Hobbit Heirs Getting Short End of the Stick?

Hobbit Heirs are asking for $220 Million in "Rings" earnings. The heirs say New Line used classic "Hollywood Accounting," which inflated expenses and excluded revenue from its accountings denying the family of any payments at all. Hollywood accounting has long been seen as attempt by movie studios to cheat authors out of royalty payments. The allegation is that the accounting formulas they use have been designed to ensure that it is mathematically impossible for any film to show a net profit.

“Usually it’s not outright thievery by the studios, but death by contract,” Bloomberg quotes Pierce O'Donnel, the Los Angeles-based lawyer who represented the late columnist Art Buchwald in a successful case against Viacom Inc,s Paramount Pictures in 1988.

J.R.R. Tolkien sold movie rights to his “Lord of the Rings” novels 40 years ago for 7.5 percent of future receipts. Three films and $6 billion later, his heirs haven’t seen a dime from Time Warner Inc.

A jury will look at the accounting methods used by New Line Cinema, the Time Warner unit that made the movies, in October, where the lawsuit is set for trial in Los Angeles.

Studios' financial shenanigans were exposed in a lawsuit filed by writer Art Buchwald alleging that Paramount Pictures stole his script idea and turned it into the 1988 movie Coming to America starring Eddie Murphy. Buchwald won the lawsuit and was awarded damages, and then accepted a settlement from Paramount before any appeal took place.

The decision was important mainly for the court's determination in the penalty phase of the trial that Paramount used "unconscionable" means of determining how much to pay authors. Paramount claimed, and provided accounting evidence to support the claim, that despite the movie's US$350 million in revenues, it had earned no net profit, according to the definition of "net profit" in Buchwald's contract, and hence Buchwald was owed nothing.

Wikipedia states that "The court agreed with Buchwald's argument that this was "unconscionable", and therefore invalid. Fearing a loss if it appealed, and the subsequent implications of the unconscionability decision across all its other contracts, Paramount settled for undisclosed terms. The case was the subject of a 1992 book, Fatal Subtraction: The Inside Story of Buchwald v. Paramount by Pierce O'Donnell, the lawyer who represented Buchwald, and Los Angeles Times reporter Dennis McDougal"