The war of the wizards
“Lord of the Rings” vs. “Harry Potter”! The inside story of how a pair of AOL Time Warner movie studios are facing off with the two biggest movie releases of the new millennium.
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By Chris Petrikin

Nov. 15, 2001 In May, a group of executives from AOL Time Warner took a break from meetings at their New York offices to watch a 26-minute promo reel. It was their first substantive glimpse of the company’s $300 million gamble on a three-part film version of J.R.R. Tolkien’s “The Lord of the Rings.”

The AOL TW chiefs watched as images flickered by of charming but less-than-earthshaking footage of the pastoral life of hobbits in a glimmering shire set in preindustrial Middle Earth; but then sat engrossed at a thrilling battle as members of the titular “Fellowship of the Ring” (which included actor Elijah Wood, reduced on screen into a 3-foot, hairy-footed hobbit, Frodo; Ian McKellen as the towering wizard, Gandalf the Gray; and Viggo Mortensen’s warrior prince, Aragon) are attacked by an evil balrog in the Mines of Moria, and then desperately jump to safety from a towering stone footbridge. The reel ended with an impressively disparate quick run-through of scenes from all three of the forthcoming films.

Robert Shaye, the chairman and CEO of New Line Cinema — one of AOL TW’s two major film production and distribution units — had brought the footage to New York after its gleeful debut at the Cannes Film Festival just days before. Also in the room were a smattering of AOL TW bigwigs, including CEO Gerald Levin and top deputies Richard Parsons and Robert Pittman, and Warner Bros. studio heads Alan Horn and Barry Meyer.

None of them was there because of an abiding fascination with J.R.R. Tolkien. Warner Brothers — the blue-chip Hollywood studio that for years was synonymous with Clint Eastwood, private planes and blockbusters like “Batman” and “Lethal Weapon” — had escaped nearly unscathed during the first round of cuts that had hit the conglomerate in the wake of the 2000 merger that made it the biggest media company in the world.

The comparatively blue-collar New Line — the scrappy division that had made Freddy Krueger and Ninja Turtles iconic figures of pop culture — had not been so lucky. Shaye had recently been forced to cut New Line’s staff by nearly 20 percent and been told to return to making lower-budgeted genre movies.
At the time of the meeting, AOL TW executives had been closely following the parallel progress of “Lord of the Rings” and Warners’ own wizard tale, “Harry Potter and the Sorcerer’s Stone.” Warners, true to form, had the safer bet: Chris Columbus was bringing his $125 million-plus vision of British author J.K. Rowling’s novel to the big screen.

Some estimates put the budget as high as $150 million, but Columbus is the treacly, highly commercial director of massive hits like “Home Alone” and “Mrs. Doubtfire,” and the kid-lit juggernaut looked to be fireproof financially, no matter who directed it; handled with sufficient care, it could be turned into a lucrative franchise for years.

Meanwhile, New Line had an unprecedented, astonishing $300 million riding on a three-part adaptation on Tolkien’s abidingly popular but somewhat dated fantasy novels. The three films have been simultaneously shot over a 14-month period by Peter Jackson, the New Zealand director whose only previous studio-backed film was a 1996 bust, “The Frighteners,” starring Michael J. Fox.

It looked like the holiday season was shaping up to be an internecine War of the Wizards between “Harry Potter” and “Lord of the Rings”; but any rivalry that may have been brewing took a back seat to increased pressure for New Line just to stay alive in the new AOL Time Warner complex. Much more was at stake than bragging rights over whose box-office wand was bigger.

The “Lord of The Rings” trailer played well during the New York get-together, and as the lights came up in the executive screening room, the corporate chieftains were elated (or relieved). Shaye and his New Line contingent, glowing in the approbation, got a glimpse of what it was like to be the favored child — if only for a short time.

That moment might have been a little brother’s last chance for swaggering. Smart money in Hollywood and Wall Street has been that “Harry Potter,” coming out the Friday before Thanksgiving, is as close to a sure thing as Hollywood gets. For the New Line execs, however, the future is more uncertain. The first “Lord of the Rings” episode, “The Fellowship of the Ring,” arrives Dec. 19. That will be when they find out whether those 26 minutes were a peek at the next “Star Wars” — or the next “Willow.”

