“This was given to me by the president of the United States,” said Mr. Key, marveling that President Obama’s official gift to New Zealand was, after all, a New Zealand product.

In Mr. Key’s spare blond-wood office — with no goblins in sight — the sword looked decidedly unmagical. But it served as a reminder that in New Zealand, the business of running a country goes hand in hand with the business of making movies.

For better or worse, Mr. Key’s government has taken extreme measures that have linked its fortunes to some of Hollywood’s biggest pictures, making this country of 4.4 million people, slightly more than the city of Los Angeles, a grand experiment in the fusion of film and government.

That union has been on enthusiastic display here in recent weeks as “The Hobbit: An Unexpected Journey,” the first of three related movies by the director Peter Jackson, approached its world premiere on Wednesday in Wellington (and on Dec. 14 in the United States). Anticipation in New Zealand has been building, and there are signs everywhere of the film’s integration into Kiwi life — from the giant replica of the movie’s Gollum creature suspended over the waiting area at Wellington Airport to the gift shops that are expanding to meet anticipated demand for Hobbit merchandise (elf ears, $14).

But the path to this moment has been filled with controversy. Two years ago, when a dispute with unions threatened to derail the “Hobbit” movies — endangering several thousand jobs and a commitment of some $500 million by Warner Brothers — Mr. Key persuaded the Parliament to rewrite its national labor laws.

It was a breathtaking solution, even in a world accustomed to generous public support of movie projects, and a substantial incentive package was included: the government agreed to contribute $99 million in production costs and add $10 million to the studio’s marketing budget. And its tourism office will spend about $8 million in its current fiscal year, and probably more in the future, as part of a promotional campaign with Time Warner that is marketing the country as a film-friendly fantasyland.

For a tiny nation like New Zealand, where plans to cut $35 million from the education budget set off national outrage earlier this year (and a backtrack from the government), the “Hobbit” concessions were difficult for many to swallow, especially since the country had already provided some $150 million in support for the three “Lord of the Rings” movies.

Now, even amid the excitement of the “Hobbit” opening, skepticism about the government’s film-centric strategy remains. And recently it has become entangled with new suspicions: that Mr. Key’s government is taking cues from America’s powerful film industry in handling a request by United States officials for the extradition of Kim Dotcom, the mogul whose given name was Kim Schmitz, so he can face charges of pirating copyrighted material.

New Zealand’s political scene erupted in September, as Mr. Key publicly apologized to Mr. Dotcom for what turned out to be illegal spying on him by the country’s Government Communications Security Bureau. The Waikato Times, a provincial paper, taunted Mr. Key, accusing him of making New Zealand the “51st state,” while others suggested that a whirlwind trip by Mr. Key to Los Angeles in early October was somehow tied to the Dotcom case.

“No studio executive raised it with me,” Mr. Key said in an interview last month. He spoke the day after a private dinner where he lobbied executives from Disney, Warner Brothers, Fox and other companies for still more New Zealand film work, with Mr. Jackson, a New Zealander, joining by video link.

Mr. Key has been sharply criticized for cozying up to Mr. Jackson in what some consider unseemly ways. Last year, a month before elections in which he and his National Party were fighting to keep control of the government, Mr. Key skipped an appointment with Queen Elizabeth II in Australia to visit the Hobbiton set. He also interviewed Mr. Jackson on a radio show, prompting an outcry from the opposition.

Article source: http://www.nytimes.com/2012/11/24/business/media/new-zealand-wants-a-hollywood-put-on-its-map.html?partner=rss&emc=rss