Key on Hobbit deal: 'It was commercial reality. We did the business.'

From the Government's perspective, the deal that saved The Hobbit movies for New Zealand can be summed up in eight words from Prime Minister John Key: "It was commercial reality. We did the business."

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He and his senior ministers certainly did do the business, and the $670 million production will deliver thousands of jobs and priceless publicity for the tourism industry.

And part of Key's commercial reality, perhaps the most important part, is that a film industry worth nearly $3 billion a year hasn't been put in danger of at best being seriously compromised and at worst destroyed.

But what a tangled web it was. Two days of intense negotiations with Warner Bros executives who at no time said anything in public and no real evidence of why the crisis had occurred.

There were explanations from the Government, mostly from Key, and most of them were immediately questioned by the Labour Party and the unions involved.

The facts, as best they can be established, are that Warner Bros wanted more money through tax rebates and an assurance that employment law "uncertainties" were cleared up to their advantage.

They gained both -- a $20m tax break on top of the standards 15 percent rate, in the case of The Hobbit movies about $65m, and a law change rushed through Parliament last week which says that if a film industry worker is engaged as an independent contractor they will stay an independent contractor.

Concerns about that seem to stem from the 2005 Supreme Court ruling that a model maker working on Lord of the Rings, who signed on as an independent contractor, was actually an employee because of the nature of the conditions he was working under and was therefore entitled to claim unfair dismissal.

But that is the only case of its kind that has ever affected the film industry in New Zealand, so why did Warner Bros suddenly become concerned about it when they had made numerous movies here since then with no trouble?

Apparently because the Australian Media, Entertainment and Arts Alliance (MEAA), of which the New Zealand Actors' Equity is a part, suddenly issued an international ban on The Hobbit which spooked Warner Bros into believing all sorts of industrial strife could hit their production -- including litigation on the lines of the 2005 case.

The MEAA said all it wanted was a discussion about a collective contract for The Hobbit, but its ban caused a panic which left New Zealand actors and film workers in a dreadful position.

The ban was lifted, and they scrambled to give assurances there would be no industrial action during the filming of The Hobbit. Warner Bros was playing hardball. It had the unions over a barrel, and they knew it. Warner Bros also knew the Government badly needed to keep the production in New Zealand, and it used that to negotiate a better deal.

The Labour Party says it was always about money, and maybe it was. Since The Hobbit was first conceived, the New Zealand dollar has appreciated from being worth 50 cents US to 75 cents US. That makes a huge difference to the cost of the production and Warner Bros wanted to offset it.

Looking at it from John Key's commercial perspective, $20m wasn't a big deal. It isn't a grant, it is a tax rebate. If Warner Bros had pulled out of New Zealand, there wouldn't have been any tax revenue at all coming in from the movies.

It has since been revealed that the three Lord of the Rings movies benefited by more than $100m each, although some of that was through a tax loophole which was subsequently closed.

Changing employment law was another matter. Whichever way the Government explained it, this was never going to look good.

It happened under pressure and it put Parliament in the position of having to pass law under urgency, without a select committee process which would have allowed public submissions.

It gave the Labour Party the opportunity to claim the Government had capitulated to a foreign company and was using the situation as an excuse to "stick it to the unions".

But Labour's position on this wasn't much better than the Government's.

It had to acknowledge the unions had made a hash of their involvement, and by voting against the law change it opened itself to accusations from ministers that if Labour had been in charge The Hobbit would have been lost along with all the jobs its "union mates" were supposed to be protecting.

Labour responded to that by saying it wouldn't have allowed the issue to arise in the first place, but exactly what it would have done if it had arisen the way it did was brushed off as a "hypothetical" question.

What happened last week is more likely to benefit the Government than the Labour Party, simply because if it had failed and The Hobbit movies had been taken offshore the disappointment would have been huge and the impact on the film industry potentially catastrophic.

John Key and his ministers saved the day, and whether the end justified the means is something that isn't likely to be remembered with any great detail when National seeks re-election about a year from now.

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