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38-year-old Freeman is best known for playing Tim in the UK version of The Office and having the lead role in the 2005 film adaptation of The Hitchhiker’s Guide to the Galaxy.
Producer Peter Jackson, who is expected to direct, is now on the hunt for a new actor. James McAvoy (The Last King of Scotland), Daniel Radcliffe, Tobey Maguire and David Tennett (Doctor Who) have all been linked to the role; but it is believed that Jackson now wants an unknown actor, with auditions arranged in London, New York and Sydney.
The Hobbit is expected to be released in 2012, but the film has been met with production problems involving delays, financial troubles at MGM and director Guillermo Del Toro walking away from the project because of it. Jackson and his writing team are not making a straight adaptation of the novel: they are making two films which will also look at the wider Tolkien universe.