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Hobbit tax rebate swells to $67.1M in year two of production

Hobbit tax rebate swells to $67.1 mln in second year of production

By Paul McBeth

Nov. 26 (BusinessDesk) - New Zealand taxpayers lent a $67.1 million helping hand via tax rebates for the making of Peter Jackson's movie The Hobbit in the first two years of actual production, according to its financial statements.

The movie, produced by Warner Bros Entertainment subsidiary 3 Foot 7, reaped $46.9 million from New Zealand's large budget screen production grant in the 12 months ended March 31, according to statements lodged with the Companies Office. That added to the $20.2 million tax rebate it received in 2011, the first year it got the subsidy.

Shooting on The Hobbit wrapped in early July of this year, meaning the company should be able to claim a further rebate in the 2013 period.

The subsidy over the two years amounts to about 14.6 percent of the $459.6 million production cost incurred over the 2011 and 2012 financial years, just below the 15 percent of locally incurred costs that can be claimed back in tax under the scheme, known as qualifying New Zealand production expenditure.

New Zealand is coming under pressure to raise the subsidy as the weak US dollar eats into Hollywood studios' margins. Last month producer James Cameron, who used Wellington-based Weta Digital for his Avatar film, told TVNZ's Q&A programme Prime Minister John Key discussed "the idea of possibly altering the rebate scheme to keep pace with the change in the dollar" with studio executives on a whirlwind visit to Los Angeles.

The Hobbit production company narrowed its loss to $8.2 million in the 2012 year from $70.4 million a year earlier. The way the production is financed means filming costs are covered by interest free loans from New Line Cinema. 3 Foot 7 can then satisfy that debt, plus take a margin, by charging production service fees once filming is completed.

The company lifted its production service fee to $266.3 million in the 2012 period, from $50.1 million a year earlier. That left $27.6 million in outstanding production advances, as at March 31.

New Zealand's capital, Wellington, is preparing to host the world premiere of the first Hobbit film on Wednesday, and Wellington City Council has put up some $1.1 million for a raft of activities, including outdoor screenings of the Lord of the Rings trilogy and a week-long artisan market two blocks away from the red carpet.

The movie trilogy, originally slated for two films, suffered several delays, including funding woes from MGM, first-choice director Guillermo del Toro quitting and producer Peter Jackson taking over, a threatened actors’ boycott, and surgery for Jackson.

The film became a political football in 2010, and saw Prime Minister Key step in to broker a deal with Warner Bros executives amid fears the production could be shipped somewhere cheaper as local actors sought to firm up their working conditions.

That saw the government give the studios an extra subsidy of up to US$7.5 million per movie for spending more than $200 million, expanding what spending qualifies for the rebate under the existing rules, and changing employment law to classify all film workers as contractors by default. It would also stump up US$10 million to market local tourism as part of The Hobbit’s release.


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