You know what, I understand both sides of the deal here. The LOTR stuff is VERY important to the NZ's branding (which we've discussed in this forum before), while WB wants to make the movie for as little as possible (not that it won't make billions, again, anyway, but still!).
The sense of entitlement (which I'm not seeing as anything more than an argument to get the masses moving, people in general having a colossal sense of entitlement as spending any amount of time in a video game forum will show to you) is mostly born out of the fact that they've made LOTR such an important thing for themselves, they literally can't imagine Hobbit being shot anywhere else. Even though it could probably be done with a minimum amount of hassle and nobody would be able to tell the difference...