In the previous entry I linked to some new articles and interviews that appeared in a cluster on October 4 and 5. They all deal at least in part with the lawsuit that Peter Jackson brought against New Line Cinema and the implications that might have for the chances of Peter directing The Hobbit. I promised to try and unpack all this new material later. Here goes.

I’ve been commenting on the progress (or lack thereof) in these matters for just over a year now. Go the the Hobbit project category and read from the bottom up for a history of that project as covered in the media so far.

Now within a two day period we’ve had the Hollywood Reporter’s brief story on the fact that New Line has decided not to contest the $125,000 fine levied against it by the court; a long Entertainment Weekly summary of the entire history of the lawsuit and the Hobbit project; a nearly hour-long appearance by Bob Shaye and Michael Lynne, heads of New Line, on the Charlie Rose Show; and a Reuters/Hollywood Reporter story, “One ‘Rings’ Penalty to Rule Them All,” analyzing the New Line fine.

On the whole, the Hollywood Reporter stories are the only ones with substantive news. The EW story and Charlie Rose interviews essentially offer some additional evidence to support some of what I’ve been suggesting all along. That is, that the lawsuit against New Line had relatively little impact on the likelihood of the studio ultimately asking Peter to direct (or at least produce) The Hobbit. It affected the timing, to be sure, delaying such a request, but now that delay seems to be nearing an end.

Hollywood Reporter (October 4)

First, the earlier Hollywood Reporter story, by Jarrod Sarafin. On September 20 the news broke that New Line had been fined for failing to produce documents requested in Peter’s suit. (The actual ruling was dated September 18.) Now “New Line’s attorney Robert Schwartz wrote, ‘Mindful that the court’s resources are valuable and limited, New Line will neither oppose that award nor seek review’ of the order.” In my previous entry, I discussed the fine and mentioned Schwartz as the lawyer from the law firm O’Melveny & Myers, which is representing New Line in the case.

The implication of this announcement seems to be that New Line wants to get the whole affair settled without any additional delay. One might infer that the reason for this is that they wish to make an offer to Peter regarding The Hobbit. (Delays in the case would presumably not matter much if the studio were still considered that Peter is not a candidate to direct the project.)

The article also reveals (for the first time, I believe) that the case is scheduled to come to trial in January. If New Line intends to try and settle out of court in order to avoid a trial, that provides a deadline and explains the need for haste.

By the way, the article says that Peter would be “wrapping” The Lovely Bones at about the time the case is being tried (if it comes to court). True perhaps of principal photography, but Peter is always deeply involved in the post-production work on his films (editing, sound mixing, special effects). He would not feel free to drop that project and devote himself solely to pre-production on The Hobbit. Still, perhaps some design work and planning of the script could start fairly soon.

Entertainment Weekly (cover date October 12, street date October 5)

This article, lengthy though it is, basically summarizes what we already know and adds a few details gleaned from sources within the film industry and New Line. On the issue of the studio’s accounting practices, for example, “Two sources close to the production recall a principal player receiving a merchandising residual check for 45 cents.”

The author does briefly mention one of the key issues in the lawsuit: “In several instances, New Line struck deals with companies within the Time Warner family, such as Warner Bros. Records and the TBS cable network. If Jackson can show that New Line could have signed more profitable deals with outside companies, he might be able to demand some significant lost revenue.”

This is the issue I discussed in my September 23 entry as a “vertical integration” lawsuit.

EW also mentions the fact that New Line only has the production rights for The Hobbit for a limited length of time. “Most insiders guess it’s 2010. To make the movie then, New Line would have to renegotiate—assuming Zaentz would want to do business with them again—on much more expensive terms and with plenty of competition from other studios. And there might be another deadline: Shaye and studio co-chair Michael Lynne reportedly have only until late 2008, when their contracts with New Line are said to expire.” I’ve also seen 2009 listed as a time when the rights might revert to Zaentz.

Whether the expiration of Shaye’s and Lynne’s contracts is relevant is another matter. Given the facts that Shaye founded the studio and that he and Lynne have overall had a good track record, it seems farfetched that Time Warner would oust them. Besides, a film of The Hobbit would be lucky to begin principal photography by late 2008 even if a settlement comes soon.

All in all, then, the EW summary contains little that would be new to those who have been paying close attention to internet coverage and in particular reading my series of entries on the subject.

The Charlie Rose Show (October 4 but taped months earlier)

Bob Shaye and Michael Lynne are the guests for the full program, which runs about 54 minutes. The occasion is the fortieth anniversary of New Line Cinema, which Shaye founded as a tiny distribution company in 1967.

