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Hobbit Returns to Find Middle Earth Has Become Expensive

Oct. 3 (Bloomberg) -- Alix Steel reports on New Zealand's hopes for a "Hobbit" tourism boom when Peter Jackson's new film "The Hobbit An Unexpected Journey" opens next month. Alix Steel reports on Bloomberg Television's "In The Loop." Video courtesy of New Line Cinema/MGM. (Source: Bloomberg)

In a fake cave in a Wellington suburb, tourists pose by a statue of Gandalf, a hero of the “Lord of the Rings” films that boosted New Zealand’s economy by more than $580 million. The country needs the wizard’s magic more than ever when he returns next month.

As the capital prepares to host the world premiere on Nov. 28 of “The Hobbit: An Unexpected Journey,” the first part of a prequel to the Rings trilogy, New Zealand faces economic hurdles that weren’t there when the first movie from the series of J.R.R. Tolkien’s books opened 11 years ago.

“The wind is not blowing as strongly for us as it was then,” said John Yeabsley, a senior fellow at the New Zealand Institute of Economic Research, who co-wrote a report for the government on the Rings effect. “We won’t do quite as well.”

The currency has doubled in value, hindering exports and deterring tourists that came in droves after the earlier films. In the capital’s business district, 15 percent of offices lie empty. A 45-minute flight south in Christchurch, the nation’s third-biggest city -- gateway to many of the movies’ locations - - is rebuilding its ruined center after two major earthquakes.

The government is hoping the Hobbit movies will reverse a 10 percent drop in tourist spending since 2008 and reinvigorate a film production industry that has increased about 10-fold since New Zealand film director Peter Jackson began using the country’s scenery to recreate Tolkien’s Middle Earth in 1999.

Scenic Lure

Tourism is the nation’s second-largest earner after dairy products, contributing NZ$9.7 billion ($8 billion), or 17 percent of all exports in the year through March 2011, according to Statistics New Zealand. The Rings trilogy introduced global audiences to the nation’s mountains and forested valleys, with 7 percent of visitors citing it as influencing their trip in a 2004 survey, according to Tourism New Zealand.

“One would hope that the Hobbit movie will give us a further boost to the extent that people will forget a little bit about the value of the currency and everything else, and still come,” said Gary Tate, 58, a hotelier in the South Island.

Tate owns Minaret Lodge, a five-star hotel in the Wanaka skiing region, near the location used for Gandalf’s ride to the city of Minas Tirith in the “Rings” films. While the Lodge has a popular Hobbit-themed room, bookings have fallen about 20 percent in the last year, according to Tate.

Jackson’s fourth film of the exploits of hobbits, wizards and elves in Middle Earth was filmed from March 2011 to July in the country. He used locations such as Mount Ruapehu in the central North Island to tell the tale of the quest by Bilbo Baggins and a company of dwarves to recover treasure from the dragon Smaug.

Red Carpet

Eleven years ago, when Jackson first showcased New Zealand in “The Fellowship of the Ring,” the local dollar was worth about 40 U.S. cents. Two years later, as a red carpet ran the length of Wellington’s nightlife strip Courtenay Place for the premiere of “Return of the King,” the final “Rings” film, which went on to win Best Picture at the Academy Awards, it was 65 cents.

It bought 82.13 cents at 8 p.m. in Wellington, the best performance this year among the Group of 10 currencies tracked by Bloomberg.

“It is certainly one of the significant factors that determines how much money people are going to spend and where they’re going to go,” said Grant Webster, chief executive of Tourism Holdings Ltd., which leases campervans to tourists, and built a mobile editing trailer for Jackson.

Earthquake Damage

New Zealand hoteliers haven’t just had to deal with a strong currency. International guest nights in the Canterbury region fell 26 percent in the year through July 2012. Many hotels were in the Christchurch city center, now a cordoned-off demolition site after the earthquakes in September 2010 and February 2011 caused NZ$30 billion of damage.

Visitor numbers to New Zealand from traditionally strong markets are falling, with the U.K. down 10 percent on a year ago and the U.S. by 4 percent, said Statistics New Zealand. Without the new Jackson films, the situation could be even worse, said Dominick Stephens, chief economist at Westpac Banking Corp.

“In the absence of The Hobbit, visitor arrivals would be less than even we’re forecasting now,” he said in an interview. “The exchange rate would still be high, fuel prices would be high and the global economy would be weak.”

Prime Minister John Key, a former head of foreign exchange at Merrill Lynch & Co., promised Warner Bros Productions Ltd. as much as $25 million in subsidies in 2010 to film the Hobbit movies in the country after the studio demanded incentives to offset the currency’s gain.

