I wrote this piece on the corporate machinations behind Peter Jackson's movies of The Lord of the Rings a few months ago because I was trying (unsuccessfully) to impress someone. As The Two Towers is being released in a couple of weeks, and as a reasonable amount of effort went into writing it, I might as well blog it for public consumption

This is the story of how the corporate downsizing of AOL Time Warner led to a mad New Zealander making three movies of JRR Tolkien's The Lord of the Rings, the first of which was enormously successful, as undoubtedly will be the other two. A little of this story is supposition, although I think it is mostly pretty much true. There may be lessons for all of this in this story, although I am not quite sure what they are.

However, some background is necessary for it all to make sense.

One piece of background : in Hollywood, it is quite common for a film studio to fund early development of a motion picture, so that a script is written, a producer and director are hired, and maybe even actors are cast, and then to decide at the last minute that it does not want to make the film after all. In this instance, the film is put into a limbo that Hollywood calls 'turnaround'. This usually means that the producer is given a few weeks in which he can offer the movie to other studios. If in that time he can find another studio that wants to make the movie, then the first studio gives up the movie - usually after the second studio pays back the preproduction costs that the first studio has already spent. If the producer cannot find a studio that wants to make the movie, then the rights to the movie remain with the first studio. (Sometimes the reason that the studio declines to make the movie in the first place is because they are unhappy with the people attached to it, and their hope is that after the rights revert to them they can assign other people to make the movie. However, this is a risky strategy because if another studio decides they do like the project, a studio can lose the right to make a movie. This can be particularly annoying if after the movie is picked up by another studio it makes hundreds of millions of dollars and wins multiple Academy Awards).

A second pice of background: over the years many, many organisations have attempted to set up new, independent film studios. Often these have been companies that were involved in some other part of the media or entertainment business who wanted to make movies as well. Some of these have gone bankrupt, but in recent years, many of them have encountered another, more peculiar fate. Typically the parent company of the new, smaller studio, has been purchased by a large media conglomerate that already owned a larger Hollywood studio and had no use for the newer and smaller studio, and the newer studio has simply been merged into the larger studio. Sometime this has happened the moment the parent company has been acquired. On other occasions it has not happened until the smaller studio has made a misstep (which in such a hit or miss business as movies always happens pretty soon) or until the larger conglomerate has some more general restructuring.

A third piece of background: when producers are unable to obtain the entire cost of making a process called "presale of foreign rights" often takes place. In this case, the producers (or the studio who is going to distribute it in the US) shop the movie around to the companies who would distribute the movie in foreign countries and ask them to put up part of the budget. In return they will get the rights to distribute the movie in their country plus a share of the profits that would normally go to the studio that financed the picture. If this works well, about two thirds of the budget of a movie can be raised this way. There are some production companies (eg Peter Guber's Mandalay Entertainment) that specialise in making films this way.

In any event, in 1995 20th Century Fox decided at the last moment that it did not want to make "The English Patient", allegedly because Fox wanted Kristin Scott Thomas to be replaced by Demi Moore in the lead female role. (Yes, really.). The movie was placed in turnaround, and producer Saul Zaentz went looking for another studio. The film was picked up by Harvey Weinstein of Miramax pictures, which has quite a good record of picking up pictures that other studios have put into turnaround and turning them into hits. (Pulp Fiction and Good Will Hunting are two other examples). Inevitably the film made enormous amounts of money and won a pile of Academy Awards.

Miramax also had a relationship with New Zealand director Peter Jackson, having distributed his arthouse hit "Heavenly Creatures" in the US. Jackson had also made an assortment of appalling (but in a good way) splatter movies like Brain Dead and Bad Taste. Jackson had a burning desire to make a film of Tolkien's The Lord of the Rings. Saul Zaentz had produced the previous animated film of The Lord of the Rings in 1978, and still owned the film rights. As Miramax had bailed Zaentz out on The English Patient, Weinstein was able to call in a favour and persuade Zaentz to sell the rights to Miramax. Peter Jackson started working on the film, and Weinstein then went to Michael Eisner, boss of Miramax's corporate parent Disney, to ask for the money to produce The Lord of The Rings. Jackson intended to make The Lord of the Rings as two movies, shot entirely in New Zealand with his New Zealand crew and using a special effects house that he owned which was based in New Zealand. Jackson had never made a film on anything like this scale before, but was a filmmaker of obvious talent. (That said, his first Hollywood film, The Frighteners starring Michael J Fox, had been a failure).

The Lord of The Rings was going to be very expensive to make in the multi-film way that Peter Jackson wanted to make it, and Eisner balked and would not provide Miramax with the money to make the films. Therfore, the project was placed in turnaround and Peter Jackson was given the right to offer it to other studios. Apparently, Harvey Weinstein expected that Jackson would be unable to find a taker, and that the rights would revert to Miramax and the film could be made as a single film on a lower budget with another director.

