New Zealand give $120M subsidy to Hollywood for local production of The Hobbit, plus a passel of new anti-union and copyright laws -- and corrupt police raids

Writing for Bloomberg, Joe Karaganis describes the incredible subsidies that New Zealand provided to the film production for The Hobbit, and what a brutal screwjob those subsidies represent for Kiwi taxpayers.

But now you aren’t thinking like a studio. The real question is: How much taxpayer money can Warner Bros. demand from the government of New Zealand to keep production there (rather than, say, in Australia or the Czech Republic)? That answer turns out to be about $120 million, plus the revision of New Zealand’s labor laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes Internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal cooperation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom.

If you were a NZ taxpayer, you might say that this is a reasonable deal, given all the jobs and such that The Hobbit will bring to your country. Nuh-uh.

The U.K. government found this out in 2005, when Warner Bros. threatened to move “Harry Potter” productions to the Czech Republic. The government of Gordon Brown caved in to studio demands and passed new subsidies. In 2009, New Zealand also gave in and now faces demands for more.

The worst part is that, for most of the wannabe Hollywoods, it’s bad economic policy on every level. The productions bring in mostly low-end, temporary jobs, while the high-end jobs remain in Hollywood or New York. Call it the Curse of Harry Potter.

Kill the Hobbit Subsidies to Save Regular Earth

• [chapsandmutton]

  I don’t really agree with the point that this only brings in “low-end” jobs.

  The LOTR is practically the reason WETA Digital exists – and continues to set the standard for VFX work.

  • [TacoChuck]

    I have to agree with you. Many of the jobs the movie industry subsidies brought into Michigan were good paying union jobs. A lot of IATSE members benefited from the production that went on. In addition, there was local economy stimulus with indirect jobs in the service industries which might qualify as low-end, but were jobs none the less.

    When the subsidies stopped, so did a lot of the production work and a lot of IATSE members were impacted.

    I am sure post production people in other areas like California probably make more, I do not really know. But the $25/hr stage hand (stage hand is just short hand, it covers a lot of jobs like electricians, carpenters, set dressing and design, grips, etc) jobs were welcomed and are now sorely missed.

  • [Kevin Baker]

    I don’t believe there was a serious threat of WETA leaving the country, though; it was just the live action portion of of the production that might have left.

    • [jepollock]

      Without the subsidies the first time around, there wouldn’t have been a WETA at all.  Additionally, it’s not about WETA, it’s actually about Tourism.  The government is forgoing sales tax on the work in NZ in order to gain the taxes from the tourists which come through.  A non-governmental study done on the LOTR movies showed that the subsidy paid for itself many times over.

      • [endrest]

         Now, that’s exactly what I thought.. that it was the future tourism that would be the ‘payback’ for allowing the NZ gov to subsidize the cost of the film production. But, this crap about changing labor laws is horrible.  I thought the NZ gov was a relatively sensible body, but I’m beginning to see they’re as corrupt to big biz as any other country seems to be.  Bummer!

        • [jepollock]

          There was a contractor at WETA who brought a court case to argue that they were an employee.  It’s messed up a lot of things for a lot of contractors around here.  You don’t contract direct anymore, everyone has to go through a third party to make it very obvious there’s no employer/employee relationship.  I think this was the case: http://www.prlaw.co.nz/news/article/employment-vs-independent-contractor

          Went to the NZ Supreme Court, looks like.

  • [sftochch]

    Agreed: not just “low-end” jobs. The ripple effect of the LOTR movies, and presumably the future effect of the Hobbit, is felt in many sectors of New Zealand–especially tourism. I don’t know enough about economics to know if $120M was a good deal for the benefits realized in NZ, but I suspect it was a *great* deal. The good-paying jobs at WETA are just the beginning.
    http://travel.nytimes.com/2012/10/07/travel/new-zealands-hobbit-trail.html?pagewanted=all&_r=0

  • [Jonathan Cronin]

    Same for the Potters in London, they kept a few hundred people well employed for about ten years in the UK.

