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The Government is "likely" to make changes to employment law to reassure US movie giant Warner Bros. it can make The Hobbit here without facing the threat of industrial action, says Prime Minister John Key.
Mr Key, senior cabinet ministers and officials were meeting meet Warner Bros. representatives again this afternoon and the major sticking point now appears to be what financial incentives the Government can offer to have Warner Bros. make the $670 million production here.
Mr Key met Warner Bros. executives for more than two hours yesterday and advice overnight meant it was looking increasingly likely the two parties could reach agreement on changing employment law.
"One way or the other this issue will be resolved, my guess, by the end of the week, if not earlier."
However, financially things were looking difficult, Mr Key told media at the official opening of Wellington Airport's new international terminal today.
Mr Key would not go into details, but Warner Bros. wanted "lots" of financial incentives but the Government was not offering lots in return.
"We don't have the capacity to write out cheques.
"If it comes down to a bidding war New Zealand is going to lose. If New Zealand bases the entire industry on some sort of financial incentives then it's not going to be a long-lasting industry."
Mr Key said The Hobbit was an expensive project and Warner Bros. was worried there was a degree of ambiguity in current employment law, which would have been fine if the industrial scene was settled, but the aggressive union action had undermined that.
"Every day they spend in court, unable to film, over time, is millions and millions of dollars. It's just a risk they are not prepared to take."
The producers are worried about legal definitions of contractors and employees in New Zealand law, which they think could be used against them. They are also said to have been spooked by union action and the international "do not work" order.
The actors' unions involved in the threat to boycott The Hobbit have guaranteed that the filming will not be disrupted by industrial action, but Mr Key rejected the idea there was stability in the film industry workforce.
There had been "big breakdown" in the relations between the unions and the studio, he said.
The aim was to have The Hobbit made here, but also to have Warner Bros. and other movie makers come here, he said.
"That will happen when we have predictability in employment law."
Mr Key denied the Government was being "played" by Warner Bros. and it was not using The Hobbit as a stalking horse to change employment laws.
Mr Key also denied the country would lose face if it changed laws at the behest of Warner Bros.
"It's the practicalities of the world we live in. If we want to secure those movies and others made in this environment we'll need to give people clarity about the law is when you are a contractor and when you are an employee.
"Governments all the time change their laws to add clarity to legislation. It's not the first time we have done it and it probably won't be the last."
Rallies in support of filming The Hobbit here showed it was people who worked in the industry that wanted the law changes, he said.
"It's not like we are going against the workforce, we are actually supporting the workforce.