US Studio Warner Bros. Leverages NZ

In the US there’s a famous saying in politics:

“It’s the economy, stupid.”

Everything is about the economy and for New Zealand, the reason why The Hobbit may have left is not because of unions, but because it’s more expensive for a US company to export work there. Much of that has to do with economic subsidies and currencies in various countries.

However NZ PM John Key has announced an agreement:

The government will pay up to US$25 million and make legislative changes negotiated with Warner Bros. Prime Minister also announces a ‘long-term strategic partnership’ with studio.

WB is prepared to spend US$ 500M on The Hobbit. Let’s assume for simplicity’s sake they will spend that total budget in the country they are prepared to make the film in.

How much is US$ 500M in the various currencies of the countries competing to get The Hobbit?:

  • New Zealand: NZ$ 668M
  • England: GBP$ 316M
  • Canada: CAD$ 512M

However, each government offers a direct rebate for the money you spent there. Generally speaking, these are the percentages they are willing to subsidize for a production:

  • New Zealand: 15%
  • England: 20%
  • Canada: 33%

When you factor in those respective subsidies and convert the totals back to $US, this is the total amount WB can expect to spend on a $US 500M production of the Hobbit in each country:

  • New Zealand: US$ 425 M
  • England: US$ 400M
  • Canada: US$ 343

In other words, while NZ is offering $75M to do The Hobbit there, Canada is offering almost $160M to do it there. That’s more than twice as much! That’s almost $214,000,000 in NZ Dollars. I suspect these are the kind of numbers being shown to NZ Prime Minister John Key who has been meeting with WB executives to negotiate keeping the film in NZ:

Asked about the size of the gap between what New Zealand taxpayers were putting up and other governments were offering Mr Key answered: “It’s not in the tens of millions, put it that way. There’s a lot of noughts.”

NZ$ 214,000,000 isn’t tens of millions, but it does have a lot of noughts.

Would WB actually have the audacity to ask for more money after already being given US$ 75M for just showing up? You betcha:

Mr. Key said Warner Bros were asking New Zealand to match the tax breaks offered by other countries.

It’s no coincidence either that WB has mentioned it would be uneconomic to do the film in New Zealand if the NZ Dollar went above 50 US cents:

There was a lot of discussion about the dollar. One of the discussions was if the dollar went past 50 cents it might be uneconomic for them to make films there,”

Why 50 cents? Because at that level the $US 500M production would come down to $US 400M in New Zealand. That’s exactly the same amount the next bidder England would be offering. Welcome to the race to the bottom.

You have to give credit where credit is due though. Warner Bros. was able to show up in one day and get US$ 25M on top of the US$ 75 M to match what England was already offering and a change in national labor laws.

Ironically a report was released today showing that New Zealand tied for number 1 as “least corrupt” country. Timing is everything.

Soldier On.

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42 Responses to US Studio Warner Bros. Leverages NZ

  1. Martyn Drake says:

    Where does this end? What other demands will WB and other film studios put on the New Zealand government for them to keep films being made there? Will they put pressure on the government to tighten up copyright and other intellectual property? Come down even heavily on file sharing?

    What cost to New Zealand is this deal, really?

  2. I think its also good to question how that cost will be drilled down to the very people who fought for this. As was pointed out, that new incentive has “a lot of naughts” in it and that money is going to have to come from somewhere. Maybe there will be a new Hobbit Tax to help fund it. Maybe wages will be lowered in order to help business pay new taxes levied on them in order to keep Warner Brothers in country.

    “Why do we fall? So we might better learn to pick ourselves back up.” I take comfort in the knowledge that the workers of New Zealand are capable of standing together and fighting for themselves. I’m sure there will be cause for them to do it again soon.

    • evan says:

      come on dude you are not paying attention….its a REBATE on money spent in NZ…the money comes from WB and goes back to WB, its just that not as much of the money spent by WB will stay in NZ, but something is better than nothing

  3. Rolling Red says:

    Excellent piece of investigative journalism. One of your best. I hope everyone uses this opportunity to get educated.

  4. anon_ymous says:

    I don’t understand how we got here. It’s US money. why is the project not being done “in country” where they need the jobs? when did corporations get so much power over our governments (which is us)

    and when did we allow our selves the apathy?

    it’s a punch in the face a pat on the head and then a “shut the fuck up”

  5. f says:

    I honestly can’t blame Warner for trying to get the best deal they can. I still believe that, without industrial action by the actors union, the films would have gone ahead a w/o any additional rebate. So, yes, NZ is now paying price for not having its ducks in a row.

    • vfxsoldier says:

      If you read Peter Jackson’s report on film subsidies in June 2010 he was already making the case that other countries were offering better incentives and would be a better place to shoot the Hobbit.

      This was way before any boycott was even mentioned. Even if the production went overseas, there still would have been an international boycott. The very actors in the LOTR films were respecting that boycott. Even Ian “gandalf” Mckellen. Ironically if the film left New Zealand, many of the places it would have gone to were places with collective bargaining agreements.

