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WELLINGTON (Reuters) - New Zealand's government said on Tuesday it had only a 50-50 chance of keeping production of the "Hobbit," adding it could not meet the financial offers on the table from other countries for Warner Bros to relocate the project.
In the wake of a short-lived union boycott that rattled the Hollywood studio, executives said last week they would consider shooting local filmmaker Peter Jackson's $500 million adaptation of the J.R.R. Tolkien fantasy elsewhere.
"We made it quite clear that we can't bridge the gap that is on the table from other countries. It is simply too large and they understand that position," New Zealand Prime Minister John Key told a news conference after talks with studio officials.
The government was seeking to clarify labor laws which resulted in union boycotts of the film, sparking the crisis.
"They're out of here if we can't give them the clarity, no question about that," said Key. "We have an opportunity to put the pieces back together. But there are no guarantees. I would say, at best, it is still very much 50-50."
Economists said losing the project could cost the country up to $1.5 billion. Thousands of protesters -- some dressed as hobbits -- took to the streets on Monday to convince the studio New Zealand was the only valid location for the two-part series.
Jackson's adaptation of Tolkien's "Lord of the Rings" proved beneficial to everyone: New Zealand received priceless international publicity, Warner Bros. sold nearly $3 billion worth of tickets at the box office, and the filmmaker and his team won armfuls of Oscars.
Studio executives will decide on the location for "The Hobbit" after meeting this week with government officials.
Key said the labor issues were of paramount importance.
"They are not coming here with a ransom note or trying to put a gun to our head," he said. "The commercial reality is that the actions of the union have encouraged them to look at other countries and other countries have better deals."
The New Zealand prime minister ruled out increasing the country's subsidy program to sway studio executives.
"We don't want to be re-negotiating with every single production company that comes to New Zealand," said Key
Film subsidies are expected to run to about $50 million, and some union members had argued that Warner Bros. was using the industrial dispute -- which centered on working conditions -- to wrangle a better deal from the government.
The rising value of the New Zealand dollar has also been cited as a factor, with the currency trading about $0.75, around a third higher than when New Zealand was first investigated as a potential site for filming.
Reports have suggested that Warner Bros. is considering locations in England, Scotland, Ireland, Canada, Australia and eastern Europe.
The project has already suffered a series of delays including the resignation of director Guillermo de Toro, who quit in May as the uncertain financial future of movie studio partner MGM put a question mark over the project.
"The Hobbit" is based on the adventures of Bilbo Baggins, a hobbit who lives in the land of Middle-earth that is filled with wizards, elves and other fantasy creatures. Bilbo goes on a quest to find treasure guarded by a dragon.
The book, first published in 1937, is the precursor to the "Lord of the Rings" trilogy which also takes place in Middle-earth.
Additional reporting by Michael Perry in SYDNEY; editing by Elaine Lies