The early part of the show is pretty tame, with Rose lobbed softball questions at his guests, who make generalizations about New Line’s philosophy of filmmaking and so on. Things pick up about 22 minutes in when they start talking specifics. There’s an interesting discussion of the budget for LOTR, which basically confirms the claim in The Frodo Franchise that the film’s budget was largely raised by means of pre-sales to international distributors and sales of licenses for ancillary products. (Here Lynne claims the whole $300 million-plus was covered in this way, but at the time Variety reported that New Line was at risk for 20% of the budget.)

Late in the program (about 47 minutes in), the subject turns to Peter Jackson and The Hobbit.

Although the Rose episode was aired on October 4, it must have been recorded months earlier. There are references to Hairspray and Rush Hour 3, both New Line films, as yet to be released. (They came out on July 20 and August 10 respectively.) Even Spider-Man, which came out on May 4, must have been early in its run, since Lynne at one point says that it will make a lot of money.

So the pair’s comments were made well before the September 18 court ruling fined New Line Cinema $125,000 for withholding documents. From Rose’s question about a rumor that Sam Raimi would direct The Hobbit, it may have been taped in May or June, when such an idea was a hot topic. That was the period when Shaye and especially Lynne were just starting to back away from Shaye’s January claim that Peter would never direct a film for New Line. I reported on that in my June 10 entry.

Not surprisingly Shaye is defensive when asked about Peter’s lawsuit:

It’s all about money, initially. The misconception, which I obviously did take a little personally, that for some reason, either me or Michael or New Line has something to gain from duplicity in accounting. Totally, completely not true. There’s very often disagreement about language when a profit participant comes in to audit a film company. We welcome audits. We cooperate with them. We sit down with the lawyers from the opposite side. We discuss things. We talk about precedent. We analyze language. Sometimes we go to mediation. I don’t think we’ve ever been sued by anybody because we’ve always settled.

I think when Shaye says the company has never been sued, he means that no suit (of which there have been several against New Line) has ever come to court. If New Line does not settle with Peter in this case, it is apparently due to go to court in January. Thus if New Line follows its standard practice, we should hear about a settlement by the end of the year.

When Rose points about that Shaye said that Peter would never direct another film for New Line, Shaye backs off from that statement somewhat: “I said things in a moment of emotion. As you asked before, I’m not all emotion. I’m some reason.” That doesn’t go any further, if as far as, some of his published remarks this past spring.

Lynne jumps in quickly:

Not to step on the toes, but the truth is, whatever Bob said, from that point of view, was really Bob’s statement. New Line hasn’t taken a position on that thought and doesn’t take a position on that thought.

We have a disagreement with Peter about auditing. It happens a lot. It ought to be resolvable. What happens in going forward in terms of working together or not, the future will tell.

Here I think Lynne is going a bit further, or at least being more explicit, in suggesting that New Line wants to resolve the lawsuit and might work with Peter again despite Shaye’s January statement.

Both mention one thing that I have stressed: such lawsuits are common in Hollywood.

Rose goes on to mention The Hobbit. He refers to a story that’s “out there” about Sam Raimi being the studio’s choice to replace Peter as the project’s director. The resulting conversation runs like this:

Lynne: You know, we haven’t really officially said that. [Others laugh.]

Shaye, pointing at Rose: You said it.

Lynne: That’s the truth. You just said it, and I’m sure you read it somewhere. I read it also.

Rose: And by the way, Spider-Man does pretty well, doesn’t it?

Lynne: Spider-Man is going to do great, and Sam Raimi is a wonderful director, and by the way, so is Peter Jackson. I don’t think that’s a resolved issue at all. One way or another—

Rose: It sounds like you are saying, “We may be able to solve this problem.”

Lynne: I’m not saying it either way. I don’t know the answer to that question. But as we sit here today, we’re really not committed one way or another. There’s nothing official about which way we’re going. I think there’s lot of rumors in our industry. There always are. There’s more than one person who could direct The Hobbit. You said Sam Raimi. He certainly could direct it. Peter Jackson certainly could direct it. There’s another list, probably. It’s not that there’s just one person.

I don’t think this tells us anything we couldn’t have inferred before—and in fact I have inferred all this on this blog. But Lynne’s suggestion that Peter is on a “list” to direct The Hobbit is probably the most explicit statement to that effect so far.

Similarly, Lynne’s sentence “One way or another,” which is interrupted, probably was going to be something to the effect of “One way or another, we will make The Hobbit.” Given the amount of fan speculation about whether New Line would ever let the production rights revert back to Saul Zaentz, I think this is pretty clear. It would be lunacy to let that happen, and Shaye and Lynne both know it.

