Peter Jackson sues New Line, Even at $200 million he got cheated!

Used to be that you only expected to get screwed with a piece of the net.

I don't pretend to know his motives, but exposing the creative accounting of tinseltown is a good thing, IMHO
 
Absolutely. I love that term that was used, "vertically integrated media companies". Wow, that had to be a product of the Dark Side!!! (and media ownership deregulation!).

Go Peter, go Peter, go Peter!!!
 
Sorry.

------------------------------------------------------------------------

June 27, 2005

The Lawsuit of the Rings
By ROSS JOHNSON

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

The real-life corollary is going on now in Hollywood where Peter Jackson, one of the film industry's most powerful and popular directors, is suing New Line Cinema, the subsidiary of Time Warner that financed and distributed his Oscar-winning "Lord of the Rings" film trilogy.

In his lawsuit, Mr. Jackson claimed that New Line committed fraud in its handling of the revenues generated by 2001's "The Fellowship of the Ring," and as a result, he was underpaid by millions.

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.

According to people on both sides of Mr. Jackson's lawsuit, the claim strikes at the heart of the modern vertically integrated media company. One of the apparent - though largely unproven - benefits of media integration is the ability of conglomerates like the Walt Disney Company, Time Warner, the News Corporation, Viacom, Sony and General Electric to sell subsidiary rights to the many divisions within the company.

By painting this corporate synergy as "self-dealing," Mr. Jackson's lawsuit and similar suits filed in the last few years, called vertical integration lawsuits, argue that the idea of the media conglomerate is at odds with the interests of the creative minds behind the content.

If that idea was not enough to make studio heads very nervous, Mr. Jackson's status in the business could encourage other directors and stars who take a percentage of gross revenues to look more carefully at the accounting on their films. And because deals between corporate siblings are approved at the highest levels, vertical integration lawsuits often focus on senior division executives and their sales chiefs..

Since no studio head or corporate executive wants to be subpoenaed in a lawsuit over accounting, vertical integration lawsuits are almost always settled before reaching open court.

Citing corporate policy, Richard Socarides, a New Line spokesman, declined to comment on details of the litigation, but released a statement that said, "We don't agree with plaintiff's claims, and will defend ourselves vigorously." 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."

Mr. Jackson's suit was filed on Feb. 28. In an April 29 court filing, New Line categorically denied all of his claims. Currently, both sides are sending out deposition notices, and Mr. Jackson's lawyers are preparing discovery demands allowing them to see detailed financial statements of New Line and its corporate sibling, Warner Brothers.

According to Peter Hoffman, a tax lawyer for leading Hollywood producers in the 1980's and a former chief executive of Carolco Pictures, all the legal saber rattling around claims of self-dealing and pre-emptive bidding could be avoided if studios turned the clock back and compensated stars based on net profits, not gross revenues.

"Once upon a time, Hollywood studios paid a lot of money to net profit participants, and it was a fair deal," said Mr. Hoffman, who is known in Hollywood for his knowledge of arcane deal making. "Then the studios got greedy and stopped paying, and now we have gross players who used to be net players fighting over vertical integration. The studios brought this problem on themselves."

Time Warner does not break out the revenue of feature films from total entertainment revenue in its statements, and a spokesman for New Line declined to comment on financial numbers. Mr. Jackson, who is directing a remake of "King Kong" for Universal Pictures with a budget of $150 million that includes a $20 million advance to Mr. Jackson to be applied against his share of gross revenue, was also not available for comment.

John Schulman, who since 1984 has been general counsel at Warner Brothers Entertainment, the sublicensee of many of the rights of the "Rings" film trilogy, said that the studio has never used self-dealing to cheat profit participants, and always sets any pre-emptive bid at market rates. "We value our relationship with talent, and it is in our interest to maximize profits to our participants."

The "Rings" film trilogy, produced for an aggregate $281 million, has made more than $4 billion in retail sales from worldwide film exhibition, home video, soundtracks, merchandise and television showings, and cleared more than $1 billion for New Line after payments to profit participants, according to one of Mr. Jackson's lawyers, Peter Nelson.

Thanks to escalators in the contract Mr. Jackson signed to serve as director, co-writer and co-producer of the trilogy, he reportedly receives about 20 percent of the gross revenue realized by New Line for the trilogy, minus expenses such as taxes.

Mr. Nelson declined to confirm the terms of the deal he negotiated for his client, but did state that Mr. Jackson had received almost $200 million to date from New Line for the trilogy.