It appeared that this would come to pass, as initially the project was passed on by all the major studios. On the last day he had, Jackson had only two studios left to go to. These were Polygram Filmed Entertainment and New Line Cinema. Both of these were not traditional studios but more recent attempts to create new studios. Polygram was a spinoff of the Anglo-Dutch music company of the same name, which was based in London and while small, had put together a good bunch of films and was on the brink of profitability. The people at Polygram liked the proposal, but said they wouldn't be able to raise the money. (In fact, Polygram had just been bought by Universal who had wanted its music assets, and the film division was about to be merged into Universal studios, although this infrormation wasn't yet public). The last studio on the list was therefore New Line Cinema.

New Line Cinema was company that had been founded by a man named Bob Shaye (known as one of the more obnoxious people in Hollywood, and notorious for once having sex in public at a Hollywood party, but I digress) to produce and sell what is known in Hollywood as "genre films": relatively low budget pictures aimed at a specific audience. (The Friday 13th films and the Nightmare on Elm Street films basically made the company). It had later moved into more upmarket projects with some success (Austin Powers, Rush Hour) and some failure (Last Man Standing, The Long Kiss Goodnight). In any event, the company had been bought by Ted Turner in the early 1990s as part of his efforts to turn his largely cable television interests into a full scale media empire. In 1996, he gave up on this and sold his entire business to Time Warner, who wanted the cable television interests and the various old film libraries he had bought over the years. Time Warner was not especially interested in the filmmaking interests, as they owned Warner Bros already. The two other filmmaking businesses that had been owned by Turner (Castle Rock Entertainment and Turner Films) were merged into Warner Bros, and for a while New Line Cinema was supposedly for sale. However, Warners did not find a buyer at the price they were asking. New Line was not merged with Warner Bros, supposedly because their cultures were too different. (Presumably Warner executives did not go for having sex in public). But, if you were Bob Shaye, you would have felt threatened.

In any event, in 1998 Bob Shaye was visisted by a mad New Zealander who had the rights to make a two films of the Lord of the Rings, but he had to direct and the films had to be made in New Zealand. Shaye was apparently a big fan of the Lord of the Rings himself, and was quite impressed by what Jackson brought him. However, it was brought to him on a take it or leave it basis. He couldn't choose the director or the locations or very much about the movie himself. Taking on such a big project with such an inexperienced director was an enormous risk, and one suspects he wouldn't have taken it if it was not for the Time Warner factor. Time Warner was eventually going to merge his company into Warner Bros, or massively downsize it, or close it, or something like that. (This has happened to every other studio that has got into this position). For this reason, Shaye seems to have said "To hell with it" and told Jackson that yes, he wanted to make the movie. He seems to have not only had the urge to take the project, but also one to raise the stakes while he was at it. He took the project, but as three movies instead of two. Since there are three books there is a certain logic behind this, but it was still a bold move.

New Line initially announced a budget of $150m for the three movies, and presold the foreign rights to small distributors around the world to raise most of the money. This budget is way too small for three movies of that magnitude, and it seems that Shaye knew that and was just lowballing the figure to keep Time Warner happy. As the films were made Shaye kept raising the stakes further and the budget crept up, with the final budget ended up at $270m. By current Hollywood standards, even this is not an excessive budget for three movies of this scale, and the budget was kept down by the low costs of making the films in New Zealand and the use of mid-list actors rather than big stars.(There were rumours that Keanu Reeves would be cast as Strider for a while, but this did not happen). However, it is a lot of risk, because if the first film had bombed, the money would already have been spent on the other two movies, which would in that case have been certain flops. The point seems to be that right from the beginning Shaye knew he was betting his company on the films. He knew what was coming. If he just allowed the corporate machinations to take place he was gone anyway, so he decided to make the film he wanted to make and go out in a blaze of glory.

And Time Warner did of course get into a mess. It merged with AOL, got caught in the dot com crash, hit the worst advertising market in some time etc etc. In 2001, it started slashing and burning divisions which were seen as non-core. Warner Bros, which was 'core' (although very badly managed) did not suffer any job cuts, but New Line, which was less 'core' was forced to cut staff numbers by 20%. Bob Shaye was told that he could no longer greenlight any movies with budgets over $50m. It seemed pretty clear that before long New Line would be gone as an independent entity.

But, as this happened, New Line had bet the company on the Lord of the Rings. And The the first Lord of the Rings movie turned out to be an enormous hit. The profits from the three movies will end up being in the billions of dollars. The decision to make three movies instead of two or one turns out to be a big positive, as this way everyone will buy three cinema tickets and three DVDs instead of one of each. (Or in the really fanatical cases, thay will buy 150 tickets instead of 50, and nine different special edition DVDs instead of 3). New Line is safe as an independent entity for now. (In the long run it is probably still doomed, as all this is likely to be forgotten next time there is a misstep).

But, for now, some stories can have happy endings. (At least one insane bearded New Zealander is now insanely rich. And I think a world in which insane bearded New Zealanders can become insanely rich by making ludicrously over-ambitious movies is better than one where this is not the case). As to how Harvey Weinstein feels about having his project go into turnaround and make large sums of money for another studio (and some Academy Awards, although not as many as the English Patient) I do not know, although I can guess.

Erratum: The person who had sex in public at a party was actually former president of New Line Cinema Michael De Luca, and not Bob Shaye. While the basic point - that New Line Cinema has at times been a pretty wild place - remains true, I regret the error and apologise to Mr Shaye.