'LOTR' Orcs and Hobbits Take Studio to Court

It's not enough for Hollywood studios to entice audiences into theatres with spectacular blockbusters. Films such as this summer's Transformers, Spider-Man 3, and Live Free or Die Hard must also lure consumers into stores and onto the Internet, where selling movie-inspired merchandise has become a booming business.

Surely Shia LaBeouf, Tobey Maguire, and Bruce Willis can bank on receiving a good share from the sales of action figures, video games, T-shirts, posters, and other merchandise featuring their characters. But a recent lawsuit filed against New Line Cinema by more than a dozen actors who played orcs, hobbits, elves, and other characters in the Lord of the Rings trilogy has the entertainment industry wondering how much supporting actors should receive from such merchandise.

On May 30, 15 LOTR actors from New Zealand filed a complaint in Los Angeles Superior Court, stating New Line hasn't made good on its promise to pay the thesps 5 percent of the net revenue from the sales of merchandise bearing their characters' likenesses.

According to the complaint, the standard contract the actors signed stated, "The company has the right to merchandise the contractor's character for payment of 5 percent of net merchandising revenue.... This includes but is not limited to the right to use the contractor's likeness as portrayed in the film and video games."

But after reportedly reaping $100 million in merchandising revenue, New Line has yet to pay the 15 actors a penny from that revenue.

Plaintiff Stephen Ure played two orcs in the saga (Gorbag in The Return of the King and Grishnákh in The Two Towers) and had several lines. "Pretty much whenever an orc delivered dialogue it was me," said the Auckland-based actor whose LOTR characters have appeared on posters and been sold as figures, busts, and statuettes. "At last count, the money made on mine alone was over $13.5 million profit. Somehow they're turning that into a loss, which none of us can understand." He added, "In any country, it's very difficult to make a living as an actor. The industry is just a fledgling industry [in New Zealand].... So when you get shafted like this, it hurts."

Ure's agent Robert Bruce of the Robert Bruce Agency in Auckland said the 5 percent offer was a good deal for the actors, especially in New Zealand's still-growing entertainment industry. "[New Zealand productions] Xena and Hercules had a model similar to this, but it was not as cutthroat," he said. The seven or eight actors he represented in LOTR thought 5 percent would equal quite a lot in the end, and some studios don't offer a percentage of merchandise profits at all. "Disney did not want to pay residuals on [The Chronicles of Narnia: The Lion, the Witch and the Wardrobe] at all. The producers I met with told me Disney never pays," said the agent, whose clients Elizabeth Hawthorne and Judy McIntosh were cast in that film, which was shot in New Zealand.

One of the LOTR actors' attorneys, Henry Gradstein, of Gradstein & Luskin, agreed the Rings actors got a good, clear-cut deal. But he says New Line is employing what is commonly called "Hollywood accounting" to avoid paying the actors what they're due: The studio may have made $100 million on merchandise but is now deducting 50 percent of those profits as a "distribution fee." "What they're saying here is, 'We'll charge you a 50 percent distribution fee for the distribution of the merchandise....' There's nothing in the contract that says that. They just made it up. So right off the bat, they took half of the money off the table," Gradstein said.

New Line has also deducted an additional percent to pay the gross participants' share of the merchandise profits. "Gross participants" refers to the film's director, executive producers, and stars who get a percentage of the movie's total gross profits from box office, DVDs, licensing rights, and -- in the case of LOTR -- merchandise. According to Gradstein, New Line is subtracting those gross participants' share from the 15 supporting actors' profits. That percentage plus the 50 percent for distribution fees will essentially leave the actors with nothing, according to Gradstein.

"The contract is very specific that the only deductions are going to be made for those actors who will share in the revenue based upon appearing in the product itself," Gradstein pointed out. "In this case we have a contract that says 'net merchandising revenue.' It doesn't say, 'Based on any old expenses that the studio decides to deduct so that you never get paid revenue.' "

'David and Goliath'

A well-known entertainment litigator, Gradstein said the LOTR actors' suit is just one of "a million" contract disputes he's worked on in Hollywood. In 2003 he represented the original producers of My Big Fat Greek Wedding in a suit against writer-star Nia Vardalos and the film's production companies, including one headed by Tom Hanks and Rita Wilson. Gradstein's clients claimed they had contracted to receive 3 percent of the movie's profits but were not paid. One of Greek Wedding's production companies, Gold Circle Films, said the indie movie that ultimately grossed more than $350 million actually lost $20 million. Gradstein withdrew the case after a few months and said it has been resolved.

Gradstein and Bruce agreed that merchandising rights and percentages are negotiated between actors, agents, and producers on a case-by-case basis. As with most Hollywood deals, the most famous names get the biggest pieces of the financial pie. "If you're a well-known actor, director, or producer, you have the leverage and the power to negotiate a real deal, then you're going to get real profits," he said, adding that actors without leverage rarely get a good cut of the merchandise.

However, even having a big name does not guarantee a studio will pay up. A suit filed in 2005 by LOTR director-writer Peter Jackson claims New Line owes the director millions of dollars in revenue from The Lord of the Rings: The Fellowship of the Ring, and Jackson's lawyers told The New York Times the director is owed as much as $100 million for the trilogy. The lawsuit is still pending.

In the actors' case, Gradstein and Bruce said 5 percent was not only a good deal on paper but would have been fair for American thesps in a similar situation as the LOTR plaintiffs. However, the nonunion New Zealand actors did not contract for any residuals from DVD sales, licensing, or other royalties set in the Screen Actors Guild agreements. "We got a set fee and that's it; we don't get royalties from DVD sales or anything like that. So this was the only thing in the contract for us," Ure said.

Kiwi actors can now be covered by the New Zealand Actors' Equity, which is part of Australia's Media, Entertainment and Arts Alliance. But the union's Feature Film Agreement does not guarantee its members residuals for appearing in U.S. studio films. The agreement states residuals from films "funded or distributed by a major U.S. or Mini-Major [are] negotiated between the producer and the Alliance on a production-by-production basis."

SAG members aren't guaranteed residuals from movie merchandise, either. The guild's Theatrical Motion Pictures and Television Contract sets residuals for DVD sales and TV reruns, among other royalties, but does not mention merchandise.

Although Gradstein said the LOTR actors have a good case against New Line, he could not predict whether they'll be successful. It's always risky when a group of working actors sues a studio. Even New Zealand Actors' Equity union organizer Teresa Brown said in a June 2 statement that the LOTR actors are in "a typical David-and-Goliath scenario."

Ure admitted the suit has a downside, even if they win. "We do realize we're picking a fight with a giant," he said. "The only thing I know for certain that's going to happen out of this is, win or lose, New Line [isn't] going to offer me another job in a hurry."

Representatives of New Line Cinema did not respond to requests for comment as of press time.

When asked how actors without leverage can successfully bargain to get a piece of a movie's merchandise revenue, Gradstein advised, "Get as much as you can up front because Hollywood accounting is a full-employment act for litigators."