Paper chase costs studio in court

With studio accounting practices in the spotlight during contract negotiations, a ruling last week by a federal judge could become grist for the Hollywood guilds.

U.S. Magistrate Steven Hillman ordered New Line Cinema to pay $125,000 in sanctions over the mini-major’s failure to provide documents related to the film’s revenue stream in its legal battle with Peter Jackson over “Lord of the Rings” accounting.

Hillman said in the ruling that New Line may have destroyed documents and failed to search for documents and emails it was required by the court to produce, and cited a number of examples in which the searches were “haphazard.” Jackson’s suit against New Line alleges that he has not received proper accounting of income from “The Lord of the Rings: Fellowship of the Ring.”

Studio accounting already has become a major point of contention during the acrimonious negotiations between the Alliance of Motion Picture & Television Producers and the Writers Guild of America. The centerpiece of the AMPTP’s current proposal to WGA is a revolutionary revamp of residuals in which talent would receive payment only after basic costs have been recouped.

The AMPTP has insisted that its members can no longer operate under a system of deficit financing, contending that soaring costs and fast-changing revenue landscapes requires a change in the four-decade-old residual system.

But the WGA has rejected that proposal, asserting that Hollywood accounting is unreliable in such areas as profit participation deals. Members of its negotiating committee have cited such pics as “Chicago” and TV series such as “The Simpsons” as examples of projects that have remained in deficit due to accounting practices.

The AMPTP, which acts as the negotiating arm for studios and nets, has bristled at such accusations. AMPTP prexy Nick Counter has insisted that the accounting of revenues and costs is transparent, thanks to oversight via audits, profit participations and health and pension plans, along with the reporting requirements that are part of being subsidiaries of publicly held companies.

The AMPTP-WGA talks recessed Thursday and won’t resume until Oct. 1 at the earliest. The WGA contract expires Oct. 31.

Hillman’s ruling also instructed New Line to retain a document retrieval vendor within three weeks.

A New Line rep said the studio had no comment.

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