THE TROUBLED HOBBIT films are to stay in New Zealand after Prime Minister John Key engaged in two days of crisis talks with Hollywood executives.

Local acting unions began a boycott of The Lord of the Rings prequels last month in a dispute over pay, and only called off the boycott this week.

Warner Bros and New Line Cinema senior executives won an agreement for further tax breaks and a change in labour law to keep the project in New Zealand.

The studio had warned that the filming could move location if the agreement was not reached. Key says the package includes an extra tax break of NZ$20 million for the studios, which were already pledged NZ$45 million.

New Zealand will also contribute $7.5 million to the marketing costs of the two planned films. Key spoke to reporters after the announcement in Wellington, AP reports, and was happy to have the films- worth $500 million- back.

It’s good to have the uncertainty (surrounding the movies) over and to have everyone now full steam ahead on producing these two movies.

The change in labour law means that actors and other staff can be hired as contract workers for the films and not as employees. The actor’s union had wanted local actors and production workers to be hired as full staff on contracts.