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'The Hobbit' finally close to getting greenlight from Warner Bros., New Line and MGM [updated]

October 1, 2010 |  1:01 pm

JacksonLord After several years of delays that have frustrated eager fans, moviegoers may soon return to Middle-earth.

Warner Bros., its subsidiary New Line Cinema, and partner Metro-Goldwyn-Mayer appear to be close to greenlighting the hugely anticipated two-part "Lord of the Rings" prequel "The Hobbit," according to several people familiar with the matter who spoke on condition of anonymity because they were not authorized to discuss it publicly.

The studios have nearly finalized a deal with director, producer and co-writer Peter Jackson to make the two movies and have resolved most other key issues that have long held up the project, including those related to underlying rights from the estate of author J.R.R. Tolkien.

The one remaining hurdle is getting an official go-ahead from MGM, which is set to co-finance the movies because under a long-standing agreement it owns half the rights and controls international distribution.

The two "Hobbit" films, which will be shot together, are expected to cost close to $500 million to produce.

Warner and New Line, which produced the blockbuster "Lord of the Rings" trilogy and control domestic distribution for "Hobbit," are ready to commit their half of the money, said people familiar with the matter. They have been waiting for MGM, which for more than a year has been virtually out of cash and whose debt holders have been trying to decide upon a plan for reorganization.

Negotiations between the two sides are at a very tenuous stage because nearly bankrupt MGM needs to reach agreement among its more than 100 debt owners, which control the future of the studio. At the same time, MGM's creditors are scrambling to finalize a reorganization plan, through which Spyglass Entertainment chiefs Gary Barber and Roger Birnbaum are expected to take over management. Barber has been leading negotiations on "The Hobbit" for MGM with top Warner executives, including home entertainment group president Kevin Tsujihara.

MGM is eager to make the films, people close to the situation said, and could give Warner Bros. the official okay in the next few days. However, it will still need to secure its half of the financing. Barber is expected to approach a number of potential investors, including studios including 20th Century Fox, which has an existing deal with MGM to release its movies overseas. Other possibilities include outside financial investors or Warner Bros., which could loan MGM its share in exchange for additional distribution rights to the pictures.

People close to the project said that, barring a last-minute glitch, they expect to have all issues settled shortly in order to begin production in mid-January so that the first of the two movies would be ready for a holiday 2012 release. The second film is planned for a December 2013 opening. If production doesn't begin by the first quarter of next year, the people said, "The Hobbit" will miss its planned release dates and will likely have to once again be delayed.

Jackson has long planned to shoot the movies in his home country of New Zealand, but this week he ran afoul of various performer unions, including the Screen Actors Guild, which are advising their members not to work on what they allege is a non-union production. One person close to the situation said that dispute is close to being resolved as well, further clearing the way for a greenlight.

Jackson took on directing duties after "Pan's Labyrinth" director Guillermo Del Toro, who had been set to handle the job, backed out earlier this year because of the ongoing delays.

In recent weeks, Warner and New Line have been scrambling to clean up some underlying rights issues with the Tolkien Estate that partly stem from earlier litigation between the studios and the late author’s heirs. After intense negotiations between lawyers, the studios have agreed to pay millions of dollars to the estate to resolve matters, said people with knowledge of the situation.

Last year, Warner/New Line reached a settlement of reportedly more than $100 million with the Tolkien heirs, who in 2008 had sued the studios over royalties to Jackson's three "Lord of the Rings" films, saying the studio owed the estate more than $150 million in profits. The studio has also settled lawsuits over profit participation with Jackson and his partners as well as producer Saul Zaentz.

The estate, Zaentz, and Jackson will participate in the gross revenues of "The Hobbit," as well as Walt Disney Studios and Bob and Harvey Weinstein. The Weinsteins had originally developed the "Lord of the Rings" movies when they ran Miramax Films, which was at the time a division of Disney.

[Updated, 4:27 p.m.: Warner and MGM have together spent about $45 million on preproduction for "The Hobbit," including script fees, visual effects work, set preparations and casting meetings, according to two people familiar with the matter.]

-- Claudia Eller and Ben Fritz

Photo: Peter Jackson and Ian McKellan on the set of "The Lord of the Rings: The Return of the King." Credit: Van Redin / New Line.

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