“‘Lord of the Rings’ is a cultural event and I can hardly wait to see it,” says Tom Pollock, the former chairman of Universal Pictures, summing up the conventional wisdom in town. “But if I could own 5 percent of one of these films, either ‘Harry Potter’ or ‘Lord of the Rings,’ there’s no question which one I’d want: ‘Harry Potter.’ If it’s good, it will be one of the biggest films of all time.”

Except for “pre-sold” sequels to “Austin Powers” and “Rush Hour,” New Line has never won one of its big-budget bets. (The list of the studio’s recent major flops is quite long: “Town and Country,” “Lost in Space,” “Little Nicky,” “The Long Kiss Goodnight,” “The Island of Dr. Moreau,” “Last Man Standing.”) If the “Lord of the Rings” trilogy is a major hit, the formidable if inconsistent film company could have a bright future in the AOL Time Warner universe. If not, a number of darker scenarios could confront its little shire in Beverly Hills.
Among the theories proffered is that in failure, New Line would be folded into Warner Bros. and become little more than a releasing label. Or maybe its imperious and elusive founder, Bob Shaye, who tried unsuccessfully to come up with the money to buy back the company when Time Warner tried to spin it off a few years ago, would attempt to make it a stand-alone independent again. Regardless of the outcome, the story of the making of “The Lord of the Rings,” one of the biggest gambles in film history, is a study of New Line’s strengths and weaknesses. It is also a glimpse into the perils that lie in wait for every independent production company-turned boutique movie studio in the world of media conglomerates.

At a time when the big, mainstream studios are managed by teams of bland executives whose marching orders are set by corporate bean counters, New Line, despite its ownership, has always moved to Shaye’s own mercurial personality.
And with “Lord of the Rings,” Shaye has put his company (and his own legacy) in the hands of two men: Peter Jackson, a director whose work up to now has hardly put him in the same league as a Steven Spielberg, James Cameron or a George Lucas; and Tolkien, a fusty Oxford don whose nearly half-century-old fantasy has a huge, devoted following but has never successfully made the journey to film.
John Ronald Reuel Tolkien was a philologist and scholar, a professor of Anglo-Saxon and later of English at Oxford. He created the fantasy “The Hobbit” in 1937 as a deceptively whimsical sideline to his day job. Seventeen years later, he began releasing “The Lord of the Rings,” its epic sequel, in three volumes. In these works (“The Fellowship of the Ring,” “The Two Towers,” “The Return of the King”) Tolkien took his interests in language and uncannily sweeping ability to create coherent fantasy worlds into a darker, more adult epic tale of a prehistory Middle Earth, where the Ring, an evil and powerful talisman, pits the varied forces of good (hobbits, elves, dwarves, wizards and some men) against the sinister armies of evil (orcs, balrogs, various wraiths and a Darth Vader-like bad wizard).
The trilogy became one of the most popular published works of the last century. Even though it has been linked to the inspiration behind films like “Star Wars” (and enjoyed a certain ’60s and ’70s vogue among the counterculture movement), no one has ever successfully managed to capture Tolkien’s entire trilogy on screen.

Director John Boorman flirted with a live-action version in the early ’70s, but never got past the script stage. In 1978, Ralph Bakshi, who attained notoriety with the X-rated, animated “Fritz the Cat,” allied himself with iconoclastic producer Saul Zaentz and made an $18 million animated feature encompassing about half the trilogy under the name “The Lord of the Rings” — using a technique called rotoscoping, which essentially traces and paints over live-action footage.

But critics panned the film and the further episodes of the tale were never attempted. “When I made it, the book was at the height of its popularity, ” says Bakshi when reached in his South Salem, N.Y., art studio last August. “He [Tolkien] left it open how these people looked and walked and that was my job as the director to come up with that. Those were huge challenges that terrified me.”

