If the production of The Hobbit does finally move to eastern Europe, it would not be because of the actors’ wage bill or any fresh royalties deal on residuals – it would be because the producers stood to get a sufficiently better financial deal from doing so. That possibility would have at least crossed the minds of the number crunchers at Warners given (a) the relatively high currency rate at present in New Zealand and (b) the higher incentives that are now on offer in the Czech Republic here, and in Serbia here, to name just two of the eastern European contenders.

It may seem like ancient history, but one that is still relevant: yes, LOTR was made in New Zealand partly because we have great locations and partly because we have skilled crews willing to work ridiculously long hours for relatively low wages. The more compelling rationale was that the producers were able to take up massive tax incentives available both in Germany and in New Zealand on much the same expenditure. As a bonus, New Zealand could also offer a quite low currency rate at the time. The NZ tax incentives ended with LOTR because – amazingly – we had written our tax legislation around that one film. These were replaced by Jim Anderton’s baby, the Large Budget Screen Production Scheme (LBSPGS) which now, in essence, offers producers a 15% rebate on their local spend. As the news reports that I linked above now indicate, the Czechs are offering 20%, and the Serbs are offering 15-25% on the local spend for large film productions.

Whose fault is it that New Zealand has drifted into such a competitive disadvantage that it could conceivably lose The Hobbit and all the downstream benefits that it offers? Answer: the Key government. In 2008, the Clark government had seen the signs, and raised the ante on the LBSPGS from 12.5% to 15% but Bill English has refused to raise it since. It is not as if he hasn’t been warned. In his recent review of the Film Commission, Jackson took explicit aim at Treasury’s ideological hostility to incentives being offered to major foreign productions, and especially at the deluded belief that major foreign productions will still come here, regardless. This thinking, Jackson said flatly, was “wrong”. They won’t, he warned.

So, while the unions would cop the blame if the production did up sticks and move to eastern Europe, a more deserving target would be a Key government religiously opposed to the level of tax concessions for film now available elsewhere in the sinful world. If The Hobbit goes elsewhere and since it is a two film project, pressure would certainly come on the Key government to raise the LBSPGS to 20%, to try and re-capture at least some of the shoot – much as the Czechs have scored some of the Mission Impossible 4 shoot now taking place in Prague, while the rest of it is being shot in Vancouver, to leverage the incentives on offer there. Film productions are mobile these days. They tend to follow the money.

The pressure on the The Hobbit to chase the money may be particularly acute, for reasons I pointed out a few months ago. At one level, the project looks like a sure-fire money machine. Yet there is already a long list of potential profit participants:

All along, a factor in reducing the attractiveness of The Hobbit package has been the number of players – MGM, Warners, the Tolkien estate, Saul Zaentz (who long ago bought the film rights to Middle Earth from the Tolkien family) Harvey Weinstein ( who still presumably has something like a 5% cut based on his role in the LOTR transition from Universal to New Line) who have claim on a slice of the returns.

There is a question that some of the film rights on The Hobbit actually expire in 2010. Even so, the various shares of that rights pie have to be sorted before you even begin to divvy up the money available for the creatives like Jackson and his colleagues – which would have to include Guillermo del Toro, who would need to be rewarded for his creative input. Is there also an exit fee for him, covered by his contractual conditions in the event of delays not of his making?

Obviously, not all of those possible contenders can lay claim to equal shares, but it is still a sizeable list. Warners itself is not immune to cost pressures. As is well known, the final greenlight for The Hobbit depends on the sale of the heavily indebted MGM. That deal has not yet been finalized. Yet, as I signaled a few months ago, a final arrangement with Spyglass now appears imminent, at least according to Mike Fleming, the reporter on Nikki Finke’s Deadline site who has consistently been on the inside track with this story. Part of the Spyglass takeover will mean that MGM will almost certainly devolve into being merely a production facility - and it will fall to Warners to pick up the distribution role.

All that aside, the actors dispute does have substance of its own. Not because of the clout of the tiny local union so much – but because of the likelihood of a global boycott of the film by a linked array of powerful foreign unions working in tandem. Why has The Hobbit been singled out? Partly because of the LOTR experience. But more rarely in a world of mobile film capital, The Hobbit looks to some players like a sitting duck, and one unlikely to migrate.

After all, Peter Jackson’s production base and entire film making ethos has been about making his films in New Zealand. (The shoot in the US on The Lovely Bones was not a happy exception to the rule.) Moreover, the New Zealand locations have now become so linked in audience minds with the terrain of Middle Earth that it would be difficult – though not impossible – to find foreign locations that would stand in for what is here at hand, in New Zealand. These and other logistical problems might well erode the tax edge available in eastern Europe. Finally, the unions would have been well aware of the activity that is already under way on the film here in Wellington, even before the project has been formally greenlit.

In the circumstances, the unions vs studios arm wrestling this week was inevitable. As Jackson said in his press statement, it is incredibly easy to portray the labour wrangle over The Hobbit as an issue of waving the flag on behalf of workers, and targeting the rich studios. Almost as easy in fact, as it is to wave the flag about bully boy unions and Australians kicking sand in our eyes. In the 1980s, the same battle was famously played out on the set of Aliens, when director James Cameron ran head-on into the work habits of the British unions at Pinewood – and discovered to his horror that everyone on set would down tools the moment that the lady with the tea trolley appeared in the afternoon.

