Hobbit tax rebate climbs to $153 mln in year four of production

Thursday 9th October 2014

New Zealand taxpayers have stumped up $153 million via tax rebates for the making of Peter Jackson's Hobbit trilogy after four years of production, according to the firm's latest financial statements.

The movie, produced by Warner Bros Entertainment subsidiary 3 Foot 7, reaped $54.6 million through the large budget screen production grant in the 12 months ended March 31, its biggest annual rebate in its four years of production, amounting to about 21 percent of some $257.9 million in annual production costs. That adds to the $31.3 million grant it received in 2013, $46.9 million in 2012 and $20.2 million in 2011. Across the four years, production costs amounted to some $934.1 million, meaning the Warner Bros unit has claimed about 16.4 percent of total costs under the grant.

The first two movies generated box office takings of about US$1.92 billion, according to IMDb website, and the third instalment in the trilogy, 'The Hobbit: The Battle of Five Armies', is slated for December release.

Government sweeteners have been a contentious issue with New Zealand pressured to improve the lure of shooting big budget blockbusters locally as a weak US dollar eats into Hollywood studios' margins.

Last year, Economic Development Minister Steven Joyce and Arts, Culture and Heritage Minister Chris Finlayson sweetened the pot, lifting the incentive to 20 percent of production costs, with an additional 5 percent in the offing for meeting certain criteria designed to put the local industry on a stronger footing. That deal helped lock in 20th Century Fox to greenlight James Cameron's three Avatar movies to be produced in New Zealand.

Warner Bros' 3 Foot 7 reported a profit of $33.7 million in the latest financial year, down from $44.6 million a year earlier, recouping losses generated in the first two years of production.

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.

Its production service fee rose to $237.7 million in the year from $217.9 million in 2013. The company had outstanding related party debt of $29.6 million as at March 31, and it had cash and equivalents of $30.4 million at the balance date.

The movie trilogy, originally planned as 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 and technicians sought to standardise and improve 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.

BusinessDesk.co.nz

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