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On the Latest stage of The Hobbit drama

October 22nd, 2010

So, according to Sir Peter Jackson and Philippa Boyens all that Warners are asking for in an uncertain world is certainty. A surety that no sudden outburst of labour unrest will plague The Hobbit in the coming eighteen months. Since the union has given that assurance and lifted its threat of a boycott – according to them, this happened last weekend though others demur – then that should mean everything’s alright, then? No, because it seems, no conceivable assurance can now possibly appease Sir Peter Jackson and the studios.

Incredibly, the government is now talking about suspending our employment laws for the duration of the filming. Judging by what Minister of Economic Development Gerry Brownlee was saying on RNZ this morning, the government is considering taking the draconian measures contained in our “Major Event” legislation (meant to protect the commercial interests behind the Rugby World Cup) and applying them to the 18 months period of filming The Hobbit.

So, having earlier rewritten our tax laws around the shooting schedule for Lord of the Rings, we seem willing to suspend our employment laws this time around. In particular, Brownlee seems willing to circumvent the Supreme Court ruling in the Bryson case. That case established that some workers – regardless of the contracts they may have signed, or were induced to sign, defining themselves as independent contractors – will qualify for the rights and conditions of employees if it can be shown that their actual and ongoing work situation is that of an employee. Apparently, Brownlee is considering suspending that ruling.

There’s a term for this hyperactive way of doing business, one that Hollywood would readily understand: Mickey Mouse. The reality is that in the UK, in the US, In Ireland and almost everywhere else in the developed world where films are made, studios routinely negotiate with unions on wages and conditions of work. I’m sure the self-imposed shooting schedule for The Hobbit is now so tightly stretched that Jackson and Warners must be feeling highly stressed about they time pressure they’re under – but if they feel they have no time left now to negotiate properly, then let them be upfront and say so, rather than demonise the attempt to negotiate at all.
As things currently stand, Warners are coming down to New Zealand next week to talk about the prospects of moving the location shoot offshore. According to both Brownlee today (and Penelope Borland of SPADA used the same term yesterday on RNZ) the level of production subsidies available in New Zealand is a ‘red herring’ and allegedly of no interest to Warners. Interesting. Only two months ago, Jackson was writing in his review of the NZ Film Commission that these subsidies are crucial to films being made here. Now mysteriously, they’re an irrelevance.

Quite some herring, though. If as rumoured, Ireland is now a prime contender for the location shoot, keep in mind that in July Peter Jackson wrote in his Film Commission review (page 68) that Ireland is offering ‘up to 28%’ rebates on local spend by major film productions as compared to the 15% available here. Back then, Jackson saw that as being a worry for New Zealand. As well he might.

Theoretically, how might the difference play out? On a $US500 million production that The Hobbit is reputed to be, it means that Warners/MGM could conceivably get a rebate of “up to” $US140 million in Ireland, as opposed to a maximum here of $US75 million. And we are supposed to believe that local unions merely asking for a collective wage agreement have somehow over-ridden a potential $US65 million difference in the bids? Yeah right.

Did I mention that the Irish film industry– less than a month ago – negotiated a collective agreement for actors?

Logically, why would the mere prospect of such an agreement in New Zealand be sufficient to derail the project here, when the signing of one in Ireland has apparently turned Ireland into a more attractive destination? Could it be that having a collective agreement in the local film industry is almost entirely irrelevant to the decisions on The Hobbit that are being made in Hollywood?

If The Hobbit location shoot does move to Ireland for the exteriors and to England for the interiors, England seems unlikely to be any more production-friendly, when it comes to a deal on wages and conditions. Ever since the days of Stanley Kubrick, studios such as Pinewood have been renowned for their high levels of union organisation – leading to, as I mentioned in an earlier article, to major confrontations on the Aliens set between director James Cameron and the British crew. According to Rebecca Keegan’s fascinating Cameron biography The Futurist, this culminated on the final day with Cameron giving a speech to the crew that while things had been tough, what cheered him up was the thought that he could now get in his car and drive out the gates and never come back, but you sorry bastards will still be here. Memo to Jackson: their modern equivalents are probably still there too, wherever in England he may be considering shooting the interiors.

Unless John Key sees fit to intervene with a sweetener next week – and he should, given that he’s willing to spend upwards of $30 million on the Rugby World Cup and still budget for a loss on it – New Zealand’s bid will be almost certainly be tens of millions short of what is on offer elsewhere. How big is such a difference likely to be? My example above was purely illustrative. In reality, the cost of The Hobbit production will be broken down between (a) pre-production (b) a location shoot, divided between exteriors and interiors and (c) post production. (New Zealand stands at risk of losing (b) the location shoot segment, just as we ‘lost’ part of the location shoot for The Lovely Bones to Pennsylvania, without any of the current hysteria.)