But seated in the audience of the Old Plaza Theatre in Wellington, New Zealand, in 1978, watching Bakshi’s handiwork was a heavyset, curly-haired 17-year-old Peter Jackson who “immediately went out and read the book.” Nearly 20 years later, he would have the opportunity to craft his own version of the saga.
Jackson began as an unnoticed director of splatter-gore films like “Bad Taste,” “Meet the Feebles” and “Dead Alive” (aka “Braindead”). This early body of work smacked of the micro-budgeted schlock films produced by Lloyd Kaufman’s Troma Studios (“Surf Nazis Must Die”), often falling short of the latter’s production values. In these films, Jackson presented us with an army of aliens intent on massacring a New Zealand town to supply their intergalactic fast food chain; the oversexed, drug-addled cast of a Muppet-like variety show; and the misadventures of a man whose domineering mother has been turned into a ravenous zombie.

But then came the art-house hit “Heavenly Creatures,” a stylish tale of murderous schoolgirls that launched the career of Kate Winslet and made him the darling of the film-festival circuit. With the heat of that film behind him, in the fall of 1995 Jackson approached Miramax Films’ co-chairman Harvey Weinstein (who had acquired “Heavenly Creatures” and had first refusal on Jackson’s future projects) and suggested putting together a series of Tolkien-related films.
Jackson’s original plan was to make “The Hobbit,” and, if it was successful, then to turn the full “Lord of The Rings” tale into two movies, shot back-to-back. Easy enough — but the plan required that Miramax obtain the rights to the books from Saul Zaentz, the difficult but talented Academy Award-winning producer of “One Flew Over the Cuckoo’s Nest” and “Amadeus.”

Zaentz had controlled all “LOTR” film and merchandising rights since the 1970s and had refused to part with them ever since he produced Bakshi’s movie. But Miramax had an edge: The company was bailing out Zaentz on the production costs for “The English Patient” (which would also go on to win an Oscar for best picture). Weinstein began what would become a yearlong process to secure the rights to “Lord of the Rings.” (Zaentz controls “The Hobbit” as well, but because of some preexisting copyright kink, United Artists owns the rights to distribute the film, so Weinstein decided to dive directly into “The Lord of the Rings.”)

By early 1997, Miramax had completed its deal with Zaentz, and Jackson turned his attention to making two “LOTR” films for $75 million. But as the director got deeper into the development process, the budget began to look inadequate; Weinstein’s partner and brother, Bob, pushed to find another studio to help shoulder the cost. With no takers, in mid-1998, Miramax decided that the only way it could move ahead was to make a single three-hour film. Harvey Weinstein, by some accounts, was furious when Jackson told him he couldn’t agree to direct only one film and wanted to try to find someone else willing to finance two.
“It got really ugly,” says one person close to the situation. The outsized, dogged movie mogul had, after all, allowed Jackson to break from his deal with Miramax to make “The Frighteners” and to work on another dream project, “King Kong,” since scuttled, both at Universal; and besides that had spent nearly a year securing the rights for the director to a project no one else previously had managed to get.

After hits like “Shakespeare in Love” and the “Scream” trilogy, Miramax today is a formidable mainstream studio. But at that time, the company, which was bought by Disney in 1993, had not yet crossed over into big-budget movies and was under financial restrictions that made it impossible to single-handedly mount a project of the magnitude Jackson envisioned. And even if they had the resources, the Weinsteins were probably also a little skittish about turning over two films based on a longstanding literary work to a guy whose oeuvre included killer aliens, heroin-dealing walruses, and Michael J. Fox as a psychic investigator.
But Miramax had already sunk about $12 million into the project — buying rights, testing special effects and paying Jackson. Not wanting to lose that investment, Weinstein grudgingly agreed to give Jackson three weeks to try to find a new backer — with several seemingly prohibitive restrictions. Among these demands were that Miramax’s investment be repaid within 72 hours of a signed agreement; that the two Weinsteins share executive producer credit with Zaentz on any film that resulted; and that the brothers receive a hefty 5 percent of the gross earnings of any and all films.