      By the way, where has there been any indication that a boycott could not continue under the new agreement? How does a change in NZ labor law prevent the actors from not wanting to participate in the film?

  6. sjd says:

    either way NZ are the winners….. I have work, my mates have work… and the subsidies are just non gathered tax so.. we haven’t lost anything. Economic spinoffs from LOTR for NZ have equated to alot more than any subsidy… and NZ still benefits from that production.

    so boo hoo.

    • Curious says:

      I thought that from various studies, once of which included NZ, showed that in most instances these subsidies result in a NET LOSS for the government/country giving out the subsidies?

      • vfxsoldier says:

        This is correct. I’ve wrote many times of how govts have measured the return on these investments to find that they are losing money.

        The problem with sjd analysis is that while they are getting work now, the next set of work will depend on their ability to compete with subsidies offered elsewhere.

        In this last round NZ was able to match England’s bid so England loses the work. The next round will be Canada which offers a 43% subsidy in some provinces that John Key admits he cannot match.

        and what happens then? At some point the NZ govt will wise up and the studios will take their business to the next country offering a large subsidy.

        This was a golden moment for NZ to use its leverage and require WB to share in the profits of The Hobbit if they wanted more subsidies.

        Those profits could then be re-invested so NZ could create their own films instead of relying on US studios to farm the production out to them.

        A missed opportunity.

      • Fred says:

        Aaaaaaaaah NO.

        Where would you get such a retarded idea? Let me educate you:
        scenario 1: Warner Bros doesn’t film in NZ. NZ gets nothing, in fact losign money through assets already developed.

        Scenario 2: Warner Bros films here with increased tax breaks and still brings hundreds of millions into the economy.

        Duh! Only a retard of epic proportions would deign to suggest NZ loses money!

        Wow, bitterness impairing your intellectual capacity much VFXwarrior?

      • vfxsoldier says:

        The NZ government reported a net loss of $36 million dollars on the subsidies they give out:

        http://vfxsoldier.wordpress.com/2010/06/14/nz-film-subsidies-result-in-net-loss/

        Peter Jackson also validated that these subsidies ultimately lose money but they need to have them or else WB and other studios will go elsewhere:

        http://media.nzherald.co.nz/webcontent/document/pdf/Report.pdf

    • Warner Bros has been granted concessions of two kinds to stop it shifting filming of The Hobbit elsewhere.

      In both instances, Warner Bros used fears that the films would be lost to this country to leverage a better deal for itself. In both instances, it should have been resisted.

      Confirmation that The Hobbit will be shot in [New Zealand] is welcome. But the cost should not have been anywhere near so extortionate.

      Enjoy your work, sir. I hope it pays enough for you to be able to afford the risks that your government had to take to get it for you.

  7. sjd says:

    McDermott Miller report estimated the World Premiere for LOTR in Wellington alone would be worth:

    -$9.5 million in new spending
    -$25 million in international media exposure
    -$5 million a year annually in new tourism spending
    -$25 million annually in on-going feature film production spending

    we are just talking the premier……

    • vfxsoldier says:

      The numbers you mention are from a report commissioned by the minister of arts and culture to promote tourism in 2000. None of those numbers were ever verified for actualization.

  8. sjd says:

    Hey well I have a nice house, car & holiday home so I am doing alright out of it…

  9. sjd says:

    WHINE, WHINE, WHINE. VFX SOLDIER SUCK COCK!
    NZ HAS THE HOBBIT GET OVER IT YOU RETARD!

  10. fdd says:

    and avatar sequals.
    I acn call you a waaaaambulance if you like VFX soldier

  11. Curious says:

    LOL. Its hilarious to hear people like sjd and fdd start off talking all smart like they think they know everything. Then when the facts and reports are shown to them resort to “Whine, whine whine” “Waaaaambulance” “Suck cock!”

    Classy you guys…you’re really showing your intelligence.

  12. truthiness says:

    I can’t help but notice you’re incredibly selective with the sources you quote and the information you glean from them. The very same news article and treasury report you source for your NZ film subsidies net loss argument goes on to state that The economic evaluation said large-scale productions had injected $363 million into the economy and generated direct economic growth of $173 million and indirect growth – due to the impact of films on tourism – of $22 million.

    Tax receipts from the sector less the tax cost of the grant was $50 million.

    The report said there appeared to be sound economic reasons for the Government targeting the sector and assisting its growth.Which is exactly what they are designed to do, aid in growth from work and investment that would not be there if there was no film industry.
    It really does seem like you have an agenda and will bend any argument to fit it.

    • vfxsoldier says:

      The “agenda” is to point out that yes the productions will spend a lot of money in NZ, but they garner very little return to the government in terms of spillover tax return.

      It would be nice to think that after so much investment in NZ and so many great films coming from there that the industry has grown to where they don’t need subsidies to win over WB. That’s not the case, WB wanted more money to match what England was offering hence the race to the bottom.