• [Red Monk]

  So when should we start the boycott of the hobbit?

  • [Antinous / Moderator]

    I’ve already started the boycott solely on the basis of Teal & Orange.

• [Glippiglop]

  His argument is entirely one sided.  There’s one particularly major reason that the Hobbit would not have been made in NZ without the tax breaks.  It’s the USD/NZD exchange rate, which for the past three years has left the country completely uncompetitive for foreign investment of this scale because the rate has been pushing record highs.  WB would have saved tens of millions by making it just about anywhere else in the world.

  There’s more to it than that of course – global publicity, tourism benefits, jobs, yada yada.  But as a business decision the exchange rate was the elephant in the room and had to be mitigated by the government if the films were to be made in NZ.

• [Daemonworks]

  Geek tourism.

• [Christopher Coulter]

  What rubbish it was an Australian union agitator from actors equity trying to blackmail the movie in to an oz.  Style agreement.

  When the move was going to go off shore they still held us to ransom in the end the government had to step in and that is why I as a tax payer have to pay .and where is the union now they buggered off back to oz.  makes you wonder if it was a plan to kill the NZ
  movie industry
  It is inconceivable that the Hobbit would not be made here in NZ and that is why the union thought they had the power ,now we have all lost thanks to a couple of greedy, greedy people .one of them was the resin outrageous fortune was cancelled.

  • [Nick FitzHerbert]

    To at all suggest that Warner Bros was the innocent party in this is just ridiculous. They are the ones benifiting from not only a tax break but the change of an entire employment law for their one production. And now they are demanding further financial gains.

    • [Christopher Coulter]

      I never suggested that warners or new line were not taking advantage of the situation as in deed we all would. I am suggesting was that if left alone then normal work practise would have continued and we the tax payer would not be paying.

      But then along came greedy power hungry people who realising the importance to NZ of the hobbit tried to hold the movie to ransom.

      What else could the government do but make the moist of a bad situation, regardless we now have a marketing vehicle of amazing potential

      • [Kimmo]

        make the moist of a bad situation

        Dude, your typos rock!

  • [First Last]

    To be precise, it was a New Zealand union (Actors Equity NZ) acting under the Australian union (MEAA) they had previously joined for very purpose of having a larger and more international membership to bargain against the New Zealand film industry with.

  • [Kimmo]

    one of them was the resin outrageous fortune was cancelled.

    Wow, typing in a Kiwi accent. Choice, bro.

• [Ian Reide]

  So, every country in the world down bids for these large companies, who end up being taxpayer subsidised and paying 1% tax? 

  • [Brad Bell]

    Yes. The race to the bottom is in full effect across the economic spectrum. Multi-national corporations have no allegiance to any country. 

    Noteworthy: in the past few days, Apple has said it is making some computers in the USA, ie. it is acting like it has a national allegiance.  

• [Michael Smith]

  But the producers haven’t seen the exit tax they charge at the airports (yet).

• [soupisgoodfood]

  Are they saying the three strikes law would never have been passed if LOtR had not been produced in NZ? It’s the first I’ve read about how these three issues are so directly related.

  • [First Last]

    They’re related in that three-strikes and Megaupload happened because of domestic and international pressure from the US media industry, of which Time Warner is a large part.

    They weren’t at all related to The Hobbit, they just happen to all tie into the TPP negotiations that the author very clumsily introduces at the end which is criticised for being basically yet another vehicle for those same pressures to corporately fuck sovereignty.

• [Raum187]

  Karaganis’ article is ludicrous. We (NZ) are not operating in a fucken bubble here. We’re operating on a global level with global players (the Australian unions being one).

  Not a single cent of taxpayer money was spent on this. NZ earned money on the production, both at private and public levels.

  I’m not a fan of John Key in any way, but I always thought he must have photos of Warners’ execs doing something iffy considering the deal he got. The promotional rights on the DVD/Blu-Ray sales alone are a bargain!

