[ case STUDY 21 [a Strategic bargaining to film Lord of the Rings wi In the highy competitive and risky environment of Holywood film-making, tis essential to analyse those who have the power to make things happen. This case explores the strategic environment surrounding one of the most proftable fs ever made ~ and how the deal and the movie almost failed. Background twas one ofthe biggest gambles in move history ~ handing |US5300 milion to shoot an epic togy in one take toa vit ally unknown ceector with no record of big budget Holywood pictures. And leting im doit 7,000 miles away, so that studio ‘executives had litle control aver what actually happened on the set ‘Thore were plenty of recent examples of how a huge Investment in what seemed a surefire blockbuster had backfred, leaving massive dents in the studlo’s finances ~ Waterworld, Heaven's Gate and so on. Somehow, though, ‘Lord ofthe Rings dd get made and took over US$500 millon ints frst year as well as winning four Oscars. Its easy to for {get the scale of the isk involved and the corwoluted strategic bargaining that was necessary before a single scene was shot For Peter Jackson, the fn’s New Zealand-bom director, ‘and his agent, Ken Kamins from ICM, the story behind Lord of| the Rings is one of a project that vary neat fallod to seo the light of day Competitive environment \Whien Jackson and Kamins set out fo make the film in 1995, they fest had to secure the rights to JAR Tolkien's novels, The Fallowshio of tho Ring, The Two Towors and The Return ofthe King. Producor Saul’ Zaentz had bought the rights. from Professor Tolkien for @ rumoured US$15,000 30 years eater and he had no intention of saling them. Up to that point, ‘Jackson was known only fr low-budget Horror movies such as Braindead. However, an Oscar nomination in 1995 for the sereenplay of his USSS.5 millon arthouse drama Heavenly Creatures had eared him a frstook deal with Harvey Goldstein, head of Miramax, the independent studio alied to Disney. So Jackson and Kamins approached Weinsten that ‘yar with the idea for a Lord ofthe Rings adaptation, "When we told Harvey that Saul held the rights, he was immediately enthusiast,” says Kamins, ‘as head just helped ‘Saul on The English Pationt [Miramax had stepped in to pick ‘up the fm after Fox, part of News Corporation, dropped it on the eve of production]. That created the moral window by Which Harvey could ask. But this wasn't charty ethor, Saul hhad Harvey pay'a pretty penny ~'ve been told somewere in the USS3 milion range. Sanya Even ater the strategy was negotiated and implemented, it was important to promote the fn 7Part 2 + Analysis of the environment CASE STUDY 3.1 continued New bargaining problems Having secured the fim rights, the Miramax boss sent ‘Jackson and his partner, Fran Walsh, of to write the scripts for ‘a two-part adaplation, with both parts being fined one after the other, Production research was also to begin in New Zealand, Just when things seamed to be going smoothly the next wave of problems emerged. “It soon became cloar to Miramax that twas going to bea very expensive proposition,” says Kamins, ‘maybe more expensive than their brief as defined by Disnoy allowed them to got invalved in. Harvey thon went to Disney and asked whether they would want a partner in the project. When Disney said no, Micamax got con ‘corned about the cost, And of couse [start] asking obvious {questions: what happens if the frst movie doesn't work?” Faced with such a risky and expensive project, Weinstein asked Jackson to make the trlogy as one fim of no more than ‘ree hours. Jackson declined, and, instead, he and Kamins asked to take the project to another studio, Weinstein agreed, though he imposed very tough conditions. Says Kamins: We had three wooks to set it up somewhere else. Harvey ‘also demanded that the USS12 milion that Miramax had ‘already spent in development had tobe copa wathin 72 hours. of the agreement being signed. Now this fe highty unusual in the movie business. Normally, a studlo would simply pay the former stucio a 10 per cent option or they would work out a dealin the budgot ofthe fim once the movie got made. Most Importanty, he and a pariner insisted on 5 par cent of the ‘oross, whether there was ane movie, two movies o eight The deal hangs on a knife-edge With three weeks to find another studio, Jackson and Kamins ecided to do two things. While Kamins started submitting the screenplays for the two-part adaptation to every studio in Holywood, Jackson flew to New Zealand to produce a ‘35-minute documentary with US$50,000 of his own money. ‘The idea was that, f any of the studios was interested, the documentary would show them wire Miramax's US$12 mil lion had gone, and, most importanty, why Jackson was the fight director. But Kamins had litte success ~ every studio seid no, except two, Polygram and New Line, which was ‘owned by Wamer Brothers. Then Polygram pulled out at the last minute: ‘So we went to New Lino reasing that they ware the last Popsicle stand inthe desert, and them not knowing But at New Line, they had some luck. Jackson's old rend, Mark Ordesky, turned out to be one of those making the deci- sion. New Line then asked: Why are you making two movies? It's threo books, s0 i's threo movies.’ Nogoiations started the next day. Many in the business doubted the sanity ofthe decision, especialy making three rather than two films. ‘But Potor's prasentation made It cloar that no had an absolutely commanding vision for the fim... You would be surprised how, in the movie business, some of these commitments are ‘made on far less sturdy ground” ‘By 2002, AOL. Time Warnor was estimated to have one of the biggest money-spinners in entertainment history on its hands. New Line and ts cistibution partners tid turned Lord ofthe ings ito a woriduide franchise in te Star Wars mould, and were exploiting the brand name across a huge range of platforms - DVD, video games, the internet, merchandise of ‘very sort, The gamble was starting to pay. Heavy adapted by Pinar yc kom a al by Katia Hofmann IFT Create Business, 19 March 2002, page 10. © Franca Temes 2002. ight recerved. Raproducod ita permision Case questions 1 Who has the bargaining power inthis strategic environment? And who has the co-operating power? Identity anc analyse the players use the concepts from Sections 3.7 and 3.8 to help you 2 What useful strategie concepts, ifany, from this chapter can be used in analysing the strategic environment? And what cannot be usec? Why? 3 If risk and judgement are important in business decisions, ‘can prescriptive strategic analysis be usefully employed?