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LOS ANGELES (Hollywood Reporter) - Where exactly is Middle Earth? Firmly planted in New Zealand, if the country's prime minister has anything to say about it.
In the latest development in the fight over unionization of actors on "The Hobbit," Prime Minster John Key has offered to have government officials mediate the dispute between director-producer Peter Jackson and the union seeking to organize the production.
Government mediation of a unionization dispute is unusual in New Zealand, but in this case, the stakes for the country are high.
"I would be very, very concerned if (the production) moved offshore," Key said. Underscoring the risk to the local film industry, he added, "If you can't make 'The Hobbit' here, frankly, what movies are you going to make here?"
It remains unclear where the movie will be shot. Jackson said late last week that Warner Bros., which is financing the two-part film "to the tune of hundreds of millions of dollars," is considering moving the project from New Zealand to Eastern Europe.
Jackson's statement echoes an earlier one from Warner subsidiary New Line, which said that the studio was "exploring all alternative options in order to protect (its) business interests."
That's tough talk, but given the high stakes, it's hard to imagine that the producers and the union won't find some middle ground to keep the "Lord of the Rings" prequel shooting in the land of the kiwi.
Indeed, some media reports indicate a solution could be reached shortly. In an effort to further that result, the president of New Zealand's Council of Trade Unions, Helen Kelly, met with Jackson several days ago. Although no one's talking, one possibility might be a set of recommended, rather than mandatory, contract terms.
The union on the front lines, New Zealand Actors' Equity, said it had "no desire to jeopardize the production or create instability in any way." That union is the local unit of Australia's Media, Entertainment and Arts Alliance (MEAA).
Adding to the film's troubles was a massive fire Friday that destroyed a miniatures facility Jackson planned to use for the production. The cause remains under investigation.
Trouble is nothing new to "Hobbit." In 2006, Jackson was bounced from the project by New Line in the wake of a lawsuit he filed charging that studio self-dealing had reduced his backend payment from the hugely successful "Lord of the Rings" trilogy. Jackson's ejection resulted in a storm of negative Internet reaction.
The suit was settled in 2007, and Jackson was restored as producer, but then "Hobbit" became mired in the financial troubles of MGM, the project's co-financier. This year, original director Guillermo del Toro left the production, citing the extended delays.
Recent reports in the U.S. have Warner and MGM close to reaching a deal on their co-financing arrangement for the movie after months of negotiation, but MGM still must meet its next debt payment for the film to go forward. Nonetheless, the movement might have created additional urgency to resolve the unionization question.
The stakes extend beyond "Hobbit." Gisella Carr, CEO of locations marketing agency Film New Zealand, said losing the project might result in the country losing "(its) ability to attract international film productions into the future." Recent studio films made in New Zealand include "Avatar" and "X-Men Origins: Wolverine." Television productions include Starz's drama "Spartacus: Blood and Sand."
The transpacific war of words over "Hobbit" was hot and heavy last week. New Line weighed in, skewering the union for "baseless and unfair" allegations of "unfair treatment of actors." That came after Jackson and the MEAA already had exchanged salvos.
New Zealand Actors' Equity responded with a statement endorsed by more than 400 actors, resolving that the organization continue to seek a meeting with the producers and negotiate in good faith but maintaining that "until we reach a fair and equitable solution, we recommend that all performers wait before accepting any engagement on 'The Hobbit.'" That show of support was countered several days later by an online petition signed by 1,200 members of the New Zealand film industry calling on the union to abandon its efforts.
Jackson's position has been that negotiations would need to take place between the union and the local producers' organization, the Screen Production and Development Association (SPADA), rather than directly with the "Hobbit" production entity.
SPADA CEO Penelope Borland told The Hollywood Reporter that the organization offered to meet with New Zealand Actors' Equity but "(had) yet to hear back one way or the other." The union was not immediately available for comment.
Jackson accused the union of "leveraging our film for political gain." MEAA representative Simon Whipp previously told THR that success with "The Hobbit" might pave the way for unionizing other productions in the country.
The film's producers have asserted that unionization is impermissible because actors are classified as independent contractors rather than employees. Antitrust laws apply in the former case but not the latter.
MEAA counsel James Craig of Kiwi firm Simpson Grierson said "the producers could simply decide to engage the actors as employees." He added that "if this was done, then this would solve the issues under (New Zealand law)."
The country's attorney general, Christopher Finlayson, disagrees, and issued a letter last week on the "Hobbit" controversy stating that such a classification "cannot simply be asserted ... if (the workers) are, in truth, independent contractors."
Finlayson, also Minister for Arts, Culture and Heritage, no doubt is mindful of the economic importance of the mega-budget film. An informed source told THR that the legal issue is governed in part by a case that, coincidentally, involved "Lord of the Rings."
James Bryson, a model-maker on that film, contended that the producers had improperly classified him as an independent contractor. A New Zealand court agreed and, after examining the details of the relationship between the production entity and Bryson, the court held that classification as an independent contractor did not reflect "the real nature of the relationship." The New Zealand Supreme Court affirmed the decision.
The Bryson case is a prohibition on improperly classifying a worker as an independent contractor, but New Line and "Hobbit" producers are using the case in the reverse direction, apparently arguing that the "real nature of the relationship" test also prohibits arbitrarily classifying a worker as an employee.
Actors in New Zealand customarily are engaged as independent contractors, in contrast to U.S. practice. Whether instead they could be hired as employees appears to be a complex question under New Zealand law. Such a classification would not be an unalloyed boon for actors because it could impede their ability to deduct work-related expenses from their taxes.
Perhaps for that reason, the union has focused on arguing that even independent contractors can be organized, using one of two workarounds: either the parties can agree on recommended, rather than mandatory, terms, or the parties could form a joint venture to produce the film.
Both approaches are problematic. A set of nonmandatory terms would be all but unenforceable; and a joint venture between producers and a union appears to be an unprecedented and complex solution. Still, in light of New Zealand law and industry practice, a set of recommended terms might be the only viable option.
Pip Bulbeck in Sydney contributed to this report.