'The Hobbit:' Inside Peter Jackson and Warner Bros.' $1 Billion Gamble

9:00 AM PST 10/17/2012 by Kim Masters
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"The Hobbit"

An army of filmmakers in New Zealand worked to bring J.R.R. Tolkien's world back to life -- on some 99 sets, with hundreds of props and truckloads of Russian hair because, the filmmaker tells THR, "we felt a certain ownership over Middle Earth."

And it wasn't long before Shaye was out of the picture. The faltering New Line -- by then a part of Time Warner -- was downgraded from free-standing unit to Warners label, and Shaye was ousted. Alan Horn, then-president of Warners, naturally was supportive of what could prove to be a significant piece of business. Hobbit still had no official green light, but it seemed to be moving forward. In April 2008, Guillermo del Toro was announced as director and, though he once had expressed disgust with the world of hobbits, the Hellboy and Pan's Labyrinth auteur suspended a rich deal at Universal and committed himself to spending four years on the project. He relocated to New Zealand, worked up extensive designs, scouted locations and collaborated with Jackson, Walsh and Boyens on the two scripts.

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But as there was apparent progress on one front, there was trouble on another. MGM was sliding toward bankruptcy. Sloan was fired and replaced by hard-nosed executive Stephen Cooper, who specialized in restructuring troubled companies -- not in making movies. As decisions on Hobbit had to be made, executives at Warners and New Line found themselves handcuffed. They started calling Cooper "the Krispy Kreme guy," a reference to one of his previous gigs. When urgent decisions had to be made, recalls an insider, "Cooper would say things like, 'Can we think about that and get back to you in a month?' "

Remembers New Line executive vp Carolyn Blackwood: "The fate of The Hobbit was very tenuous. As we're financing preproduction, can MGM pay? No one knew." Warners tried to buy out MGM's rights, but the cash-strapped studio declined to let go of such a big title. Cooper "didn't want to sell it, and he wasn't ready to commit to it," says a source on the project.

The constant uncertainty took its toll. "We were told a lot of times, understandably, 'Look, you guys, probably another month and we should resolve this,' " says Jackson. "Ultimately, it got a little disheartening, with Guillermo obviously feeling it more than anybody else." On May 30, 2010, del Toro announced on the OneRing.net website that he was leaving the project, calling it "the hardest decision of my life." Boyens says del Toro, "an amazingly openhearted, generous guy," made it clear that Jackson and his team should take over.

Jackson had suffered a setback when his passion project The Lovely Bones opened in December 2009 to weak reviews and disappointing box office (it grossed $94 million worldwide). But if there's one message that Jackson and his team want to convey, it's that del Toro left on his own -- without a push from Jackson. "Eventually, he couldn't wait around anymore," says Jackson. "We got to the point that it was six months past when we should've originally started shooting."

Some close to del Toro suspect the story was a bit more complicated than that. "Do I think Peter wanted to take over The Hobbit? No," says one insider. "But he was going to be involved one way or the other, and as an artist, Guillermo wanted to make his version of the movie. I think he wondered: 'How much of an imprint can I put on this? … Do I want to spend years of my life being caretaker of someone else's franchise?' "

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In a statement to THR, del Toro reiterates: "Leaving The Hobbit after more than two years in New Zealand was the most difficult professional decision I've ever had to make. I put a great deal of love and effort into the co-writing and prepping of the Hobbit movies … with Peter, Fran and Philippa. However, I had a number of other professional and personal obligations that I had to fulfill. I left with the confidence that the Hobbit films were in good hands."

Although Jackson still hadn't made a decision to direct the movies, New Line's Blackwood says the opportunity to get Jackson into the director's chair was "a phenomenal gift." Concurs New Line president Toby Emmerich: "It wasn't clear the movies would survive if he didn't step in. And certainly no one on the planet was better qualified to do it."

