New Zealand: Casualties Of The Film Subsidy War

The following video was created by VFXunionWTF

Over the past few months a labor dispute over filming of The Hobbit has drawn the ire of director Peter Jackson as he is prepared to move the film out of New Zealand to avoid negotiating with the unions.

If you were to believe Mr. Jackson, he claims that a $670 million investment in The Hobbit by US studio Warner Bros. is threatened by the exploding costs of granting basic union benefits to the hundreds of actors and technicians that will work on the film.

Of course if you really believe that then you might also believe that Middle Earth actually exists in New Zealand and therefore is the only location The Hobbit can be filmed.

The Real Reason The Hobbit Will Leave NZ

There are two reasons The Hobbit may not be filmed in New Zealand and they really have nothing to do with this labor dispute. I mean really, Warner Bros. has made many movies with many laborers that have collective bargaining agreements.

In fact many of the workers who are a part of various guilds have their respective agreements met even when they go film in non-union areas like New Zealand.

The real reason The Hobbit may go to places like Canada, Ireland, Scotland, and the Czech Republic is:

1. Huge government subsidies offered by each country to do the production there.
2. Currency fluctuations that make it cheaper to shoot outside the US.

New Zealand Subsidies Are Dwarfed By Other Desperate Countries

New Zealand has benefited from a subsidy where a producer can get a 15% kickback from whatever production costs occur in New Zealand. The subsidy was much larger back when the Rings trilogies were made in New Zealand because of a loophole. How much did the government give to New Line Cinemas to create the 3 Lord Of The Rings films?

In 2003, the Organisation for Economic Co-operation and Development criticised New Zealand’s government for providing a subsidy or tax loophole worth an estimated $300m to $400m for the three Lord of the Rings films, a loophole later closed.

While New Zealand has since tightened the size of their film subsidy, other countries and states have come to the table to throw even larger amounts of money away.

The UK is offering 20%, New Mexico 25%, Canada 35%, Michigan 42%. What’s interesting is that independent studies have shown that there has been little economic spillover from these kinds of subsidies and they have taken a toll governments that have lost a lot of money on such investments.

One of them happens to be New Zealand which found they were losing money.

Now NZ Is Engaging In Protectionism

I’ve pointed out in many articles on my blog how international subsidies have played a huge role in hurting the US vfx facilities. While it’s been humiliating for us to see US studios take work overseas, we are routinely chastised and accused of engaging in protectionism for the idea that US studios should make US films in the US. Well guess what my reaction was when I saw this video of the workers from Weta protesting in the streets of Wellington claiming that The Hobbit should be filmed in New Zealand to protect the NZ film industry.

If You’re A Sensitive Kiwi, This May Hurt

First off, I know quite a few workers from Weta who were at those protests. Many of them aren’t even Kiwis and are from the UK, US, and Canada. By the way, since when did JRR Tolkien ever mention that his inspiration for Middle Earth was the country of New Zealand? I’ve been to NZ and while it is beautiful, it is nothing compared to Canada’s Yukon Territories which would be a wonderful location for Middle Earth.

Secondly, The Hobbit is not New Zealand film. Yes, it is going to be directed by Peter Jackson who is a Kiwi, but it’s being produced by the US studio Warner Bros. The money it makes will benefit the US studio.

Finally, there is no such thing as a ‘New Zealand film industry’. What there really is is a maquiladora film industry : A film industry that exists for US studios to take advantage of free government money. Right now other countries are offering more money to do production work there and with such a huge investment by Warner Bros, it would be smart to take the production to the highest bidder whether Peter Jackson or the people of New Zealand or the carpet baggers of Weta like it or not.

New Zealand Has “Nothing To Offer”

For all it’s beauty and oscars won by Weta, there is nothing that New Zealand offers US production studios other than free government money and if you are offended by that statement you should be, but not at me.

This is essentially what Mr Peter Jackson said in a sobering account of his review of the NZ Film Industry when it was discovered that subsidies offered to US studios like Universal were big losers for the country:

The Treasury report refers to a 2005 LBSPG evaluation, which concluded that ‘very large budget films that come to New Zealand usually did so for quality and creative reasons rather than economic reasons’. This is simply untrue. Without the LBSPG , Universal would have insisted King Kong be moved to Canada in the blink of an eye. There’s nothing this country offers that justifies the budget hit Universal would have taken by basing the film in a country with no production incentives.

Even Avatar’s producer reluctantly admitted the reason why they did Avatar at Weta in New Zealand wasn’t because of their superb work, but the free government money:

Asked in December why New Zealand was chosen as the film’s production location, Avatar producer Jon Landau said: “To be honest, we went for the tax credit.”

Disney Is Also Leaving NZ Without Any Labor Dispute

If you still think the reason behind this is the labor dispute then perhaps you’d be surprised to hear how many in the media missed the other big story in New Zealand of how US Studio Disney has decided to pull out of their investment of Auckland Film Studio. No labor dispute there. Disney has been busy doing most of it’s work in Vancouver which is offering a 35% subsidy.

Casualties Of The Currency War

The other huge elephant in the room is that the cost of production in New Zealand is much higher now through no fault of New Zealand.

You can see a historical chart that graphs the exchange rate of the New Zealand Dollar to US Dollar.

During the time of filming of the Rings trilogies, Mr. Jackson not only had $300-400 million of government subsidies to lure US production to New Zealand at the time, but he also had the advantage of a historically low New Zealand Dollar which made production costs comparatively cheap for US studios.

Today, New Zealand’s Dollar is at an all time high and is expected to go up even more as the US Dollar weakens. It should be no surprise that US Studios have taken notice of this.

Last year the VES had a production summit where a Warner Bros. producer and VFX executive both admitted that a lower US dollar was keeping production in the US. I can tell you that one VFX facility in the US was awarded a film that should have gone to Weta Digital. Usually it’s a no brainer to go Weta, but with a falling dollar, US vfx facilities stand to gain.

The Terrible Irony Of Subsidies And NZ

I always have said that in the race to the bottom the biggest loser is the last person standing and with film subsidies, the last person standing is the one giving away the most free money. Ironically, one could see The Hobbit being filmed  in New Zealand if subsidies didn’t exist at all. There would be no other country that could undercut the others and therefore the choice of production location would probably be based on preference. If you live by the subsidy, you die by the subsidy and for a country like New Zealand it’s in a very tough situation since other countries are offering more money. It’s no surprise that Peter Jackson and WB are looking to take advantage of this by leveraging the NZ government to hand over more money.

Soldier On.