''The Hobbit'': Is Peter Jackson coming back?

Last month, in the academic journal Science, paleontologists presented new evidence that they had discovered an overlooked relative of prehistoric man. Officially, they’ve labeled the species Homo floresiensis — unofficially, they’re calling them ”hobbits” — but by any other name what they’ve found are the 18,000-year-old fossilized remains of a three-foot-tall hominid with a recessed chin and a brain the size of a Wiffle ball.

As it happens, they’re digging for hobbits in Hollywood, too. The kind with a thing for finger bling and a knack for raking in billions at the box office. Up until a few weeks ago, it was looking as if this breed might be extinct as well, wiped out by dark lords more powerful than Sauron himself — entertainment lawyers. But now the legal battle that’s kept The Lord of the Rings‘ prequel, The Hobbit, hung up for years — a bitter feud between Rings director Peter Jackson and New Line Cinema co-chairman Robert Shaye — may finally be nearing resolution. For once, there’s reason to be cautiously optimistic. At this writing, no agreements have been announced and details of the negotiations are sketchy (neither New Line nor Jackson’s camp would comment to EW on any aspect of this story), but sources close to the talks tell us that they’re detecting a lot less frost in the air, and that a deal may be reached that could help usher J.R.R. Tolkien’s maiden Middle-earth masterpiece to screens before the end of the decade. ”There has been a détente,” says one insider. There is now the beginning of a discourse between Peter Jackson and New Line that’s running parallel to the litigation proceedings.”

Okay, so it’s not the sort of declaration of peace that sets church bells clanging. But it is a vast improvement from just 10 months ago, when Shaye and Jackson duked it out in the press and the studio co-chief angrily told a reporter that the director was too arrogant for his tastes, adding ”I don’t want to work with that guy anymore.” Besides, in Hollywood, any movement on this long-stalled project is major news. It was The Hobbit, after all, that first introduced the world to the lovely and terrifying universe of Middle-earth. The novel is set about 60 years before Lord of the Rings, and for many readers who dove into Tolkien’s work as kids, it retains a warmer glow in memory than the daunting and sometimes slow-moving trilogy. Its hero is one Bilbo Baggins, an unassuming homebody hobbit who gets dragooned by one wizard and 13 dwarves into an adventure during which he relieves a dragon named Smaug of an ill-gotten treasure and the wicked Gollum of a certain all-powerful ring. Only a few LOTR cast members make return appearances in this earlier tale. But the story has precisely the same themes — of loyalty and unexpected bravery — that made the Rings series huge. And by huge we mean gargantuan, with each film earning about a billion dollars worldwide between 2001 and 2003, along with 17 Oscars, including ones for Best Director and Best Picture. In Hollywood, in other words, The Hobbit is that rarest of magical creatures — a sure thing.

And that’s what makes this lawsuit mess so mystifying. What disagreement over Lord of the Rings could possibly be so important, so personal, that both sides would blow a potential billion dollars in revenue over it?

NEXT PAGE: The second LOTR installment, The Two Towers, earns $1 billion, and cast member start asking questions. Two sources close to the production recall a principal player receiving a merchandising residual check for 45 cents.