With the clock ticking, in late summer 1998 Jackson’s representatives began shopping the two scripts and an animatronics tape (a reel of storyboards accompanied by actors’ voice-overs) to major studios and a few top producers who held significant sway with certain studios. Quickly, nearly every potential patron summarily passed on the “Lord of the Rings” project, citing issues of cost, scope or Jackson’s ability to pull it off. Only two companies — New Line and Polygram Filmed Entertainment — were willing to hear Jackson’s full pitch for the project. While his team was out soliciting interest, to further help their cause Jackson returned to New Zealand to shoot a documentary to make the case that this was the right time to mount “Lord of the Rings.” His central point: Movie-making technology had finally caught up to Tolkien’s imagination. Jackson spent roughly $35,000 of his own money to make the reel, which included footage of special-effects tests, creature models, locations in New Zealand and interviews with department heads.

The next week, Jackson and his writing and producing partner, Frances Walsh, flew to Los Angeles with props and that 38-minute raison d’être for a day of meetings, first with Polygram and then with New Line. The group from Polygram was intensely interested in the project, but because the company had just been taken over by Universal Studios, its future was up in the air; the executives present hadn’t the authority to make a deal. So Jackson’s last hope came down to New Line.

Shaye first met with Jackson alone. The director recalls: “Essentially, he said, ‘Look, you know before I hear your presentation that I’d love to work with you. You’re always welcome here.’ He seemed to be almost preparing me in advance to say no.”

Then Shaye heard the team’s presentation and watched the documentary. Jackson’s agent, Ken Kamins, who was also in the room, says that when the tape ran out, Shaye turned to the group and said, “Well, it’s not two movies.”
Says Kamins: “And Peter begins to hang his head, dejectedly, because he’s thinking, ‘Oh, no. Not again.’ But Bob says, ‘Tolkien did your job for you. He wrote three books. It’s three movies.’ At which point my foot is black and blue because Peter is kicking me under the table because he can’t believe what he’s hearing.”

Kamins and Jackson weren’t the only ones stunned by Shaye’s pronouncement. “I was hoping no one would pick it up — and some people corporately rooted that they wouldn’t,” admits Weinstein, who thought the project would come back to Miramax and Jackson would concede to doing one film. “I was surprised.”
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The Weinsteins are throwbacks to the old-school movie moguls, who chose projects with their guts and did the math later; Shaye and his fellows at New Line are by contrast more vaguely reminiscent of riverboat gamblers, who bought into the high-stakes movie game with modest outlays on teen- and kid-friendly genre films before getting a seat at the big game through multiple transitions of corporate parents. But in many ways, the two companies’ histories were mirror images of each other. New Line started in the genre business with the lucrative “Nightmare on Elm Street” and “Mutant Ninja Turtles” franchises and then launched Fine Line Features to compete with Miramax in 1990. Miramax hit its stride with art house hits like “The Crying Game” before launching a genre division called Dimension in 1992 to compete with New Line, hitting big with the “Scream” and “Scary Movie” series.

Hollywood thumbed its nose at New Line’s lowbrow machinations. But all the while, Shaye and his feisty little company were getting rich by rejecting high-priced stars and directors in favor of unproven filmmakers who could key in on under-served demographics like teens and black audiences for box-office manna. A native of Detroit who lived in New York most of his adult life, Shaye didn’t have much of a profile in Hollywood until he added a West Coast residence in the early ’90s. Smart and enigmatic, he never bothered to court the town. “[Shaye’s] favorite quote was ‘I hate agents,'” says Mike De Luca, New Line’s former head of production. De Luca was fired in January after huge losses on big-budget gambles like the $80 million Adam Sandler comedy “Little Nicky,” and out-of-control costs on “Town and Country,” a $90 million debacle starring Warren Beatty. “He thought everyone was out to screw him. I think that contributed to my role as the company’s face in Hollywood; I got it by default.”
But Shaye is a walking duality. He’s prone to intense displays of emotion — as evidenced earlier this year, when he broke down repeatedly after his beloved Jack Russell terrier, Venus de Milo, was swept overboard during a holiday cruise off the coast of Venezuela. He can also be brutally pragmatic. Not long after Venus’ demise, Shaye went about firing more than 100 of his employees as part of AOL Time Warner-mandated cuts; and casting off De Luca, New Line’s creative pilot, who was commonly thought of as Shaye’s surrogate son.

