

Recently, the judge in the case made a ruling that the Tolkien plaintiffs had not presented enough evidence to warrant their fraud and fiduciary claims but has given the Tolkiens a limited time to present more facts. Both sides are spinning the decision as a victory, and New Line is still on the hook for a potential $150 million in damages.

I wonder if the studio would have dared to treat Tolkien in such a cavalier manner if the author were still living. But those wiser in the ways of Hollywood explain that it's unusual for an author to share profits in the first place.

"Authors and estates rarely have the leverage and status to get a gross deal," says agent Michael Siegel, who represents Elmore Leonard and the estate of author Roald Dahl (which does get profit participation on film adaptations of his books). "It takes an extraordinary property with the right representation, and it's very rare. Even in 1969, this was the kind of property that deserved it.

"That's where the studios have wreaked havoc on the system," says Siegel, explaining that studios like to include non-negotiable clauses, which can make it hard for "this profit threshold to have been achieved. There's a tendency for authors and people around authors to feel they're especially bullied, but authors don't have the leverage that an actor or director has in a negotiation, so actors and directors are getting better definitions of gross and arrangements than authors."

Of course, the Tolkiens do have one giant club in their arsenal. Part of the remedy they're seeking is to terminate New Line's rights to Tolkien's books, including the two "Hobbit" films, which are now in the works with "Pan's Labyrinth" director Guillermo del Toro.

"I think they have every right to terminate, " says Eskenazi. "If New Line engaged in gross misconduct, which I believe they did in this case, are you forced to continue in business with them?"

Still, I bet you Warner Bros. isn't treating "Harry Potter's" J.K. Rowling this way.

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rachel.abramowitz @latimes.com

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