Ring Up The Hobbit, Times Two

The settlement of Lord of the Rings director Peter Jackson's suit with New Line paves the way for MGM to start work on two prequels

The battle for Middle Earth just got a little easier. The movie version of J.R.R. Tolkien's The Hobbit, suspended in legal limbo for decades, will hit the big screen thanks to the settlement of one of Hollywood's nastiest lawsuits. And like The Lord of the Rings, Tolkien's fantasy series about dwarfs and other unworldly creatures, The Hobbit is being counted on by the studios behind it to become another larger-than-life blockbuster.

On Dec. 18, MGM announced that it will team with Time Warner's (TWX) New Line Cinema unit to make two Hobbit flicks, with the first scheduled for Christmas, 2010. "This is the major league of major-league franchises," says MGM studio Chairman Harry Sloan, who helped negotiate the lawsuit settlement needed to get the films on track.

Back in Business

To make The Hobbit, the prequel to Tolkien's Rings trilogy, Sloan needed to negotiate with New Line, which controlled the rights to The Lord of the Rings and also held some rights to The Hobbit. But New Line, having been sued by Rings director Peter Jackson in 2005 for as much as $100 million in profits he alleged he was wrongly denied, wasn't likely to join forces until it had rid itself of the litigation, according to those with knowledge of the suit. On top of that, the Lord of the Rings faithful likely wouldn't warm up to another Tolkien flick unless Jackson, who directed the prior three installments, was involved. Sound difficult to maneuver? You bet.

But where there is a will, there's a way, especially in Hollywood, where lawsuits are meant to be filed, settled, and then treated more or less as the first step in a negotiating process. So, it seemed, was the case with Peter Jackson and The Hobbit saga. New Line's two co-chairmen, Bob Shaye and Michael Lynne, say they had agreed in May, while attending the Cannes Film Festival, to try to settle the longstanding and increasingly acrimonious suit. "We decided after two years of talking through lawyers that the time had come to talk directly to Peter," says Lynne. What did it take to settle? Well, money, of course. And while Shaye and Lynne won't disclose the exact amount, you can bet it was many millions. "We wanted to be back in business with Peter," says Shaye.

No kidding. With Jackson himself becoming a cult figure, the three Tolkien films grossed nearly $3 billion at the box office, and likely as much in DVD sales, not to mention all kinds of merchandise money for Time Warner. On top of that, the special-effects masterpiece trio won 17 Academy Awards, including one for Jackson and another for Best Picture. In recent years, New Line has been looking for its next big hit, with this year's big-budget fantasy epic, The Golden Compass, so far being a dud.

Sloan Helps Woo Jackson

But to get the deal done, New Line still needed the help of Sloan, a onetime actors' attorney who had become a big-league dealmaker in 2005 when he struck a $2.5 billion deal to sell his Luxembourg-based media company, SBS Broadcasting. He's currently in the middle of rebuilding the long-suffered MGM studio, which controlled the distribution rights to The Hobbit, although New Line retained the rights to make the film. Sloan, who last year restructured a deal that returned to his studio the rights to another iconic property, the James Bond series, decided to push to make The Hobbit after having dinner with Jackson and his longtime producing partner Fran Walsh. Jackson had several ideas that impressed Sloan, the MGM chairman said, including cutting the book into two movies. "After listening to his vision for making the film, I knew there really wasn't anyone else who could make it."

Sloan took Jackson's ideas to New Line, which was in the final stage of hammering out the legal settlement with the director, says Lynne. "Harry was very helpful in getting past some of the last points," says Lynne. In a press release, Jackson, who was not available for an interview, credited Sloan "and our new friends at MGM for helping us find the common ground necessary to continue the journey."

That journey is hardly over. New Line and MGM will share the costs for making the film, which at the moment doesn't have either a director or a script. Jackson, who has a commitment to make The Lovely Bones for DreamWorks, will act as executive producer and will be the creative font for the two films that he pitched to MGM. Those films, which are likely to cost $150 million apiece, will be shot in New Zealand, where Jackson lives and runs the successful special-effects shop Weta Digital that created the creatures for The Lord of the Rings. The studios hope to start production in 2009, but that depends on how soon the current writers' strike is settled and the usual death-by-a-thousand-rewrites process of getting approval for a script for that much money. (New Line also must contend with a just-filed lawsuit from Lord of the Rings producer Saul Zaentz, who wants the studio to open its books to him, but that suit isn't likely to affect the Hobbit deal.)

Still, there are winners abounding with the announcement that the film is at long last up and, if not running, starting a slow trot. MGM gets the foreign rights, which were the most lucrative for the Lord of the Rings trilogy. New Line, desperate for its next act, gets the U.S. rights to the film. The two studios each get 50% of the proceeds, after distribution fees. MGM, in the midst of a turnaround, likely will use its foreign rights to help raise outside money to finance its half of the production costs. "It's a great day for MGM," says Sloan. It's also a swell day for Peter Jackson, who gets a pretty hefty payday even before turning his attention to Tolkien's four-foot-tall heroes.

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