One thing is certain: if it were not for Stanton Stein of the Santa Monica firm of Alschuler Grossman Stein & Kahan, life would be much easier for studio accountants.

Mr. Stein, the litigation lawyer who filed Mr. Jackson's suit against New Line, first brought a vertical integration action for the producers of the "Home Improvement" television series against Disney in 1997.

Mr. Stein, known as Larry, would later file similar suits against the Fox Television, a division of the News Corporation, for the producers of the show "Cops," and for Alan Alda and David Duchovny, the stars of the shows "M.A.S.H." and "The X-Files."

Mr. Stein's legal strategy in these lawsuits was to use a "top down" theory of insider conspiracy. According to Mr. Stein, there was only one place to point the finger of blame. "The foot soldiers inside a studio can't do this self-dealing," he said, "without the people at the top knowing what's going on."

Mr. Stein has sought to depose the News Corporation chairman, Rupert Murdoch, in all of his vertical integration lawsuits against Fox. All the suits, as well as the "Home Improvement" suit, were settled before Mr. Stein could depose a company chairman or chief executive.

"It's true I don't do trials, because if you have a good lawyer, you don't have to go to trial," Mr. Stein said. "A lot of attorneys think what I do on vertical integration litigation is easy, and they take a run at it. But if you don't know a hell of a lot about studio accounting and intellectual property law, it's amateur hour."

In the "Rings" matter, home video, television and merchandising were handled by divisions of New Line, except for certain foreign rights, which were handled by Warner Brothers. Soundtrack sales were handled by Warner Records, a Time Warner subsidiary that was recently sold to an investor group led by Edgar Bronfman.

But Mr. Socarides said some lucrative rights did not go to Time Warner companies. The pay television deal went to Starz, not Time Warner's HBO. He added that the "Rings" book trilogy remains with Houghton Mifflin, which is not a Time Warner subsidiary (although editions related to the films were released by Warner Books).

To defend itself, New Line has hired Robert Schwartz, the head of entertainment litigation at O'Melveny & Myers, who has gone against Mr. Stein in many profit participation cases.

Mr. Schwartz declined to comment on the specifics of Mr. Jackson's claims, except to say that he is accustomed to dealing with litigants "who say they're not going to settle for anything less than 100 cents on every dollar in dispute." He added that "in my experience, these are the guys who in the end walk away with a nickel on every dollar."

When told of Mr. Schwartz's comment, Mr. Nelson replied, "I'm confident that after we see all the financial records from New Line and Warner Brothers that we're trying to get to, every dollar in dispute will become four dollars."



Copyright 2005 The New York Times Company Home Privacy Policy Search Corrections XML Help Contact Us Work for Us Back to Top
 
John_Hudson said:
Can someone cut and paste the article (so those of us do not have to register wit hthe NY Times?)
Click to expand...

I love registering for that bullsh*t and to who ever lives at 1313 Mockingbird Lane, Blowme NJ.. I am sorry for all the junk mail.
 
I don't know how I feel about this. Jackson worked super hard on LOTR and he's a talented director, but he made more money than he'll ever need and got an absurd amount for King Kong, as well. And, besides, the LOTR trilogy wasn't THAT good. It was well shot, but it wasn't super duper.

DVD sales may be the one place where studios make a lot of money without giving any to directors, actors, etc. and there are indeed some mysterious and underhanded business tactics going on there. After all, DVD sales account for much more money than do box office returns, but where the money goes is sort of unknown...

But now that DVDs are really the only thing keeping Hollywood profitable, it seems a shame to attack studios in the one place where they're still strong just as box office numbers are hitting record lows. Jackson isn't the "little man" fighting the huge conglomerate as this article makes him out to be. He's super wealthy and super demanding, and he already made more money than most people dream of having.

Studios really aren't the bad guys people make them out to be. Sure, most executives are jerks, and certainly it's a pretty awful industry for some people, but the profit margins are super low so it has to be cut throat. DVD sales are definitely handled in sketchy ways, but this--and the merchandising methods mentioned here--are all that are keeping studios out of the red.

Honestly, Peter Jackson got to direct the three movies of his dreams with a huge budget, then he made ridiculous amounts of money, won an Oscar he arguably didn't deserve, and then got an unheard of paycheck for his next film and he thinks Hollywood owes him? I don't buy it.
 