      In other words, if the NZ government isn’t prepared to match the next country WB or other studios threaten to go to, you have a film industry that will in dire circumstances.

      By the way, much of the money spent is on foreign workers coming to NZ from the US, Canada, and the UK.

      • truthiness says:

        that’s not an agenda it’s an argument, it’s a weak argument and it’s also the same argument you keep repeating without any consideration to the arguments against it.
        The return does not need to go directly back to the government for NZ to benefit from these investments. 400mill spent in NZ – 100mill of tax breaks = 300mill spent in NZ… it’s not a tough equation.
        Sure some of that will go to foreign workers, who will then spend some of that in NZ. Some of them will even decide to live in NZ after the films finish, buy houses etc and in general keep spending money in NZ. This doesn’t even go into the upskilling of NZ workers, research and development generated that will lead to other products that can be on sold… There is no way you can cut this deal that does not end up with a net benefit to the country and the NZ film industry.
        Yes it would be nice to think ‘we don’t need subsidies to win over WB’ I’m sure US farmers would like to be able to compete with international produce without govt subsidies too, unfortunately govt susidies are a reality of international trade.

  13. Bob LaBlaugh says:

    I know this isn’t really the point, but I recently had to do a breakdown for a show, and needed to get into the tax incentives for some of the three markets you listed.
    There’s a catch most people don’t talk about:
    The percentage rebate is only valid on an additional percentage of the total.

    For example, in the UK, the 20% rebate is only valid on 80% of the budget, and changes depending on the size of the total budget, and may only be qualified for after passing an overall points system to qualify it. So at its most ideal, it’s only 16%.

    In Canada, the rebate seems on paper like quite a bit, but it’s also (negotiably) eligible on only a percentage of the total. So you might get quoted a range of 28% to 60% rebate depending on circumstances, but it likely only counts on 60% of the total bill. On 38% I think that brings you down to about 25%.

    And then there are sometimes rebate caps, that depend on the current rate of work, or the local economy.

    I didn’t go through New Zealand’s rebate system.
    Anyway, I just wanted to toss out there that the broad-strokes calculations are heavily dependent on much more complicated formulas that aren’t very well published. The system appears to be pretty clearly “what’s it going to take to get you to drive off the lot in a new car today?”

    Just because NZ did it, doesn’t mean that all the other countries aren’t doing the same thing. Its just much more obvious in their case.

  14. Here’s non-shocking news .. An Australian effects house opens a New Zealand branch. Now that the NZ Govt has shown themselves willing to abuse the laborer and artist in order to get work, why not take advantage of it?

    http://www.encoremagazine.com.au/omnilab-opens-nz-animation-arm-5861

    • wow says:

      wow that’s amazing, they were so motivated by NZ changing their laws that they went back in time and set up a production studio in Auckland 10 years ago, and then managed to set up this new division only 5 weeks after these laws were changed!

      good grief

    • Brad says:

      Steven, it’s nice to have opinions…but they’re always best served with a little knowledge of the subject. You’ve proven your ignorance Steven. The Oktober animation wing was in the works well before this whole thing started and they have been up and running for some time now.

      The labourers and artists you so self righteously “defend” are quite happy to have the work they they were so close to being denied. They’ll be able to support their families thanks to the government’s actions. As an independent contractor what the government has done does not affect me at all. If your contract is ambiguous as to what your status is, you get that sorted before you sign. I fail to see how the government are abusing labourers.

      • vfxsoldier says:

        Gotta agree with the 2 posters above. Look the incentives provide money for studios to do the work there. This is why effects houses are opening up like crazy in Canada and Vancouver.

        The problem I point out with the subsidies is that they have to compete to offer more. At some point, for example in Michigan, you’ll get a legislature that isn’t too generous.

  15. Anon says:

    What’s wrong with my government taking my tax money and bribing the studio so they will choose to employ the VFX company that pays me the money I pay my taxes with?

  16. [...] few months ago I wrote how Warner Bros. threatened to take filming of The Hobbit elsewhere unless the New Zealand government provided the US studio with more taxpayer money. This was already [...]

  17. [...] in the case of The Hobbit fiasco where the NZ government was leveraged into giving more money to WB because of a record rise in the NZ dollar, I said other regions would probably be forced to do the [...]

  18. [...] if you read my blog, you know that I have pointed out how WB leveraged the NZ government into giving it more subsidy money because of the rise in the NZ dollar and the rise of more [...]

  19. [...] NZ was leveraged by WB to offer more subsidy money and now Australia has increased it’s subsidy to almost 40%! The [...]

  20. [...] US Studio Warner Bros. Leverages New Zealand [...]

  21. [...] two occaisions US studio Warner Bros. threatened local governments in the UK and New Zealand to hand over more money or else they would make major films [...]

  22. […] US Studio Warner Bros. Leverages NZ – What NZ had to do to keep The Hobbit. […]

  23. […] the Hobbit would be made elsewhere. Prime Minister John Key eventually agreed and at the time and I wrote a warning that the US studios would look to take advantage of them […]

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