From the Los Angeles Times:

By Ben Fritz and Claudia Eller

Following a multitude of delays, Warner Bros. and co-financing partner Metro-Goldwyn-Mayer Inc. have agreed to start production in February on the two films that serve as a prequel to the blockbuster “Lord of the Rings” trilogy, people familiar with the situation said.

Only one hitch remains, however, and it may not necessarily be a small one. The studios are waiting to announce the greenlight because a labor dispute between director Peter Jackson and the Screen Actors Guild and other performers unions is not yet resolved. The unions have advised members not to work on “The Hobbit” because they claim it’s a non-union production. The parties are hopeful that a resolution is imminent, which would pave the way for the movies to be shot in Jackson’s home country of New Zealand, where “Lord of the Rings” was made and preproduction for the new films is underway.

The first “Hobbit” movie is scheduled to be released in December 2012 and the second the following holiday season, both in 3-D.

Production on “The Hobbit” had also been held up because of the financial problems of MGM, which owns international distribution rights to the pictures and is obligated to cover half of the budget, which is expected to approach $500 million. Although MGM is still not financially able to foot its part of the bill, it had to commit to the production before filming could start.

MGM is expected to talk to potential funding sources, including other studios that could handle foreign distribution on its behalf. As a backup plan, Warner Bros. has agreed to loan MGM the money in exchange for additional rights to the picture beyond the domestic distribution it already controls.

The production will be overseen by Warner Bros.’ New Line Cinema label, which made the “Lord of the Rings” trilogy before it was folded into its sibling studio by parent company Time Warner Inc.

Negotiations between the two sides have been led by New Line President Toby Emmerich, Warner Bros. Home Entertainment Group President Kevin Tsujihara, and Spyglass Entertainment chiefs Gary Barber and Roger Birnbaum, who will take over MGM’s management if a proposed prepackaged bankruptcy plan gets approved by the studio’s creditors.

Another major sticking point in recent weeks has been finalizing terms of a deal with Jackson, who co-wrote the script and is also a producer on the movies. He has been preparing the production for the past two years and in the spring he replaced Guillermo Del Toro as director.