This story first appeared in the Jan. 18, 2013, issue of The Hollywood Reporter magazine.
Next time Harvey Weinstein invites you to lunch, let him pick up the tab. Thanks to The Hobbit: An Unexpected Journey, the famed executive will be millions of dollars richer. But with the money still uncounted, a dispute already is brewing over just how much dwarf gold will flow to Harvey and his brother, Bob.
The movie has grossed $826.6 million worldwide in its first three weeks, and insiders predict it will approach -- if not surpass -- the $1 billion milestone, leaving a big pot of profits to be split in very complicated ways.
Many players are in the mix: two studios, Warner Bros. (parent of New Line Cinema) and MGM; filmmaker Peter Jackson and his team; the estate of author J.R.R. Tolkien; and producers Saul Zaentz and the Weinstein brothers, who negotiated a piece of the property long ago but were not actively involved in the current film or its predecessors, The Lord of the Rings trilogy. The Weinsteins' deal gives them at least 2.5 percent of Hobbit's first-dollar gross, according to sources -- that is, 2.5 percent of the money that Warners and MGM receive. The two studios will split their take 50-50. If the movie crosses $1 billion, MGM could become the first studio laying claim to back-to-back $1 billion hits, following Skyfall.
What's less clear is whether the Weinsteins are entitled to a cut of the two planned Hobbit sequels, set for release in 2013 and 2014. According to sources, Warners holds that the deal covers only "the first Hobbit movie." But the Weinsteins apparently believe they are entitled to a cut of all three films.
Assuming theater owners return roughly half their take to the studios (the exact split depends on the deals they have negotiated with theaters), the Weinsteins will comfortably earn more than $15 million. Their deal was worked out eons ago, when they controlled LOTR while running Miramax Films. After failing to persuade Miramax's parent, The Walt Disney Co., to fund a two-picture version, they agreed to let Jackson set it up at New Line -- on the condition that New Line pay them $10 million in "turnaround" costs and a slice of the backend. As part of the deal, Miramax and the Weinsteins also were granted 5 percent of first-dollar gross from any future Hobbit film, with the company and the brothers dividing that 5 percent. Miramax's new owners, a consortium of investors led by Colony Capital, also will benefit with roughly 2.5 percent of Hobbit's profits.
Other profit participants include the Tolkien estate, which sources say will receive 7.5 percent of "adjusted gross," a more restricted definition than "first-dollar" gross; Jackson himself, who has what sources call an "enormously complicated" deal with escalators -- i.e., the more the movie earns, the larger a share he takes of the profits; and Zaentz, the megaproducer of such films as Amadeus and One Flew Over the Cuckoo's Nest, who spent years trying to get Lord of the Rings off the ground and is a first-dollar player.
The deals were renegotiated when Guillermo del Toro dropped out as director of The Hobbit in 2010 and Jackson stepped in to replace him. Some participants -- including Zaentz -- agreed to take considerably less, though the Weinsteins didn't. (A spokesman for Zaentz says he is retired and unavailable for comment.)
While MGM had to borrow the money from Warners to fund the film's hefty production cost (sources say the first two movies are costing about $500 million total, with a third added for considerably less), this was a straight loan using the movies as collateral and did not affect MGM's share of the profits. Now MGM and Warners will divide equally what remains, after each takes a distribution fee for the territories it controls. And even if Harvey ultimately is denied a piece of the second and third Hobbit movies (sources say lawyers might be involved), he will reap a pretty penny from a project he hasn't worked on in at least 15 years.
"This is one of the most complicated arrangements in Hollywood history," says a source close to the deals. "But in success, it's great for everyone."
Matthew Belloni contributed to this report.