The issues at stake on The Hobbit are of more substance. Essentially, they are the product of the film making tradition in which people like Jackson and Cameron learned their craft. The indie film ethos of ‘we’re all in this together /we don’t work for money but because we love making movies’ ethos is an admirable one – but it has become a romantic myth now that the budgets have got bigger, the profit horizons have expanded and some of the team are taking home 20 million dollars, while others on set are still working at minimum rates and/or putting in long, long hours on set week in, month out. I’m not saying it is easy to strike a fair balance – it isn’t.

Nor would anyone deny Jackson (and the A team of actors, writers and technicians he has built around him) the rewards from the projects they have put together, and the skills base this has created in New Zealand. Sure, many of the rewards from Jackson’s projects have been taken as personal gain and poured into his trains and planes and baronial estate in the Wairarapa – but he has not been a robber baron like Sir Michael Fay, either. Much of the profits have been re-invested in the new technology and innovation that enables Weta to keep on attracting fresh projects.

In the case of The Hobbit, the problems seem twofold. There are new profit-sharing rates to be devised for the A team of actors on LOTR who will be seeking a better deal this time around. This will be the case where-ever the film is shot. Further down the food chain though, there is a chronic temptation to ratchet down the cost of labour elements that seem less essential, and/or replaceable – and any trade union worth its salt is duty bound to kick back, and try to ensure fair wages and safe, reasonable working hours and conditions. Especially given some of the alleged difficulties experienced on LOTR.

Here and overseas, there has been selective information released about the industrial situation alleged to apply in New Zealand. Some of it has been disseminated by the producers organisation, Spada. According to Spada, it is against the law to enter a collective agreement with the ‘independent contractors’ that comprise the sector, and industry practice has been known to everyone (and set out in the so-called industry ‘Pink Book’) for the past 15 years.

This is a debatable version of history. In reality, the people insisting that the sector is comprised of ‘independent contractors’ are the producers themselves. The Jackson productions have been instrumental in fostering that climate – and yet now, if you believe Spada, they feel bound by a situation that enables them to require workers to manage their own tax affairs, arrange their own insurance, and qualify for no penalty rates for working at night, or on weekends or public holidays? Give me a break. What it underlines is that in a film sense, Wellington is a company town just as much as any coal town in Appalachia. The company sets the rules, and can vary them if it chooses – if say, it was willing to treat people as employees, rather than as ‘independent contractors.’ And pay the consequences.

Conspicuously, Spada has failed to mention the case of James Bryson, an ‘independent contractor’ on LOTR who duly signed papers to that effect. After he was dismissed, Bryson asked the courts to enable him to pursue a personal grievance case. Despite the existing paperwork that Bryson had signed, the lower court found – and this was later backed up by the Supreme Court – that the determining factor was the reality of the employment situation, and not the paperwork. Bryson, the courts decided, was really in an employee situation – and thus, he could use the personal grievance mechanisms available to him under our industrial law.

That’s very relevant to the current dispute. Because it means that if the employment situation really is an employee one in most or all respects, the mechanisms open to employees – such as collective bargaining – should be available. This leaves Jackson with at least a couple of options. He could volunteer to waive the demand that the people he hires accept the (arguably, bogus) status of ‘independent contractor’ and start treating his workers onset as what many of them would seem to be in practice : namely, employees. Or short of that – he could recognise that the contractors can negotiate collectively with his Three Foot Seven company over conditions on The Hobbit – and this, arguably, can be done legally if done openly, and without the aim of carrying out wage and price fixing within a negotiated market.

Is the outlook all bad? Not at all. One positive thing about the current situation is that there seems basic agreement in principle, when it comes to profit sharing. In his statement, Jackson makes it clear that he is willing to pay Screen Actors Guild (SAG) rates to members of that guild/union, and also to create a separate pool for non-SAG members, the bulk of whom would be the local New Zealand/Australia contingent. Logically, that second pool would have to be SAG comparable, though the locals may have to fight to lock down that parity. The haggling on this point will come down, as it always does, to the fair and acceptable amounts on the table. At least the mechanism though, is not in dispute. The principle has been accepted.

The hazier area is the issue of wage rates and work conditions. Clearly, New Zealand cannot compete on wage rates and hours of work with the pittances and virtual slave labour available in eastern Europe, If the union does back down, it would be their second embarrassment in recent months, after an ill-advised campaign to deny the US actor Vincent Gallo a work visa for New Zealand, on the basis of him being an alleged non-entity of insufficient stature to meet the criteria for entry to work here, albeit on a beer commercial. Soon afterwards Gallo won the ‘Best Actor’ award at the oldest major film festival in Europe. Very embarrassing.

If they stay staunch, the unions risk driving the project elsewhere – or will be seen to, even though as I say, the tax concessions available elsewhere would be the real deal clincher. On balance, I can’t see the project going to eastern Europe, and nor will the project be shelved. Surely,Warners can extract a little extra from the new owners of MGM (in return for Warners taking on the distribution chores) to sweeten a concessionary deal to unions that will in turn, restore some much-needed public enthusiasm for a project that has taken a public relations hammering over the past week.

In the process, the New Zealand film industry might then take the final step from regarding itself as a low cost operation run on the smell of an oily rag, and be able to take its seat at the adults’ table at last.

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