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CGI is gradually eating the actors too. "Basically, if you don't see the dwarfs or the actors in closeup, we've pretty much replaced them with digital doubles," Letteri says, "because we were creating the environments anyway." Azog--the orc chieftain who killed Thorin's father--began life as an actor in a suit, but he was replaced by a virtual orc. Same with the Great Goblin. Sometimes even the crew gets confused about what's real or not. "They still talk about putting the prosthetics on Barry Humphries," Letteri says. "They don't realize there's no there there."
For Jackson all this monumental effort and obsessive detail is, in part, about redeeming fantasy as a genre. "In terms of cinema, fantasy was always cheap," Jackson says. "It was relatively crude effects, and it was treated as a bit of a joke." He's trying to give fantasy the serious, gritty treatment it never got before. "We're approaching it as though these are events that actually took place. They're as real as Columbus discovering America. It really is treating fantasy with respect." (Realism does have its limits. "You don't see anyone ablute in Middle-earth," notes Sir Ian McKellen, who plays Gandalf, "or any of the ordinary physical things that we all need.")
I spend one afternoon at Gol Duldur, standing by while McKellen writhes in the grip of an unspeakable, as yet invisible evil that will be added in postproduction. Afterward, smoking and drinking coffee in his trailer, still in full Gandalf costume, he reflects on the strangeness of it all. "The filmgoers don't want to know that what I'm seeing as Sauron is actually a ball on top of a pole," he says. "It's the eye of Sauron, and it's the most dangerous thing imaginable. You just have to use your imagination. It's make-believe, isn't it? It's just pretend."
And that's the really funny thing about being on the set of The Hobbit: it doesn't put you any closer to Tolkien's magic, but it doesn't put you farther away either. The more technical it all gets, the more unreal, the more everybody ends up relying on their imaginations, the same as all the rest of us do. McKellen is just a bit better at it than most of us. "I don't really think of this as fantasy at all," he says. "The characters in the story don't think it's fantasy. For them it's life or death, isn't it?"