Prime Minister John Key this evening announced an agreement has been reached between the New Zealand Government and Warner Bros that will enable the two Hobbit movies to be directed by Sir Peter Jackson to be made in New Zealand.

"I am delighted we have achieved this result," Mr Key says. "Making the two Hobbit movies here will not only safeguard work for thousands of New Zealanders, but it will also follow the success of the Lord Of The Rings trilogy in once again promoting NZ on the world stage."

As part of the arrangement the Government will introduce legislation in Parliament tomorrow to clarify the distinction between independent contractors and employees as it relates to the film production industry. It is this clarification that will guarantee the movies are made in New Zealand.

"The industrial issues that have arisen in the past several weeks have highlighted a significant set of concerns for the way in which the international film industry operates," Mr Key says.

"We will be moving to ensure that New Zealand law in this area is settled to give film producers like Warner Bros the confidence they need to produce their movies in this country."

Mr Key confirmed the Government has also moved to widen the qualifying criteria for the Large Budget Screen Production Fund to improve New Zealand's competitiveness as a film destination for large budget films like The Hobbit.

The impact of this will mean an additional rebate for The Hobbit movies of up to US$7.5 million per picture, subject to the success of those movies.

The Government and Warner Bros have agreed to work together in a long-term strategic partnership to promote New Zealand as both a film production and tourism destination.

"My Government is determined to use the opportunity that the Hobbit movies present to highlight New Zealand as a great place to visit, as well as a great place to do business," Mr Key says.

The strategic marketing opportunities for New Zealand from the movies will be worth tens of millions of dollars. The Government will offset US$10 million of Warner Bros marketing costs as part of the strategic partnership.

New Zealand will also host one of the world premieres of the Hobbit movies.

"I'm very pleased that we have been able to ensure that the winning combination of Sir Peter Jackson, New Line, Warner Bros, MGM and New Zealand as a whole will have the opportunity to produce these movies together," Mr Key says.

"It's good to have the uncertainty over, and to have everyone now full steam ahead on this project."