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The New Zealand government has reached an agreement with Warner Bros. to keep The Hobbit production in the country. As part of the negotiation, the country will pay $10 million to the studio to help market the movie as well as give additional tax incentives that will save the studio another $7.5 million dollars.

While it's highly unusual for a country to agree to help defray marketing costs for a movie studio, New Zealand stands to gain many times back their investment by keeping The Hobbit shot in their lands. The Lord of the Rings films have drawn international attention to New Zealand and catapulted the country to a world destination status.

Another concession from the local government was a promise to alter the employement laws, making it easier for foreign big-budget films to hire workers and cast members as independent contractors.

Negotiations between New Line Cinema and Peter Jackson have turned serious on the prospect of him helming both Hobbit pictures. Chief among the items that need to be worked out is whether Jackson can make both films on an accelerated timetable, to get them out into theaters by 2012 and 2013, and whether the financial turmoil caused by the MGM insolvency can be circumnavigated.

Now that the search is on for a replacement to sit in the director's chair, one of the possible candidates could be the original choice. Seeking a comment from Peter Jackson on the departure of Guillermo del Toro from The Hobbit project, The Dominion Post got the knighted filmmaker to step up to the plate and consider directing the fantasy duology.

"If that's what I have to do to protect Warner Bros' investment, then obviously that's one angle which I'll explore," Jackson told the paper. The major problem with Jackson returning to Middle-earth lies with his commitments to other projects, like the second Tintin movie in development at DreamWorks. "The other studios may not let me out of the contracts," Jackson adds.

Asked if the financial uncertaincy with MGM could shut down the development on the two films like it did with the next James Bond movie, Jackson said "we don't intend to shut the project down,", and that everyone involved with the creation of The Hobbit wants to see it happen and find a replacement for del Toro quickly. "We don't intend to let this affect the progress. Everybody, including the studio, wants to see things carry on as per normal. The idea is to make it as smooth a transition as we can."

Guillermo Del Toro announced today that he has exited directing the two Hobbit movies. In his own words, the director exclusive TheOneRing.net the stunning news.
 
"In light of ongoing delays in the setting of a start date for filming The Hobbit, I am faced with the hardest decision of my life", del Toro said. "After nearly two years of living, breathing and designing a world as rich as Tolkien's Middle Earth, I must, with great regret, take leave from helming these wonderful pictures. I remain grateful to Peter, Fran and Philippa Boyens, New Line and Warner Brothers and to all my crew in New Zealand.  I've been privileged to work in one of the greatest countries on earth with some of the best people ever in our craft and my life will be forever changed. The blessings have been plenty, but the mounting pressures of conflicting schedules have overwhelmed the time slot originally allocated for the project. Both as a co-writer and as a director, I wish the production nothing but the very best of luck and I will be first in line to see the finished product. I remain an ally to it and its makers, present and future, and fully support a smooth transition to a new director."

del Toro will remain credited as a co-writer on the screenplays.

What this new development may mean for the future of either Hobbit movie remains to be seen, as the financial crisis that MGM finds itself in hasn't abated. Last month all development on the next James Bond movie was suspended until the outcome of MGM's future could be determined.

Peter Jackson has gone on record that the screenplay for the second Hobbit film is finished -- well, at least the first draft is done.

"We've just delivered the script. Literally last week, we delivered the second of the two screenplays -- the first draft," the producer told Moviefone. "So the studio's got both scripts now, which is a milestone; and if anything was holding it up, it was us doing the screenplays, because we'd just been writing as fast as we can, but it took us this long to get them finished. So we take whatever responsibility there is for the speed. And we're now in the process of budgeting the films, and then hopefully we'll get to a budget the studio [people] are happy with, and they'll greenlight the movies and we'll announce the shooting dates. I'd be pretty optimistic that we'll be shooting before the end of the year. I would imagine October, November, we'd be shooting by. I'm not announcing it, though."

While being interviewed by MovieReporter.net, Peter Jackson revealed that filming on the back-to-back Hobbit films should now start in the summer of 2010. The second draft screenplays for the two movies are expected to be finished in January '10 and the principal photography portion of the duology should be wrapped by December 2010 or January 2011. He also said that the budgets for the two movies haven't been finalized yet.