New Line Cinema's $300-Million Gamble Crowning Achievement ... Or Its Undoing

• Michael Lynne Is Co-Chairman And Co-Chief Executive Officer Of New Line Cinema.
• Robert Shaye Is Chairman And Co-Chief Executive Officer Of New Line Cinema.

New Line Cinema's $300-million, three-film gamble on the "Lord of the Rings" may well be the film company's crowning achievement ... or its undoing.

 An audacious move by New Line founder and co-Chairman Robert Shaye (Picture), this project puts the spotlight on a company walking the razor's edge between an independent past and its current corporate reality.

"Rings" appears poised to be a sensation when it opens in theaters Dec. 19. Early positive critical response has turned the 300,000 "Rings" Internet fan sites into hives of excitement. Independent market research shows strong audience interest, close to "Harry Potter" levels. "The potential for 'Rings' has been realized in the first movie," Shaye said. "But that doesn't mean my hands aren't sweating."

Shaye needs "Rings" to do more than just make money. He's hoping the project will be such an enormous hit that it will ensure New Line's future as a stand-alone studio within AOL Time Warner Inc. "There is no question that our autonomy is at risk," Shaye said.

Concerns earlier this year about cost overruns on "Rings" and general out-of-control spending at New Line led AOL Time Warner top brass to take away Shaye's ability to "greenlight" another movie project of this magnitude.

"Bob pushed a lot of chips to the middle of the table," said Richard Parsons, co-chief operating officer of AOL Time Warner and the executive in charge of New Line. "'Rings' is a huge bet."

The built-in audience for the project is staggering.

More than 100 million copies of J.R.R. Tolkien's 1950s fantasy trilogy have been sold around the world, more than 30 million in the U.S. Publication of the series followed Tolkien's 1937 introduction to the imaginative world of Middle-earth, "The Hobbit."

That deep base of instant recognition for "Rings" encompasses both baby boomers and their Generation X and Y children. Even before New Line considered buying the project, there were 400 online sites devoted to Tolkien's work.

"Rings" is a densely packed quest that follows the diminutive, hairy-footed hobbit Frodo Baggins through worlds populated with spiritual elves, grizzly dwarves, giant wizards, horrifying orcs and pathetically weak men. It's a "boy-centric," sword-fighting tale with brief glimpses of godlike women who periodically inspire good folks to keep up the struggle.

"Rings," however, will be remembered in Hollywood for its daring.

Blockbusters often cost $100million. "Titanic," the most expensive movie of all time, cost $200 million. Although "Rings" will be shown in theaters as three films, it was made as one project, shot all at once during a 274-day production, at a cost estimated to eventually reach $300 million.

No one in Hollywood has ever defied the odds and made one sequel, much less two, for a film that has yet to be released.

But this isn't a traditional movie in any sense. For instance, the first film is really just Act 1. The payoff, the point where the plot is tied up in a neat package, doesn't arrive until the final film, to be released in two years.

Running the show is Peter Jackson, a writer-director whose biggest previous budget was the $17-million "The Frighteners," a box-office bomb. Jackson launched Kate Winslet's career with his 1994 "Heavenly Creatures," an artful exploration of matricide. He also is known in New Zealand for his "splatter" films, most notably one involving pornographic puppets.

Nearly every frame of "Rings" involves intricate special effects, initially all to be created by a tiny New Zealand company, Weta, owned and operated by Jackson.

Sporadically throughout the movie, various pointy-eared elf characters lapse into a language known only to the most devout "Rings" fanatics, the ancient Elvish. Jackson uses subtitles, a known audience turnoff, to deliver key dialogue.

 All of this potential for disaster was managed by a New Line executive with little experience making movies. Mark Ordesky (picture) is president of New Line's Fine Line division, which specializes in picking up offbeat foreign and independent film festival fare.

New Line opted against using the tried-and-true Hollywood safety net, topping the marquee with a big star whose name alone draws a crowd. Although Ian McKellen, Elijah Wood, Cate Blanchett and Viggo Mortensen are recognizable, few in Hollywood would call them box-office insurance.

