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The Hobbit Adventure in a Globalized World: A Brief History of Runaway Productions

40 Pages Posted: 22 Oct 2012 Last revised: 23 Aug 2013

Marcos Javier Vergara del Carril

LL.M. UCLA School of Law Media & Entertainment Law and Policy (Class of 2011)

Date Written: October 21, 2011


The key question is why runaway productions have occurred for more than two decades. Well, companies need to make profits (you do not want to have upset shareholders on every annual general shareholders’ meeting). This industry, despite looking fancy, is not a wise choice of investment. The net coverage return for the past 60 years, almost without variation, has been 5%. Furthermore, the myth that most films are profitable should be brought into this conversation. Yes, most films lose money. Of the 700 movies made per year in the United States, only 200 will see the light of a decent release. The film industry needs tons of capital and financial muscle to make those occasional blockbusters such as Avatar, Titanic or Lord of the Rings, which would cross collateralize the losses of the other films.

In the next sections of this paper we describe the reasons why runaway productions were an attempt to solve the rise in production and distribution costs. In section 2 we describe how foreign financial incentives were one of the keys to lure productions outside the United States. We also analyze how different States tried to emulate the foreign economic incentives and why they trust in the multiplier effect of such incentives. In section 3 we describe the role of the Screen Actors Guild (SAG) in the United States and one peculiar rule that tried to somehow solve the issue of having runaway productions: Global Rule One. We will try to answer whether it is an efficient solution and which legal challenges could be made to the rule. In section 4 we explain the role of Loan-out corporations and how Talent can be considered an independent contractor rather than an employee for tax purposes. Additionally, we review the tests that courts use to determine who is an employee and who is an independent contractor. In section 5 we review how all these concepts described above were the fundamental cause of the whole Hobbit paranoia in New Zealand. We will see the importance that one single movie could make for an entire country, and how New Zealand’s Prime Minister pushed for a lightning amendment to their Employment Relations Act and, on the other hand, demanded additional financial incentives to stay in New Zealand rather than moving the production to Eastern Europe. In section 6 we suggest what can be done (if anything) to lure productions back into the United States.

Keywords: Runaway Productions, Global Rule One, Loan-out companies, Globalization, Hobbit, Labor Law

Suggested Citation

Vergara del Carril, Marcos Javier, The Hobbit Adventure in a Globalized World: A Brief History of Runaway Productions (October 21, 2011). Available at SSRN: or

Marcos Vergara del Carril (Contact Author)

LL.M. UCLA School of Law Media & Entertainment Law and Policy (Class of 2011) ( email )

No Address Available

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