Yea, it seems greedy, but sometimes it really is the principal. If you lend a guy 20 bucks and he only pays you back ten, saying that's all you gave him, what do you do? Is 10 bucks worth fighting over? It depends. If I think the guy is trying to screw me, it might be.
 
Contracts are contracts and obligations are obligations. funky accounting is not something that just happens in Hollywood. As any Enron employee. I don't think that just because he got a lot, does not mean that he should not get what is owed him. The danger of this vetical intergration of the media companies is that the project is "sold" from one division of the same company to another, yet the full value of the project, if it was sold to a third party is not "paid" and does not trickle back to the filmmaker. I think that this law suit will benifit a lot more filmmakers than just Peter Jackson. This case will be very high profile and will shed light on the accounting practices of this large media companies.

Yes, Peter Jackson is living the dream, but New Line did not do him a favor, they entered into a business relationship and must live up to their obligations.
 
The studio is "selling" the picture to themselves instead of licensing ancillary rights for secondary markets to a high-bidder. Used to be that foreign rights for distribution were sold to disparate third parties through a bid process.

Peter is right to want the studio to auction the rights to disassociated interests or at least disclose in advance that the property is going to be kept within the conglamoration at a lower rate of return. Just like any other part of his contract, it should all be spelled out in advance.

e
 
The thing is, studios sell themselves DVD rights for every single movie they make. Jackon is claiming he's special and doesn't have to play by the rules the rest of Hollywood has always played by. I agree that dvd business practices are a tad on the shady side, but this is just another examples (the first was demanding 30 million for King Kong) of Jackson's tremendous hubris.

Would I feel differently about a class action suit? Maybe. Would I feel differently if Hollywood wasn't struggling to make a profit (and dvd sales weren't the only thing allowing it to operate)? Probably. But I still think that this isn't nearly as one-sided as it's being made out to be. I haven't worked with New Line or with Jackson so I can't say who's right, but by comparing New Line to "Mordor" and Jackson to Frodo, I think the New York Times already has, and has tossed any pretensions to impartiality out the window in doing so.
 
Policar said:
The thing is, studios sell themselves DVD rights for every single movie they make.
.
Click to expand...

That is not necessarily true. As complicated as distribution accounting is, financing deals are just as complicated. The larger production companies wrangle financing from a variety of entities and with this, eventual DVD sales do not automatically go to the studio with the first title of the movie. I am sure that they all have a formula for figuring the DVD value of a movie and the true value of the deal should be paid back to the filmmakers and not artificially deflated by internal accounting practices.

Of course, Peter Jackson should have probably know how the deal was set up before going in, but I guess not. Can't wait to see how this turns out.
 
Getting screwed is getting screwed. Period.

I thin LOTR is some of the better films to come out in Hollywood in years.
 
I agree with Rosestar. New Line entered into a business agreement with him - and that's that. The movie "industry" isn't a group of inspired people, mucking in, going through the hard slog together putting everything on the line. It's a money making scheme, like any business.

Also, Peter Jackson has put shitloads of money into the NZ filmmaking industry - they more he can get and spend on it the better for us all down here :)

Aaron
 
Rosestar said:
"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."
Click to expand...

To me, that says New line is guilty. It basically says that PJ is being greedy by claiming what is his. Aren't New Line being greedy by insider dealing?

PJ is a very clever guy. Far more than he lets on. He is very manipulative too, in a big cuddly way. I should think that he has a solid case if he is taking it on.
 
But that nonsense saying they should go back to net deals? Doesn't anyone remember the accounting methods that magically showed No Net, no matter how much the film made?

Dan
 
Yeah, net sucks too! Basically any deal where the studio is trying to screw you over will suck.

If you are Spielberg or Lucas, then you can screw them back by never making one of your hugely profitable films with them again. I guess this is what PJ will do... and sue them too...

Imagine a world without money, how happy we would be!
 
I think this quote was interesting:

"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."
Click to expand...

I see, so it's ok for the corporation to be the pig? Reminds me of the old days of baseball when the owners made millions upon millions and paid the players nothing. When the players started demanding and getting paid what they were worth the owners spouted the same type of quote as above.
 
These guys are screwing themselves. P Jackson is big enough now where he can pretty much just stay in New Zealand and become his own empire. Nice sound bite there; so it's okay to screw someone if you have already given them some part of the deal.

If I owe you $100.00 for a deal and I only give you $85.00 now you're being greedy if you want the other $15.00?
 
You must log in or register to reply here.
Back
Top