New Zealand reaches deal to keep "Hobbit" films

Elijah Wood as Hobbit Frodo in a scene from ''The Lord of The Rings: The Fellowship of The Ring''.

WELLINGTON (Reuters) - New Zealand will remain the home of "The Hobbit" after the government struck a US$25 million deal with Warner Bros. and promised labor law changes to stop the film studio from relocating the big-budget movie production.

A short-lived union boycott prompted Warner Bros. representatives to travel to New Zealand this week to review the studio's decision to shoot Peter Jackson's two-part adaptation of J.R.R. Tolkien's fantasy in New Zealand.

Fearing the loss of the project worth an estimated $500 million and damage to the reputation of New Zealand's fledgling film industry, Prime Minister John Key stepped in, negotiating a deal to keep the project that was announced late on Wednesday.

"An agreement has been reached between the New Zealand government and Warner Bros. that will enable the two Hobbit movies to be directed by Sir Peter Jackson to be made in New Zealand," Key told a news conference.

Jackson's adaptation of Tolkien's "Lord of the Rings" was shot in his home country of New Zealand and garnered major international publicity for New Zealand. Warner Bros. sold nearly $3 billion worth of tickets at the box office, and the filmmaker and his team won 11 Academy Awards in 2003, including best film.

Economists said the loss of "The Hobbit" could cost New Zealand up to $1.5 billion and the danger of losing the film brought thousands of protestors into the streets in the past week.

Key said the government would introduce legislation into parliament on Thursday to change local labor laws at the heart of the dispute over "The Hobbit" which sparked protests on the streets across the country over the past week.

TAX BREAK AND LEGAL CHANGE

The row erupted when actors' unions said the movie's producers would not allow them to negotiate a minimum wage and working conditions for their members.

Key said laws would be changed to clarify the differences between a contract worker and a movie production employee.

"We will be moving to ensure that New Zealand law in this area is settled to give film producers like Warner Bros. the confidence they need to produce their movies in New Zealand," said Key.

As part of the deal, New Zealand will also expand its film subsidy program for big budget movies, providing an extra US$7.5 million tax rebate for each "Hobbit" movie on top of the usual 15 percent.

Key said Warner Bros., a unit of Time Warner Inc, also agreed to a joint marketing deal with the New Zealand government which would promote the country as a film production and tourism destination.

The government will offset US$10 million of those costs.

Filming is expected to start in February 2011 with the first movie due for release in late 2012 and the second a year later.

"I am delighted that we have reached this result," Key said in a statement.

"Making the two Hobbit movies here will not only safeguard work for thousands of New Zealanders, but it will also follow the success of the "Lord of the Rings" trilogy in once again promoting New Zealand on the world stage."

"The Hobbit" is based on the adventures of Bilbo Baggins, a hobbit who lives in the land of Middle-earth that is filled with wizards, elves and other fantasy creatures. Bilbo goes on a quest to find treasure guarded by a dragon.

The book, first published in 1937, is the precursor to the "Lord of the Rings" trilogy that is also based in Middle-earth.

(Reporting by Adrian Bathgate; writing by Elaine Lies, Editing by Belinda Goldsmith)