Hobbit studios demand tax breaks from N.Z.

Negotiations to keep the $500-million US production of The Hobbit films in New Zealand are still ongoing, with the studios behind the movies demanding more tax breaks and changes to the country's labour laws.

N.Z. Prime Minister John Key held emergency talks with senior executives of Warner Bros. and New Line Cinema in light of recent threats by the studios as well as director Peter Jackson to shoot elsewhere.

The studios and Jackson are upset over tactics taken by the actors' union, which launched a boycott of the two-film production to protest the lack of a contract.

That local ban expanded to include seven other actors' unions from around the world, including ones in Canada.

When the studios and Jackson, who made all three of his Lord of Rings films in his homeland, said they were considering pulling the production from New Zealand, the unions backed off.

That didn't change the strained relations that now exist.

Studios not coming with a 'ransom note'

After Tuesday's meeting, Key told reporters the studios want assurances there'll be no union disruption and want an improvement on tax incentives.

The studios "were not coming here with a ransom note or trying to put a gun to our head, but commercial reality is the actions of the union have encouraged them to look at other countries which have better deals than we do," Key added.

Key said he is slated to meet with the studio bosses again this week. A decision by the studios is expected by the weekend.

Economists say the pull-out of the prequel could cost the tiny nation $1.5 billion US.

The situation is so dire that it triggered seven rallies across New Zealand on Monday in support of The Hobbit films. Fans, industry workers and some actors held placards that read "New Zealand is Middle Earth" and "We love hobbits."

The Hobbit, based on the J.R.R. Tolkien novel, began production in New Zealand earlier this month with British actor Martin Freeman in the main role. The films are set for release in December 2012 and December 2013.