Just as the company’s independent spirit stemmed from his own temperament, by the early ’90s, Shaye seemed to yearn for a gravitas that eluded him but was being afforded to men like Harvey Weinstein and other studio heads. So when Ted Turner came calling in 1993, Shaye saw an opportunity to make a killing and move into a higher, riskier echelon of the film business.
“We played that game for awhile,” Shaye told the New York Times in 1994, after Turner acquired the company for approximately $550 million. “And this amalgamation gave us the wherewithal that we were looking for.”

Turner encouraged New Line to make more movies to stock his library, and the company quickly rejected its past and went on a shopping binge, buying into expensive, star-driven films that were the domain of the major studios. Occasionally this paid off with hits like “Se7en” and “Dumb & Dumber.” But more often, the gains were erased by ill-fated, big-budget attempts like “The Long Kiss Goodnight” and “The Island of Dr. Moreau.”
With Turner’s acquisition of New Line and the subsequent transition of Turner’s holdings to Time Warner in late 1996, Shaye reportedly made upward of $400 million on the deals. But he nearly saw his domain vaporized: New Line was considered such a liability that the new parent, Time Warner, tried to sell it off. There were no takers, however. In the interim, Turner served as New Line’s benefactor in the boardroom, keeping watch over the company’s interests and ensuring its autonomy.

When AOL bought Time Warner in late 2000, the news wasn’t all bad: Shaye’s large amount of AOL TW stock was said to put him near the billionaire mark. But Turner was quickly cast as a crazy uncle, and ultimately banished by AOL TW CEO Gerald Levin to the corporate attic as a “senior advisor.” New Line had lost its Gandalf, the wise wizard who watched over it and ensured its safety. To date, no one else has donned those robes.
New Line managed to bounce back in 1998, led by modestly budgeted comedies like “Rush Hour” and “The Wedding Singer”; and it was at this felicitous time that Peter Jackson came calling with his outlandish plans for “The Lord of the Rings.”

Shaye announced the acquisition of “The Lord of the Rings” — and a budget of “more than $130 million” — in August 1998. Even by Hollywood standards, the figure was amusingly wishful. New Line had the advantages of basing the production in New Zealand: tax incentives from the government, favorable exchange rates and a generally lower cost of filming (including special effects work done by Jackson’s in-house Weta Digital facility). Besides that, a decision made early on to make all three films simultaneously was intended to bring enviable economies of scale to the production.

Still, the $130 million figure was vastly understated — the three scripts hadn’t been written at the time, so New Line had no way of accurately calculating how much the films would cost. After the scripts were finished and New Line made substantial upgrades to Jackson’s effects infrastructure, the budget increased to somewhere between $180 and $210 million when filming began in October 1999. And by the time the nearly 15 months of principal photography ended last December, followed by a long post-production schedule, the final cost ballooned to around $300 million.

For Jackson, whose visual wizardry has been preeminent on screen, the challenge was “getting the script to work” and being true to Tolkien’s vision while also appealing to an audience larger than Tolkien fantasy camp attendees (who, within the postmodern Middle Earth of the Internet, have kept close watch over every — real or rumored — mutation of the project). “If we were being truly faithful, you would be up to five or six hours on each film,” notes the director, who went online early in the process to address the more militant fans’ concerns.
For New Line, it became about managing costs. “The sheer fact of going up to three films added to the budget,” says Jackson, phoning from London last September as he was working on the sound for the film. “Then we did 150 to 200 more effects shots for the first movie than we had planned. But we can argue that because we have massive numbers of locations, a huge cast [more than 20 primary actors and hundreds of extras] and we shot for 14 months, that New Line got value for its money.”

Even though no studio had ever attempted to shoot three films simultaneously, Mark Ordesky, the head of New Line’s Fine Line Features and the executive tapped for the ulcer-inducing job of supervising “The Lord of the Rings,” maintains that the strategy “creates unbelievable economies of scale. You have the same crew and same cast throughout the entire shoot, effectively making one gigantic movie.”

New Line also hedged its risk on the “LOTR” by selling off international rights to the films, recouping about 65 percent of the budget. It also struck various money-spinning licensing deals for merchandise stemming from the trilogy (to be split with Zaentz and the Tolkien estate). That reduces the company’s exposure on each film to around $30 million, before figuring in the cost to market and release the films. (That’s estimated at more than $60 million for the first film and about $50 million for each of the following installments, depending on how “Fellowship of the Ring” performs.) It is also getting a huge promotional boost from Burger King, JVC and other partners, which will amount to tens of millions of non-New Line dollars spent to prop up the films.