It was Horn who got Jackson over the hump, telling him that one day, he would be glad he'd directed the entire cycle. "In all our deliberations with Peter, it was never about the money," says Horn. "It was about what he wanted to do with his life, whether he wanted to dive back in." Finally, Jackson was willing but wary because the film still had no green light. By then, MGM was about to file for bankruptcy. Horn agreed that Warners -- which already had invested $45 million before a single frame had been shot -- would foot the bill for the movies and MGM could reimburse the studio over time.

"I would give Alan the credit for these films existing in the first place," says Jackson. "It was only his total focus and attention that actually sorted through the issues. … I trust anything that he tells me. And I pay attention to anything he tells me, which is not really the case with some of these people." Although Horn since has left Warners and taken the helm at Disney, he will have an executive producer credit on all three movies.

Even though Jackson was in place, the troubles hardly were over. A dispute erupted as performers' unions, including SAG, urged members not to work on the films. Jackson responded with a statement arguing that the project was "a big fat juicy target" for labor organizers in New Zealand and suggested he would move production out of the country. In the end, Warners persuaded the New Zealand government to pass a law that stymied the unions and gave the production another $25 million in government incentives on top of a 15 percent tax break that the project already was set to receive.

A few weeks later, Horn was in New Zealand having dinner with Jackson when the director said he was having some gas pains and politely excused himself. Later that night, Horn learned that Jackson had been rushed to the hospital and was in surgery to repair a perforated ulcer. By now, the media had been speculating that there was a curse on Hobbit, and this just seemed like more evidence.

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When filming on Hobbit finally began March 21, 2011, almost all of del Toro's work had fallen by the wayside. "I didn't want to make Guillermo's movie," says Jackson. Not that he tossed out everything, he adds diplomatically. "Certainly some of his DNA is in it still. Some of the things he did I certainly liked and took bits and pieces from it." It's just that Jackson can't name a great many of them. (Final credits still are being resolved, but del Toro will share a screenwriting mention, at least on the first film.)

But Jackson did want to stick with Freeman, who was a lead contender for the title role. Jackson felt that Freeman had an ineffable quality that made him right for the part. "He is very hobbit-y in real life," says Jackson. "I am, too. I'm proud of it. You do not stray too far from your home, do not get involved in anything too adventurous or dangerous. I largely like to stay at home with my feet up, and Martin has a lot of those qualities."

But all the delays seemingly had cost the production its leading man. Committed to a second season of the British series Sherlock, Freeman no longer was available. The search for Bilbo continued, but Jackson wasn't happy with anyone else. "I was lying in bed one morning unable to sleep, watching him on my iPad," he remembers. "This was right at the point that we literally had to cast Bilbo within a week or we wouldn't have an actor ready to shoot with us. I just thought, 'We are in so much trouble.' "

So Jackson decided to act. "I usually don't deal with agents," he says. "But I called Martin's agent, and I said, 'Look, do you think Martin would be interested in doing this if we could find a way to actually have a break in our filming so he could do the Sherlock shoot?' " The answer was yes.

Still in Bilbo garb during a break in filming Hobbit, Freeman says he's relieved that it worked out, though he had doubts about being away from his home in England for the many months that would be required. But ultimately, he says, "It was too big a ship. I didn't want it to leave without me." Told that Jackson has described him as hobbit-y, Freeman seems to disapprove. "I think he's more hobbit-y than I am," he says. "He probably missed the boat on playing Bilbo."

In late June, Horn and the key New Line executives paid a visit to New Zealand and watched a cut of the first film. Then Jackson and his collaborators pitched the idea of making not two but three Hobbit movies. Horn -- by then at Disney -- admits that the proposal came as a shock. The question, he says, was "Can each movie be a full meal?" The group agreed that Jackson's plan worked.

So now, almost miraculously, there will be three Hobbits instead of none -- which often seemed like the easier option. But the temptation of going back to the Tolkien well was too rich to resist. "At every junction, someone had to say, 'I know it's a problem, but let's go forward,' " says Horn. "Or, 'I know it's more expensive than we thought it would be, but it's worth it.' "

Of course, Horn acknowledges that it only will become clear whether the struggle was worth it when the movies come out. "The audience will decide," he says. "But I've seen the first movie -- and it's a joy to be back in that world."

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