“It was commercial reality,” explained New Zealand Prime Minister John Key. “We did the business.”

That commercial reality was the threat by Hollywood studio Warner Brothers to abandon production of Peter Jackson’s The Hobbit, instantly subtracting an estimated $NZ640 million worth of film production from the island nation’s GDP.

The business Key referred to included an extra $20 million gift from New Zealand taxpayers (on top of The Hobbit’s existing 15% production subsidy) plus new industrial relations laws rammed through New Zealand parliament specifically aimed to prevent independent contractors from unionising. Such is the power of Hollywood’s ruthless movie studios, which roam the globe in search of ever-sweeter deals from governments desperate for the jobs, kudos and export earnings that big-budget foreign productions can bring.

In the case of The Hobbit, Warner Brothers played a canny hand, exploiting a minor labour dispute with the New Zealand branch of Australia’s MEAA as a way to extort extra production subsidies.

The actual labour dispute stems from a 2005 New Zealand Supreme court decision over the unfair dismissal of a model maker on The Lord of the Rings, but no one really believes this is the real issue at stake. Yes, MEAA blundered badly with its precipitate decision to issue an international boycott of The Hobbit with its affiliates in the United States. But once the boycott had been issued, it was enough for Warner executives to threaten to take production elsewhere to throw the entire New Zealand film industry into panic. Actors and crew marched in the streets against MEAA and executive producers from New Line suddenly found they had access to the New Zealand Prime Minister himself as Key scrambled to “save” the production.

The cross-Tasman panic over The Hobbit underlines the increasingly ruthless way in which Hollywood studios play international locations off against one another. In the academic literature, it’s called “runaway production”.

Australia is a keen participant in this race to the bottom, offering up generous production subsidies to foreign filmmakers using Australian production facilities. But Australia is competing against New Zealand, Canada and emerging US-based locations such as Louisiana, which offer even more generous subsidies and look increasingly attractive as the US dollar depreciates. Australia has recently lost production of two major Hollywood studio films to US locations: Battleship and Green Lantern. For the first time in more than a decade, no major Hollywood feature film is in production in Australia.

The response of the Australian screen industry is, predictably, to beg Canberra for more taxpayer subsidies for screen production. The problem with this strategy is not just the whip hand it gives to overseas studios. Currency risk is another big issue. Australian locations such as the Gold Coast’s Movieworld are now in trouble owing to the strong Aussie dollar, which is eroding the cost advantages of Australian production facilities, especially when compared to US locations. And taxpayer subsidies for foreign production do nothing for home-grown producers, screen-writers and directors, who must make do with the anemic state of local film finance.

But all that goes by the board when a big foreign star or studio comes knocking — as New South Wales taxpayers are discovering, now that they are spending $3 million subsidising two episodes of Oprah, one of the most profitable TV shows in America.
When it comes to foreign-financed movies and TV shows, old-fashioned industry policy of the sort that benefited foreign auto manufacturers is alive and well. This won’t be the last time a sovereign government changes its laws to keep movie studio happy.

Peter Fray

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