Nevertheless, once Zaentz’s, Jackson’s and Miramax’s takes are thrown in, the company will have to gross more than $160 million on each of the films to make money.

The films should also test AOL Time Warner’s highly touted but not yet realized synergistic and cross-promotional dreams. “The whole empire is mobilized,” says Ordesky, but one has to wonder whether AOL has put more of its branding arsenal behind “Harry Potter,” which is a contemporary phenomenon and will spawn at least three more films after this first one.

New Line and Warners executives pooh-pooh any rivalry between the two; and in the months following the screening at corporate headquarters, “Lord of the Rings” was being heavily promoted across AOL TW’s online and television components. (Of course, New Line was paying for most of that exposure, since AOL TW apparently requires its divisions to spend a large chunk of their advertising budgets on internal organs.)

Still, there are signs all is not well. Time magazine showed little interest in securing “LOTR” for one of its fall covers — choosing instead to go with “Harry Potter,” according to people involved with the film. No one’s saying whether Time was required to put the schoolboy wizard on its cover, but as one New Line executive put it: “Obviously Time had the inside track.”

But New Line executives, who maintain they still have a lot of autonomy to make such decisions, apparently couldn’t commit to Newsweek — which “was really eager to do it” — until it became clear where Time stood on a “Lord of the Rings” cover story. (Executives for both films now have to contend with the possibility that their precious newsweekly cover exposures will be preempted by actual life-and-death events in a post Sept. 11 world.)

New Line also seems to be confronting a crisis of perception that Warner Bros. — which purposely avoided most cross-promotional opportunities — has managed to avoid with “Harry Potter.” In creating awareness for the trilogy beyond the indeterminate horde of ardent Tolkien fans, the company and its promotional partners are casting a wide net, embracing even the margins of film-going society. This multi-media barrage will bring the expected TV and online ads and special programming as well as consumer tie-ins, including LOTR-themed popcorn tubs and drink cups, collectible trading cards, soundtracks, books, breakfast cereal, action figures and VCRs with special LOTR packaging.

But New Line also is encouraging theater owners to holistically promote the movie by suggesting such gimmickry as turning lobbies into forests; sponsoring a Hobbit Hole day at a local miniature golf course; or linking up with jewelers to give away a 14-carat gold ring, like the one that serves a pivotal role in the films. And according to promotional material New Line sent to theater chains, the company seems to be doing its part to influence school curricula: “By bringing adventure to your local schools you can increase awareness and business. Meet with teachers of after school clubs. Various clubs might be interested in creating Middle Earth in their school or having their after school study groups talk about the book.”
After all, New Line enthuses, “There are many ways to get the word out about ‘The Lord of the Rings: The Fellowship of the Ring’ and you don’t have to use magic — all you need is wisdom.”

To prepare for the release and insulate against any further major losses on the 2001 books, New Line has pushed back several finished and previously scheduled 2001 releases into 2002, among them “John Q,” starring Denzel Washington, and the 10th Jason horror film, “Jason X.” And it has helped that “Rush Hour 2,” currently at $224.7 million in receipts, performed beyond expectations. While that success may have given New Line some breathing room, other events have conspired against it. The continued decline of advertising and the aftereffects of the Sept. 11 terrorist attacks led to AOL TW’s warning in September that the conglomerate as a whole probably will not meet its revenue targets for the year. That only increases pressure on the studio.

Whether “Lord of the Rings,” or New Line for that matter, is a great success or a great failure will be determined next month by audiences. The question the company is trying to answer now, according to one employee, is: “How do we find a way to do what we do a little differently so we stand out from Warner Brothers, who is the crown jewel and whose role is distinct?” Whether a sibling rivalry exists or not, we’ll soon see if that kid in the scarf and glasses sends the hairy-footed Hobbit to the showers. Or, maybe, Frodo lives, again.
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About the writer
Chris Petrikin is a Los Angeles writer