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New Zealand Strikes Deal With US Studio to Keep 'Hobbit'

A sculpture of Gollum, the villainous 'Lord of the Rings' hobbit, stands in front of a welcome sign, in Hobbiton Town, Matamata, New Zealand, 21 Oct 2010

New Zealand Prime Minister John Key says his government has reached an agreement with a major Hollywood studio that will keep production of the "Lord of the Rings" movie franchise in his country.

Mr. Key announced the deal Wednesday in Wellington, after two days of negotiations with executives of U.S.-based Warner Brothers.

Peter Jackson, the director of the "Lord of the Rings" series, had announced last week that a two-part $500 million production of "The Hobbit" would not be shot in New Zealand because of a dispute with the actors' union.

Mr. Key said legislation will be introduced Thursday that will clarify the distinction between employees and independent contractors in the film industry.

Warner Brothers also will get $7.5 million in tax subsidies for each installment of "The Hobbit."

In exchange, the studio will launch a major advertising campaign promoting New Zealand as a destination for film producers and tourists. The government has agreed to offset $10 million of those costs.

Mr. Key said he was "delighted" over the agreement, because it safeguards work for thousands of New Zealanders working in the film industry.

"The Hobbit" is a two-part precursor to the "Lord of the Rings" - a three-part series based on the classic fantasy novels of J.R.R. Tolkein. The series was filmed entirely in New Zealand, becoming a global phenomenon and boosting the country's tourism sector.

Jackson refused to negotiate with New Zealand Actors Equity on a collective wage contract for its members. The union banned its members from working on The Hobbit, but reversed course when it appeared the project would be moved out of New Zealand.

Some information for this report was provided by AFP and Reuters.