In the town of Bree, Gandalf the Grey (Ian McKellen) meets the dwarf-king Thorin Oakenshield (Richard Armitage) in the Prancing Pony Tavern. The Wizard urges him to retake the lost kingdom of Erebor at the Lonely Mountain from Smaug the Dragon. Evil forces are gathering in Middle Earth and Gandalf wants the Dwarves in Erebor.

One year later, Thorin and his Dwarf company, with Gandalf and Bilbo Baggins (Martin Freeman) are trying to outrun Azog the Defiler (Manu Bennett) and his Orc army, riding wolf-like Wargs. Gandalf leads them to the sanctuary of Beorn (Mikael Persbrandt) the were-bear. Azog is summoned to Dol Guldur by the Necromancer and leaves the dwarf-hunt to his son Bolg (Conan Stevens). Beorn, in bear-shape, escorts the company to the edge of Mirkwood. Gandalf must leave them (as he does) to investigate the Tombs of the Nazgul—nine dead Black Riders or Ringwraiths ruled by Sauron—for Galadriel (Cate Blanchett), and the Dwarves enter the fearful forest. They are seized by giant spiders and Bilbo frees them with his elven blade, which he now calls Sting, and the golden ring he stole from Gollum (Andy Serkis) in his cave, which renders him invisible, but Bilbo is beginning to understand the power that the ring holds over him. The spiders are finished off by the Wood-Elves, led by Legolas (Orlando Bloom) and Tauriel (Evangeline Lilly), who seize the Dwarves and bring them to the Elvenking Thranduil (Lee Pace). The King offers help to the Dwarves, but Thorin well remembers that Thranduil offered no help against Smaug all those ages ago, and he refuses, so they are locked up.

Bilbo creeps invisibly into the prison and frees the Dwarves by hiding them in wine-barrels sent downriver. They are pursued by Bolg and the Orcs, and by Legolas and Tauriel, who decimate the Orcs with their Elven archery—chase-scenes in Middle Earth are nothing like those in the real world. Tauriel has taken a shine to Dwarf Kili (Aidan Turner, the pretty one) who is struck by a poisoned Morgul-shaft. The Dwarves manage to escape to Escaroth with the help of Bard the Bargeman (Luke Evans). Thranduil closes the Wood-Elf kingdom after hearing from an orc prisoner that an evil enemy has returned to Middle Earth and is gathering armies of fell creatures. But Tauriel leaves to help the Dwarves, and Legolas pursues her. Meanwhile, Gandalf and the wizard Radagast the Brown (Sylvester McCoy) investigate the tombs of the Nazgul, which they find empty.

The Dwarves are caught raiding the Laketown armory for weapons. Thorin makes a speech promising the town a share of Smaug’s stolen treasure, and we discover that Bard is a descendant of the last ruler of Dale, who nearly killed Smaug the last time he attacked, managing only to loosen a scale on the creature’s throat. Secretly, he has one last great arrow, which he has given to his son to hide. The Dwarves head off to the Lonely Mountain, leaving the extremely ill Kili and some companions behind. Meanwhile, Gandalf travels to Dol Guldur, sending Radagast to warn Galadriel of the escape of the Nazgul. Gandalf finds the ruins infected with Orcs. Azog captures Gandalf and the Necromancer reveals himself as Sauron the Black Wizard.

Thorin and company reach the Lonely Mountain and Bilbo discovers the way in. He is sent to find the Arkenstone, somewhere in the mound of treasure, and awakens Smaug (voice of Benedict Cumberbatch) in the process. He hides from sight with the ring, spots the Arkenstone by its glow, and struggles to seize it. The dragon reveals his knowledge of Sauron’s return. Back in Laketown, Bolg and the Orcs attack the Dwarves and are summarily dispatched by Tauriel and Legolas. The latter goes after the fleeing Bolg, and Tauriel cures Kili with Elven Healing Magic. Gandalf, imprisoned, watches Azog and his armies of Orcs march toward Erebor. Bilbo and the Dwarves try to stop Smaug, but he escapes and heads toward Laketown.

In the first Hobbit movie, Gollum does his best to upstage our hero Bilbo, in the second, it is Smaug. But Martin Freeman holds his own against two astonishing CGI performances. As in the earlier scene with the Trolls, Bilbo pits his quick wits against frightening creatures who want to eat him alive and puzzles his way out of danger. In each case he gets away with a prize. As Tolkien knew quite well, Faerie is full of such characters—some of them animals, some human, and one hobbit.

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