Much has happened since this interview was recorded. Perhaps most significantly, the court has fined the studio for withholding and possibly destroying documents. As I have pointed out, the suit is not so much about whether, as Shaye denies above, New Line simply practiced “creative bookkeeping” to give Peter a lower percentage of box-office takings than he was owed. To a considerable extent, it’s about “vertical integration” practices whereby companies sell rights and licenses to other companies within the same huge conglomerate. They offer lower prices than if they had put these things up for open competition among other companies and hence pay less money to any participant (e.g., Peter Jackson) than he might otherwise get. Such selling practices might be handled in a perfectly straightforward way in the accounting, but they still would deprive such a participant of money.

The interview with Charlie Rose thus mainly adds more evidence for the belief that New Line is still negotiating with Peter Jackson and might well offer him the opportunity to direct The Hobbit.

The Hollywood Reporter/Reuters (via Yahoo! News, October 5)

This story, by Matthew Belloni, contains some genuinely new information. A previous report on the court ruling that imposed the $125,000 fine referred to Judge Hillman’s tone as “often angry.” The quotation in the first paragraph below gives a good idea of that tone.

To many of us outside the industry, the amount of the fine seemed low compared to the tens, possibly hundreds, of millions of dollars at issue. Belloni’s article makes it clear that the fine is a stiff one compared to the sanctions in other comparable rulings. The cost of paying a document-retrieval service to delve into the computers at New Line could in fact be distinctly more expensive.

The 40-page, strongly worded ruling by U.S. Magistrate Stephen Hillman says New Line may have destroyed key documents and was “haphazard” in its efforts to track down files and e-mails requested for more than a year by Jackson’s legal team. Its “repeated and unequivocal certifications that it has fully complied with the court’s discovery orders have been seriously misleading and obfuscatory,” the magistrate wrote in the September 18 order.

For a complex entertainment case, where lawyer gamesmanship over access to documents and witnesses is fairly common, Hillman’s language and the amount of the penalty are striking. “It’s almost unheard of,” says litigator Neville Johnson, who frequently tangles with studios. “You rarely see sanctions, and you certainly don’t see sanctions that high.”

The penalty will hardly break the studio’s bank, but it’s a setback for New Line and its lawyers at the O’Melveny & Myers firm. In addition to angering the magistrate presiding over a closely watched case worth millions to the struggling mini-major, the studio was given a tight deadline of Tuesday to turn over the requested materials and hire an outside retrieval service to scan internal electronic files for relevant documents and e-mails, a labor-intensive job that could cost as much as $1 million. (A New Line spokesperson declined to comment on the case. Its lawyers didn’t return calls but filed papers this week saying their client believes it acted in good faith but won’t appeal the sanctions award.)

From the start of this case, Jackson and his team have been an unusually prickly thorn in New Line’s side. They’re an aggressive, well-financed fellowship that includes manager Ken Kamins, transaction lawyer Peter Nelson and a litigation team headed by Steve Marenberg at Irell & Manella.

In my September 23 entry, I pointed out that the lawsuit only deals with The Fellowship of the Ring. The same issues would apply to the two other parts of the trilogy. Belloni’s article mentions the same thing: “And let’s not forget that this lawsuit concerns only the first ‘Rings’ film. Any settlement probably would have to cover Jackson’s identical claims on the other two blockbusters.”

[Added October 9: For information on Steve Marenberg, see Irell & Manella's corporate website; for Peter Nelson, see this Variety story.]

Given that Peter’s lawyers have finally mentioned $100 million as their estimate of the sum involved just for the first film, the settlement could grow to astronomical proportions. Still, more and more it looks as if New Line may soon bite the bullet and settle the case out of court, avoiding a protracted struggle which they might lose anyway.

None of this news and discussion deals with whether Peter still wants to direct The Hobbit. One might imagine that the long struggle over the lawsuit has soured him on the franchise. Certainly we know that he has other options for future directorial jobs.

Still, as I argued just over a year ago, Peter seems to have kept his schedule flexible, despite the various producing tasks he has undertaken and the options he holds on literary sources for possible adaptation. He may have planned all these with an eye to shuffling his projects to make room for The Hobbit.

It would certainly a huge, time-consuming undertaking, especially if the idea that MGM floated of adapting the novel in two parts becomes reality. Still, in August Peter and partner Fran Walsh issued a statement: “Peter and Fran have always wanted to do The Hobbit but whether that happens is yet to be decided.” It sounds like they’re ready, and they are well aware that their fans are, to say the least, eager to hear that they will be making the film.

[Added October 10: A little more information can be found in my subsequent entry.]

[Added October 10:  Anne Thompson's Variety. com blog comments briefly on this recent news.]