The Government is continuing to negotiate with US studio Warner Brothers on The Hobbit films but does not have an open chequebook, Prime Minister John Key said this morning.

Speaking at the opening of a new terminal at Wellington Airport, Mr Key said negotiations with Warners on keeping production of the film in New Zealand were continuing.

When asked if it would come down to the money, Mr Key said it mattered.

"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 much better and more financially-lucrative deals."

Mr Key reiterated that the Government was prepared to move at the margins when it came to money but it did not have an open chequebook.

He said Warner Bros were asking for "lots and we're not offering lots".

"If it's just simply a matter of dollars and cents, I'm just not going to write out cheques that New Zealand can't afford."

"It's fair to say on the financial side there's a fair bit of hard ball being played by both sides," he said.

"On the labour law side it's looking more optimistic".

He said some of the advice was that it would require a law change to give Warner Brothers the clarity they wanted around labour laws.

The Government would consider changing the law regardless of the outcome of The Hobbit to give clarity to those working in the film industry, Mr Key said.

Speaking yesterday after meeting with the executives, Mr Key said the "paramount" problem was that film workers on independent contracts could be legally seen as employees, even if their contracts specifically called them contractors.

That followed a Supreme Court ruling in 2005 on James Bryson, a model maker on the Lord of the Rings movies, who was deemed an employee, even though he was hired as a contractor.

"They're not arguing people can't be employees," Mr Key said.

"They're just saying that if someone is engaged by their production company as a contractor, they want to know if that's how it's going to end up, and if it doesn't, that has other economic consequences for them.

"They're out of here, if we can't give them the clarity. There's no question about that."

Changes 'opportunistic'

But Council of Trade Unions President Helen Kelly this morning accused the Government of manipulating the situation to push through labour changes which could disadvantage workers.

"I think the Government is being very opportunistic - they've shown a disregard for workers rights (in the past)," she told

Ms Kelly said the move could set a precedent.

"If this is their response to this corporation - what about the next corporation and the next corporation?

"This Government is getting angsty about selling land to foreigners - well we can't sell laws to foreigners either. We are a sovereign nation.

Ms Kelly said the discussed changes were unrelated to the dispute, which she said was "completely settled".

The Media Entertainment and Arts Alliance and the associated New Zealand Actors' Equity have promised no further industrial action will be taken against the two films.

"Clearly a group of actors wanting a collective agreement is not the issue here," she said. "What they are worrying about is financial assurances."