Actually, it doesn’t.
The Tolkien estate is notoriously conservative (in the business sense) with the rights to LOTR. After the disappointing mess that was the 1978 LOTR movie, it was decided that the books would “never” be made into a movie again. The books were a tremendous success, so why risk debasing them by allowing them to be converted into (probably terrible) movies? The books represent some of the greatest works of fantasy ever, why risk associating them with crap?
This is a pretty reasonable position, and it wasn’t easy to lure the Tolkien estate estate away from this line of thinking. Last time they agreed to make a movie they wound up with a half-finished project which strayed far from the books and was widely panned. This time around they simply never got paid.
At the end of the article we learn that Hollywood producer Saul Zaentz and Peter Jackson’s production company both had to drag New Line Cinema into court to get their rightful cut of the proceeds. It looks like the New Line Cinema policy is to not pay their bills and make people sue them for their rightful cut. That’s an unsustainable way of doing business. If you lose, you have to pay extra, plus the cost of fighting the losing lawsuit. If you win, nobody will want to do business with you in the future. As it stands, the Tolkien estate is suing not just for their money, but also to take away the rights to make “The Hobbit”, which New Line had managed to secure. If New Line loses, they lose not just a heap of money in punitive damages, but everything they could have made from The Hobbit.
I know it’s a common practice among movie companies to engage in a little creative accounting to make it look like projects never make money, but the more they gross, the harder it gets to do this. By the time your films gross 2 billion globally, it’s probably time to admit that you had some left over. I can understand trying to cheat the estate by under-paying them, but giving them nothing? There is no other way that can go but into court, with the odds strongly against New Line.
I would really love to know what New Line is thinking. It seems like they are being very short-sighted and self-destructive.
It also seems like we’re not going to be seeing The Hobbit anytime soon, if ever.
(Thanks to Davesnot for the link.)
UPDATE: Justin Alexander corrects some of the details in the comments below. The central fact remains, though: New Line didn’t just burn their bridges behind them. They burned the bridge they were standing on.