New Zealand rules out open check book to keep Hobbit

New Zealand's government Wednesday said negotiations to keep production of "The Hobbit" in the country were coming down to "financial hard ball" but that there were limits to what it could offer.

In the wake of a short-lived union boycott that rattled Warner Bros., 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 have the capacity to move a little bit, but we don't have the capacity to write out checks that we can't afford to cash," Prime Minister John Key said on the second day of talks with executives from the Time Warner Inc unit.

He added that there was a large gap between the concessions that Warner Bros wanted and what New Zealand was ready to offer, with "financial hard ball" being played on both sides.

"They've got movies to make and in the end, money talks in Hollywood. That's just the way it works. We can't stop other countries around the world putting up better and more financially lucrative deals."

A decision on whether to keep the films in New Zealand, the location for Jackson's successful adaptation of Tolkien's "Lord of the Rings" trilogy, is expected by the end of the week.

Economists said loss of the project could cost the country up to $1.5 billion. Thousands of protesters -- some dressed as hobbits -- took to the streets earlier this week to show the studio that New Zealand was the only valid location for the two-part series.

"The 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.

Key has repeatedly ruled out increasing the country's subsidy program - which runs to about 15 percent of the production cost - to sway studio executives.

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 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.