  Can Joe Karaganis please get his nose out of our business! Perhaps he should try living here first before he sticks it in again.

  Speaking of unions – the CTU, under the leadership of the incredibly naive Helen Kelly, put their weight behind the Ozzie unions on this. As a result, the CTU lost huge amounts of public support; in a time when we need unions to be strong, and savvy in their actions. I remember witnessing a huge anti-union march in central Wellington – by film industry workers telling the unions to fuck off, basically.

  • [Christopher Coulter]

    Not quite my words but we could almost be sole mates 

    • [Alpacaman]

      Shoes, or the fish?

• [Greg Sawyer]

  You do realise the Nuh-uh part doesn’t give any evidence that such subsidies do not benefit non-US countries. It just provides a non-attributed statement that it doesn’t.

• [Movie Fan]

  It would be helpful not to be overly alarmist. Appearance and reality are slighty at odds here. The truth of the matter is that these big movies are important to the New Zealand economy. They showcase the pristine beauty of New Zealand and so naturally help to encourage tourists to visit. They are thus a sensible  investment and the country of New Zealand will be benefiting from these films for years. The returns are worth it. They are very important.

  The Lord of the Rings also encouraged an entire industry and brought about a lot of employment and many successful careers were prompted by them, as will happen also with these great movies being made now. The successful films and the conducive movie making environment encourage other film makers to make films in New Zealand and so there are significant spin offs.

  Thousands of people owe their livelihoods to the great successes and prosper by them. The truth is that people who work in these big films get well looked after. The arts are a precarious industry and anyone who seeks to succeed in that field knows that. New Zealand has gone from being a ‘back water’ to being state of the art and that is very helpful.

  New Zealand has a lot of worker protections as a whole. It would be misleading to claim otherwise.

  Also, the high profiled Dotcom case has not led to the adverse outcomes that the author here might fear. There has been high public scrutiny of the events and on-going accountability and calling to account for mistakes made. New Zealand is not as is painted here in the article and the freedoms are more telling than the constraints. The movie industry in New Zealand is in good shape. It is the employment that has been generated that should be emphasized and the great work that has recently been done.

  • [Nick FitzHerbert]

    Pristine beauty? Not so much: http://www.stuff.co.nz/environment/8023412/100-Pure-Fantasy-Living-up-to-our-brand

• [Aron Gaul]

  thats 27 dollars per man woman and child in new zealand. if I were a real asshole (which I am) I would stand in a movie line up in new zealand and gloat as a foreigner how much less I get to pay than all of them. 
  maybe even a sign “kiwis pay triple, God hates kiwis”

  • [ocschwar]

    They better give them free tickets. 

• [Ethan Shalev]

  And add to that the violation of animal rights laws.
  http://news.msn.com/pop-culture/wranglers-say-hobbit-animals-died-on-unsafe-farm

• [Halloween_Jack]

  How many more ax-grindy articles about the Hobbit movie are we going to get before it comes out? 

• [bill_mcgonigle]

  There are positives and negatives here.  Having a more free employment environment increases freedom in NZ.  Having the three strikes laws and raiding Dotcom are decreases in freedom.
  The terminology is also suspect.  Those tax breaks don’t cost the people anything if the outcome of not implementing those tax breaks is for production to move to the next most favorable regime’s locale – in that case the tax breaks increase revenue (because a higher percentage of zero is still zero).

  • [Nick FitzHerbert]

    A more free employment environment? Too bad it has done nothing for the rising unemployment rate.

• [Antonio Carrasco]

  Cory Doctrow’s general outlook is that everything Hollywood does is bad, etc etc.

  If you don’t think these local tax incentives for film production help the local economy, see Vancouver or Louisiana. Both have benefitted greatly from legislative initiatives regarding film production

• [figment88]

  Both LOTR and Harry Potter have spawned entirely new tourist industries.

  https://www.google.com/search?q=lord+of+the+rings+tours

• [Ryan Lenethen]

  Kim Dotcom is Gollum?