New Line Must Give Tolkien Estate $100 Million in Profits

By Matthew Belloni and Eriq Gardner

Today's resolution of the litigation between New Line Cinema and the estate of author J.R.R. Tolkien (right) over “The Lord of the Rings” trilogy is shaping up as one of the biggest profit participation settlements in Hollywood history.

Two independent sources with knowledge of the deal pegged the value to the Tolkiens and co-plaintiff Harper Collins at well over $100 million.

Reps for the Tolkien estate and New Line parent Warner Bros. would not comment on the terms, citing a confidentiality agreement.

“We deeply value the contributions of the Tolkien novels to the success of our films and are pleased to have put this litigation behind us,” said Alan Horn, president and chief operating officer of Warner Bros. Entertainment.

The settlement heads off a scheduled October trial between heirs of the “Rings” author and New Line, which released film adaptations in 2001-2003. The trilogy grossed $3 billion in worldwide theatrical boxoffice, plus an estimated $3 billion from DVD, TV licensing and merchandise sales.

The deal also paves the way for Warner Bros. and MGM to move forward with two planned films based on Tolkien’s “The Hobbit,” which will be executive produced by “Rings” director Peter Jackson and directed by Guillermo del Toro.

The Tolkiens sued New Line in February 2008 claiming the family trust was paid only $62,500 for the right to make the three films and was owed 7.5 percent of gross receipts. The family initially sought $150 million but that figure was revised upward to $220 million during the litigation.

The suit echoed similar cases brought against New Line by Jackson and “Rings” producer Saul Zaentz. Those cases settled for more than $20 million apiece after both Jackson and Zaentz publicly feuded with former New Line co-topper Bob Shaye. Warners inherited the Tolkien litigation when New Line was absorbed in March 2008.

A major beneficiary of Tuesday’s settlement is the Tolkien Trust, the U.K.-based charity controlled by the family. “The Trustees regret that legal action was necessary, but are glad that this dispute has been settled on satisfactory terms that will allow the Tolkien Trust properly to pursue its charitable objectives,” trustee Christopher Tolkien said in a statement.

Tolkien lead attorney Bonnie Eskenazi said the family felt “vindicated and satisfied” with the settlement.

The nine-figure deal resolves a potentially disastrous situation for Warners and MGM on “Hobbit.” The Tolkiens argued in the litigation that New Line’s failure to pay profits was a material breach of contract, which, if proven, would allow the family to terminate a grant of rights. A hearing on that key issue was scheduled for next week.

“The Trustees acknowledge that New Line may now proceed with its proposed films of ‘The Hobbit,’ ” Christopher Tolkien said.

Jackson was also eager to move forward with the project. At Comic-Con in July, he told fans that he was close to delivering a script for the project, with budgeting and casting soon to follow.