And, as if to make the final hurdle, marketing, as difficult as possible, New Line decided to open the movie around the globe Dec. 19. A simultaneous worldwide splash may sound exciting, but it forces this smaller studio to orchestrate a vast international network of events instead of using a more manageable U.S. launch to create a ripple of excitement that can be built upon internationally.

"It was a monumental undertaking," Shaye said. "I don't think anyone understood [at the outset] how monumental."

So, why did Shaye say "go" when rival movie companies screamed "no" to this project?

"It was a potentially huge franchise, a smart move for us," he said. "We could justify it by spreading the costs over three years."

Shaye believed his company could make "Rings" in New Zealand for less than half of what a major studio would spend to make it in the United States, he said.

But, in the end, it was all about Jackson, said Shaye, who knew the independent director from years earlier when he wrote a "Nightmare on Elm Street" episode for the company.

"Peter was incredibly passionate, an informed passion," Shaye said. "He was dedicated to being true to the spirit of Tolkien."

Jackson walked into New Line's offices for the "Rings" pitch meeting in the summer of 1998 armed with a videotape of sample special effects shots and a two-decade-long Tolkien fascination.

He had spent 18 months wrestling with the "Rings" material at Miramax Films before giving up on that studio's demand that the story be squeezed into just one film.

Trying to interest other studios, Jackson had only one bidder. After hearing Jackson's pitch, Shaye brashly announced, "Let's make it with three movies!"

"New Line reported to Ted then," said Parsons, noting that AOL Time Warner Vice Chairman Ted Turner no longer has line responsibilities at the corporation. "He gets the credit or the blame."

Shaye now shares the chairmanship of New Line with his old friend Michael Lynne. But he founded the company in 1967 on the money he made peddling a 30-year-old B-movie that became a cult classic, "Reefer Madness." He built the company into a full-fledged independent film studio on the strength of the horror series "Nightmare on Elm Street."

A Hollywood outsider headquartered in New York, Shaye elevated one of his youngest staff members, Michael De Luca, to head production, and together they relished championing the rejects from the mainstream film industry and turning them into box-office sensations, including "Teenage Mutant Ninja Turtles," "The Mask" and "Dumb and Dumber."

Although there was a dismal stretch in the mid-1990s with expensive flops such as "The Long Kiss Goodnight" and "Last Man Standing," Jackson knocked on New Line's door after the company's release of two huge hits, "The Wedding Singer" and "Austin Powers: International Man of Mystery."

Turner, who would sometimes refer to Shaye as "Brother Bob," had given New Line a long leash.

Not only was Shaye undaunted by the "Rings" risks and Jackson's relative inexperience, he put a fellow Tolkien devotee, Ordesky, in charge of the project.

"I was absolutely convinced, I was sure, that this was a great idea for a movie," said Ordesky, who keeps a tiny pewter Frodo, a childhood keepsake, on his desk.

"I was obsessive," said Ordesky, who read and reread the trilogy several times as a teenager, part of a fantasy fixation that included spending 15 years deeply involved in a continuous game of the cult hit board game Dungeons and Dragons.

Ordesky had been a fan of Jackson's since the director's early films, including "Bad Taste," about cannibalistic aliens. "I had vowed then that I would find a way to make a film with him."

Still surprised that he was given the "Rings" reins, Ordesky said New Line isn't like any other AOL Time Warner unit. "Bob is big on advocacy. If you advocate it, you own it."

However, the AOL corporate bosses appeared on the scene when the budget soared. The $130-million initial cost estimate quickly was adjusted to a more realistic $180 million.

When the complex special effects work started, it was clear that the three pictures were going to cost nearly $300 million--$90 million for the first movie and potentially more for the second and third.

In addition to the cost overruns on "Rings," New Line suffered flops in Adam Sandler's "Little Nicky" and "Town & Country," starring Warren Beatty, both of which cost $90 million to make.

"We were flailing around making big-budget movies without market hooks and small movies with no promise, just grit," Shaye said. By the end of last year, "I was humiliated to say [at an AOL Time Warner executive meeting] that we didn't do a good job," Shaye said. "We vowed to do whatever we could to refocus and revitalize" the company.