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“It certainly was the right decision,” said George Hickton, former chief executive of Tourism New Zealand and now a director of Hobbiton, where tourists can visit the hobbit village movie set. “Having these films made in New Zealand is critically important. They’re what I call three-hour television commercials.”

Tourism New Zealand in August began a “100% Middle Earth” advertising campaign that compares the nation’s attractions to scenes in the Tolkien stories.

The country that made bungee jumping famous also has other attractions, such as vineyards, geothermal hot pools and skiing. It last year hosted the Rugby World Cup, which attracted more than 130,000 visitors over six weeks and was won by the nation’s All Blacks rugby team.

“People don’t want to come here just to see the hobbits’ little huts,” said Dave Brennan, owner of Kotane, a Christchurch-based Maori culture tourism business. “It’s part of the trigger, but it’s not the be-all and end-all.”

Hollywood Dinner

Key flies to Los Angeles today to boost his nation’s film industry, attending a dinner with Hollywood studio chiefs, hosted by James Cameron and Jon Landau, the director and producer of “Avatar,” which was partly made in New Zealand. The visit “is about jobs for New Zealanders,” Key said in a release this week.

“It’s not easy at the moment when you’ve got a high exchange rate, you’ve got a depressed international environment, when your lifeblood is whether people come from overseas to visit,” he said at a tourism conference in Wellington yesterday.

The screen industry contributed almost NZ$3 billion to the economy last year, according to Statistics New Zealand. The country’s production spending for film and television totaled NZ$307 million in 1998-99, according to a 2002 report by NZIER.

New Zealand’s economy needs more than Jackson’s talent to propel growth. The jobless rate rose to 6.8 percent in the second quarter, manufacturing industry is shrinking and the government is selling about NZ$6 billion in assets to cut debt and rebuild Christchurch. Growth may fail to meet the 0.6 percent target for the third quarter, the Treasury Department said on Oct. 1.

No Magic

“There is no magic bullet out there that’s suddenly going to turn New Zealand into a high-growth economy,” Cameron Bagrie, chief economist at ANZ New Zealand, said in an interview. The nation needs support “from multiple sectors.”

The Rings trilogy contributed NZ$352.7 million to the film industry over about four years, according to the NZIER report. With the flow-through tourism spending benefits in just 2004, the three earlier movies may have had a combined boost of at least NZ$700 million, according to Statistics New Zealand.

“It’s a business that governments seem to want to attract,” Joe Letteri, the Oscar-winning effects supervisor at Weta Digital who created the slimy, half-naked Gollum creature for the films, said in an interview. “There’s a lot of high tech that goes with it, and there’s a lot of things that spill out to the rest of the community.”

Avatar Sequel

Weta Digital, co-owned by Jackson, is part of the campus- style village of studios in the Wellington suburb of Miramar. Cameron, who bought more than 1,000 hectares of farmland an hour’s drive away, will “almost certainly” make two sequels to “Avatar” in Miramar, he told the New York Times in July.

Four years ago, Jackson’s studio opened The Weta Cave, a museum and memorabilia shop that houses the Gandalf statue and sells hand-made swords for as much as $8,000. Tim Launder, General Manager of Weta Ltd., said he expects visitor numbers to rise by about 50 percent after the first Hobbit film comes out.

“People fly down from America or Europe to come and pick up their swords and scabbards, with tears running down their cheeks,” he said.

To contact the reporter on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Hobbiton Movie Set & Farm Tours, Matamata, New Zealand (C) RST. (PRNewsFoto/Tourism New Zealand)

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Hobbiton Movie Set & Farm Tours, Matamata, New Zealand (C) RST. (PRNewsFoto/Tourism New Zealand) Close

Hobbiton Movie Set & Farm Tours, Matamata, New Zealand (C) RST. (PRNewsFoto/Tourism New Zealand)

Photographer: Mark Coote/Bloomberg

Houses on the Kelvin Peninsula of Lake Wakatipu are dwarfed by the Eyre Mountains in Queenstown, New Zealand. Tourism is the nation’s second-largest earner after dairy products, contributing NZ$9.7 billion, or 17 percent of total exports in the year through March 2011, according to Statistics New Zealand. Close

Houses on the Kelvin Peninsula of Lake Wakatipu are dwarfed by the Eyre Mountains in Queenstown, New Zealand. Tourism... Read More

Photographer: Paul Ellis/AFP/Getty Images

A 4x4 vehicle travels through Bush Creek in Arrowtown in New Zealand. The creek was used as a location for the filming of the 'Lord of the Rings' films. Close

A 4x4 vehicle travels through Bush Creek in Arrowtown in New Zealand. The creek was used as a location for the... Read More

Photographer: Mark Coote/Bloomberg

New Zealand's Prime Minister John Key. Close

New Zealand's Prime Minister John Key.

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