LOS ANGELES - DIRECTOR Peter Jackson, New Line Cinema and Metro-Goldwyn-Mayer Studios Inc said on Tuesday they have agreed to make two movies based on the book 'The Hobbit' by J.R.R. Tolkien, ending months of legal wrangling.

Jackson, the director of the smash hit 'Lord of the Rings' movies, and producer Fran Walsh will executive produce both a 'Hobbit' movie and a sequel, but no decision has been made about who will direct the films, Mr Bob Shaye and Mr Michael Lynne, co-chairmen and co-CEOs of New Line said.

MGM Chairman Harry Sloan, who was credited by all parties for bringing about the deal, said Jackson found it 'impossible' to direct the film and meet proposed release dates in 2010 and 2011 due to other projects on which he is now working.

Jackson, Walsh and the studios share approval 'on all major creative elements' and will start considering screenwriters and directors in January, Mr Shaye said.

The movies will be made simultaneously in New Zealand, starting in 2009. Industry experts estimated the films would each cost US$150 million (S$218 million) to US$200 million to make, based in part on the US$400 million cost of the first three and inflation.

The studios will likely have to negotiate more expensive deals with 'Rings' cast members, such as Ian McKellen as Gandalf the wizard, if any of them return for 'The Hobbit'.

But they could save money on special effects that were designed and built for the 'Rings' films and could be reused.

Not Fantasy
Fantasy film 'The Hobbit' tells of a world inhabited by wizards, dwarfs, elves and little people called hobbits, who include the central character, Bilbo Baggins.

'The Hobbit' preceded Tolkien's 'Lord of the Rings' books, which were made into three hit movies by New Line that grossed roughly US$3 billion (S$4.4 billion) at global box offices, starting with 2001's 'The Lord of the Rings: The Fellowship of the Ring'.

Jackson and Walsh envisioned the first film covering the events of 'The Hobbit' and the second bridging the 80-year gap between that novel and the first 'Lord of the Rings' book.

It was that vision that led MGM, which holds the film rights to the book and is looking for new movie franchises, to insist that Jackson and Walsh make the films.

'Once (they) played out their vision for 'The Hobbit' as two movies ... MGM just took the position that we wanted to deal with Peter and it was not an option to do it with anybody else,' Mr Sloan said.

Mr Sloan said the studios 'would welcome as much of the original cast as possible,' adding that 'some of them have even said they are interested.'

For years, the making of a 'Hobbit' movie had been delayed while Jackson and New Line wrangled over profits from the 'Rings' films. The director had sued New Line claiming it owed him money. Jackson and New Line have now settled that suit.

The filmmakers set up a website, thehobbitblog.com, to keep fans - who loudly protested the making of 'The Hobbit' without Jackson - apprised of casting and other developments.

MGM and New Line, a unit of Time Warner Inc, will co-finance the films, with New Line distributing in the United States and MGM internationally. MGM is a closely held company owned by private equity firms and media divisions of Sony Corp and Comcast Corp. -- REUTERS