Lobbying from Sir Peter Jackson and others in the film industry pushed Economic Development Minister Steven Joyce to a "reluctant" decision to increase incentives for movie-makers.

In January Joyce couldn't have been clearer. New Zealand didn't need to join a "race to the bottom" by offering Hollywood studios the biggest subsidies in the world to make films here.

Sure, film-makers were always asking for ever-larger cash grants as they played one country off against another as the cheapest place to make films, but "we think we've positioned it about right".

By July, the government was still holding firm as it released the finding of a "comprehensive" Screen Sector Review, which contained minuscule tweaks to make it easier for local film-makers to tap government funds.

Such was the confidence in the new rules, which were jointly presented by Joyce and Arts Minister Chris Finlayson, that they weren't scheduled to be reviewed until 2016.

Then all of a sudden the government crumbled. Last Monday, at a press conference fronted by Prime Minister John Key and Avatar director James Cameron, new rules - which are dramatically more generous to foreign studios - were unveiled.

Grants for big films will jump from 15 per cent to 20 per cent, and in special cases 25 per cent. For the first confirmed recipient of our largesse - Fox Studios and its forthcoming trio of Avatar sequels - the deal will mean a cash incentive of $125 million as long as they spend $500m here.

It's worth noting the new rules also offer better grants for local TV and film productions, and create a new way for the government to take a stake in medium-sized local productions in the hope of sharing in any profits.

So what changed?

According to Joyce, nothing much at all.

"It's not a massive change of heart. We remain reluctant to increase the incentives."

Yet they still did it. Why?

Speaking on Friday, Joyce's answer was characteristically long and detailed and included numbered lists, but the guts of it seems to be that other countries were becoming "aggressive" in their wooing of films, so something had to be done fast. The Australians in particular were "keen" to snare the Avatar movies.

"You don't want to be too competitive, but neither do you want to be boxed out. We certainly wanted to get it wrapped up."

What also seems clear is that in October and November vigorous lobbying by film industry heavy-hitters, notably Wellington's mega-mogul Jackson, started to make its mark on the government.

Auckland film-makers, too, were becoming increasingly vocal about their fears for the future of the industry - the city's biggest foreign production, Spartacus, stopped shooting last October, and kids' TV show Power Rangers may be quitting New Zealand too.

Meanwhile, the Film Commission, along with Chronicles of Narnia director Andrew Adamson and Jackson's post-production studio Park Road Post, hired consultants PWC and economists NZIER to write reports on the industry's woes, which they took to the government in late October.

Insiders say Film Commission chair Patsy Reddy also deserves a lot of credit for getting things moving behind the scenes.

What's curious, though, is that Joyce was still talking tough in public even as he and Finlayson were on the brink of charting a new course. On October 27 Fairfax quoted Joyce saying that securing the film industry would not be done through increased subsidies: "We've never been the highest subsidy country . . . there are other benefits of operating in New Zealand."

As early as October 2, though, Joyce and Finlayson, along with Film Commission chair Patsy Reddy, had met with Jackson, along with his screenwriter and partner Fran Walsh and publicist Matt Dravitzki.

Jackson and Reddy met Finlayson again on November 11, though this time the prime minister was also present, and not Joyce.

A couple of weeks later, by the end of November, the new, more generous, incentives had been settled upon, giving the government a couple of weeks to complete negotiations with the Avatar people before last Monday's announcement.

Joyce said while Key, like most of the National cabinet, had a stake in the future of New Zealand's film industry, the prime minister had never interfered as he and Finlayson put together the new package of sweeteners before taking it to Cabinet.

"Chris and I brought our own paper, and [Key] didn't give us any advice ahead of time about what the outcomes should be."

Joyce is bullish about the decision to ignore advice from the Treasury, which said big grants to foreign films would cost the taxpayer, even after accounting for the additional employment and spending.

"Most of the time I agree with them," said Joyce. "Where there's a difference of opinion is around the benefits that certain industries have in helping project New Zealand on to a world stage.

"That's hard to quantify, which is one of the reasons Treasury doesn't like it."

Joyce refuses to call his U-turn a U-turn, or concede that New Zealand has, despite his fighting talk, joined that film subsidy "race to the bottom".

"We've effectively shifted 5 per cent, and we've done it for pragmatic reasons. Our preference would have been not to, but we saw it as an opportunity to maintain the industry while we sought other ways it could become more sustainable. I don't think I ever ruled that out.

"I was reluctant to go there - and remain reluctant to have gone there."

This article has been updated to clarify terminology. The original referred to ‘‘tax rebates’’ offered to foreign film-makers. In fact the Large Budget Screen Production Grant and other government incentives for film-makers are provided via direct grants rather than tax rebates, and the Inland Revenue Department has no involvement.