With Shaye's protector, Turner, out the door, a near-continuous review of New Line began. "It wasn't idle chatter," Parsons said, noting that proposals to shut down all but a skeletal staff of New Line production executives were considered by AOL Time Warner's top brass.

Following the latest review, New Line's corporate overlords this year dictated a 20% staff cut, or 100 employees. Longtime president of production De Luca left.

Worse for Shaye, he now has to ask AOL Time Warner for the money to make any movie that costs more than $50 million.

New Line remains a stand-alone division with its own marketing and distribution, the key distinction of a full-fledged movie company. A successful "Rings" could restore some of New Line's lost glory and a bit of Shaye's diminished stature. But, if the series fails, New Line could face further cuts.

"Why have two movie companies?" is an often asked question at AOL Time Warner, Parsons said. Warner Bros. Studios is certainly big and powerful enough to handle any project.

The corporate managers "looked real hard" at merging the two units after the AOL and Time Warner combination, Parsons said. "This year, we looked at it again."

Although there would be cost savings--people close to the discussions estimate $10 million a year--Parsons said he ultimately agreed with Shaye that a film company needs to be able to market and distribute its own films if they are going to thrive. "God forbid if the first film doesn't work," Shaye said.

Big-Budget Risk

New Line Cinema has a mixed record on big-budget films. Previous returns:

Other Sources of Revenue

·    New Line raised $55 million for each of the three "Lord of the Rings" films by pre-selling the international markets.

·    Once the foreign sales companies recoup their advances and their marketing and distribution expenses, New Line will receive at least 60% of all future income for the life of the agreements. All rights eventually revert to New Line.

·    Merchandising agreements are worth $7.5 million per film for toys, clothing, books and other items based on the film.

·    New Zealand tax credits contributed several million dollars per film toward completing the project.

Source: New Line Cinema Note: Box-office receipts are split with theater owners. Dec 04 2002

Michael Lynne is Co-Chairman and Co-Chief Executive Officer of New Line Cinema.

Under his guidance, New Line has carefully expanded its business base by establishing its own home video and television divisions, acquiring complimentary product lines and creating differentiated distribution labels such as Fine Line Features.

Prior to being named Co-Chairman of the company earlier this year, Mr. Lynne had served as President and Chief Operating Officer of New Line Cinema for more than a decade. During his long association with the studio, he has served as Chief Legal Counsel and has been a member of studio's Board of Directors since 1983. His alliance with New Line Cinema Co-Chairman and founder Robert Shaye dates back to 1961 when they attended Columbia Law School together.

Prior to joining New Line, Mr. Lynne was a partner for twenty years with Blumenthal & Lynne, specializing in entertainment law. He also worked with Barovick & Konecky, an entertainment law firm, and as a resident counsel for Embassy Pictures.

Mr. Lynne is a contributing member of the major museums of New York. In addition to sitting on the Drawing Committees of the Whitney Museum and the Museum of Modern Art; he serves on the board of the American Museum of the Moving Image, Citymeals-on-Wheels and the Guild Hall of East Hampton. Mr. Lynne is a member of the New York Bar and received his J.D. degree from Columbia Law School in 1964.

Robert Shaye is Chairman and Co-Chief Executive Officer of New Line Cinema.

In this role, Mr. Shaye oversees New Line and its subsidiaries, including Fine Line Features, New Line Home Video, New Line Television, New Line International and New Line New Media.

Mr. Shaye founded New Line Cinema in 1967 and has guided the company's growth from a privately held distributor of art films into the entertainment industry's leading independent motion picture production and distribution company.

Mr. Shaye met with early success as a young filmmaker when he won First Prize at the prestigious Society of Cinematologists' Rosenthal Competition, where he was honored for the Best Motion Picture by an American Director Under the Age of 25. He began his career at age 15 when he wrote, produced and directed a training film for employees of his father's supermarket.

Mr. Shaye earned his degree in business administration from the University of Michigan and his J.D. degree from Columbia University Law School. He is also a Fulbright Scholar and a member of the New York State Bar.

Mr. Shaye serves on the Board of Trustees for the Neuroscience Institute, Motion Picture Pioneers, the American Film Institute and the Legal Aid Society.