Accounting wizardry

Smoke, mirrors and $6 billion

J.R.R. Tolkien sold movie rights to his Lord of the Rings novels 40 years ago for 7.5 per cent of future receipts. Three films and $6 billion later, his heirs say they haven’t seen a dime from Time Warner Inc. Hollywood’s fabled accounting methods, as used by New Line Cinema, the Time Warner unit that made the movies, will face a jury’s scrutiny in October, when the heirs’ lawsuit against the New York-based media company is set for trial in Los Angeles Superior Court. Tolkien’s son, Christopher, 84, and his daughter, Priscilla, 80, say New Line inflated expenses and excluded revenue from its calculation of profit, meaning the family “will never see any payment at all,” despite the fact the films have generated almost $3 billion in worldwide box-office receipts, and another $3 billion from DVDs, merchandise and other sources, The case, observers say, may not only provide a window into such accounting practices, but may derail two The Hobbit films that, if their predecessors are a guide, could generate $4 billion in sales.