The higher subsidies elsewhere are relevant only with respect to the location shoot. I have no idea of the actual breakdown of these three primary elements. Let’s suppose though, there’s something like a 20% pre production, 40% location shoot and a 40% post production split, which sounds reasonable. The difference between what New Zealand can currently offer and what the Irish could offer is still “up to” $US26 million. That may be small potatoes to Penelope Borland, but it looks like quite a lot to me.

For that reason, wouldn’t be helpful if Jackson, Philippa Boyens and Fran Walsh could advise what ratio of The Hobbit’s $500 million budget is potentially headed overseas? As taxpayers, we’re entitled to an estimate on that one. Among other things, this would enable New Zealanders to gauge what we will be giving back to the production via the Large Budget Screen Production Grants Scheme, Because even though we may end up losing the The Hobbit location shoot, we can still expect to paying out a bundle on the rest of it – which I’d estimate at 50-60% of the overall budget.

Put it this way. How many jobs at the Miramar complex – whether that be at Weta Digital or in Richard Taylor’s workshop – would be lost if The Hobbit were to be moved overseas? My hunch would be : almost none. Pre and post production work on The Hobbit is relatively secure. The people who would lose out would be those ‘independent contractors’ actors and technicians, and I’m not downplaying their loss. What I’m saying is that there still an obvious way that their jobs and the benefits they bring to the economy can be saved – and that it is through the government boosting the LBSPGS subsidy levels. Yet on RNZ this morning, Brownlee ruled that out. Why? Because Brownlee and Treasury share a near-religious aversion to the kind of film industry subsidies common elsewhere in the sinful world – and quite justifiably, Jackson attacked that complacency within his Film Commission review. But hey, that reality has now been conveniently erased.

Instead, what Brownlee and Prime Minister John Key maintain is that Hollywood studios should come here for the scenery, the exchange rate, and the skilled and “flexible” (ie compliant) work force. They seem quite willing to sacrifice The Hobbit if the service of that belief.
Unfortunately, Helen Kelly of the Council of the Trade Unions has her own ideological blindspot. To her, this is a case of Hollywood studios bullying New Zealand to cough up bigger tax incentives. It is a conspiracy, and a race to the bottom. I disagree. For starters, neither the LBSPGS nor the relevant Irish incentives are ‘tax incentives’ of the kind common here in the early 1980s – and they don’t resemble the variation on a ‘sale and leaseback’ tax deal that underpinned Lord of the Rings, either. Potentially, those arrangements could be used as tax avoidance vehicles that raided the revenues of the state – which is why they were phased out ASAP once LOTR was completed. These new rebates are different. They are “after spend” grants, triggered after the qualifying economic activity has occurred. (True, the Irish ones are somewhat less pure – in that they allegedly offer their ‘after spend’ rebates from the first day of principal photography, which must mean that clawback occurs if the spend doesn’t eventuate.)

Point being, there would be no raid on the revenue if the LBSPGS was raised when Warners come calling next week. There is no race to the bottom involved, if that is taken to mean a lowering of standards and conditions to attract multinationals. These rebates were designed on Jim Anderton’s watch in the early 2000s precisely to defuse the kind of tax breaks available on LOTR. ( Yes, the LOTR production also created virtuous economic activity and upskilling as well, though we have never been told by either the government or by Jackson what the net amounts and benefits actually were.)

To repeat : the LOTR sale/leaseback mechanisms carried an inherent potential for tax avoidance The rebates don’t. There is no race to the bottom because the winner genuinely wins, while the losers lose only the opportunity – and the films in question couldn’t be made (on such a scale, anyway) without such rebates. Jackson spelled out the logic for production subsidies very eloquently in his Film Commission review, and perhaps Kelly and Brownlee should both read it.

The Boyens argument is that everything was hunky dory from her perspective, until the unions intervened a few weeks ago. If that was true for her, it wasn’t for Warners. At the beginning of September, Warners thought that a deal for MGM – their co-partner in The Hobbit – was in the bag, with Spyglass at the helm. Currently, it isn’t. The situation won’t become clear until October 29, when the MGM creditors vote on it. Currently, Warners faces a raft of new headaches, including the genuine prospect of its partner (a) contracting with it under a Spyglass run regime to market and distribute The Hobbit or (b) entering a deal with Lionsgate where the new MGM will probably have to buy out maverick investor Carl Icahn. Both options will reverberate and affect the numbers on The Hobbit, Both make the level of production subsidies available on The Hobbit anything but a red herring.

Only Warners know how those numbers are currently shaking down. Hopefully by the time their executives arrive next week, Jackson will have stopped behaving like Thorin Oakenshield, having a hissy fit over the Arkenstone.

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