WELLINGTON, New Zealand -- New Zealander Peter Jackson has gone from making movies as a hobby to making movies about hobbits -- films that have helped him forge a filmmaking empire in New Zealand and build a reputation in Hollywood for pulling off the impossible. On the eve of maybe landing his most precious prize yet -- an Oscar for directing "The Lord of the Rings: The Return of the King," the last film in the "Rings" trilogy -- Jackson spoke with The Hollywood Reporter's Philip Wakefield about the upcoming "King Kong," the future of film and the state of New Zealand's film industry.

The Hollywood Reporter: Will making a single movie like "King Kong" seem anticlimactic after "The Lord of the Rings"?
Peter Jackson: From a logistical point of view, a single movie is much easier, but the main creative challenge of writing a good script and making a good movie remains as difficult as ever. I do think that having the experience of three huge films back-to-back behind us has given the "LOTR" crew and craftspeople a confidence that we can take on any project.

THR: What key challenges does its filming present?
Jackson: Writing the script is always the most critical and difficult job. The actual filming shouldn't be too tricky once we assemble a great cast. Creating a strong emotional presence of Kong himself will be a challenge since he obviously won't be joining us on set.

THR: Can you confirm which, if any, "Lord of the Rings" cast and crew will be involved with "King Kong"?
Jackson: It's too early to say about cast, apart from Naomi Watts, who's now confirmed. We need to write for a few more weeks to establish exactly what type of other characters we are looking for. I'm hoping there will be suitable roles for one or two "LOTR" actors. As far as crew go, "LOTR" veterans include Jan Blenkin and Caro Cunningham, both of whom are producing "Kong" with me; Andrew Lesnie is on board as (director of photography); Grant Major is production designer; Dan Hennah is supervising art director. Both Weta Workshop, led by Richard Taylor, and Weta Digital have been at work on "Kong" for some months now. Howard Shore is doing the music. We are talking to all other crew at the moment and imagine the majority will be "LOTR" veterans.

THR: How will your "King Kong" differ from the original and the first remake?
Jackson: It's based on the 1933 movie, and we will follow that basic plot and narrative structure. We will obviously be writing much more depth into the characters -- approaching it as a drama rather than fantasy. We pretend the 1976 version doesn't exist.

THR: Will all of "King Kong" be shot and postproduced in New Zealand?
Jackson: Yes. Production will be based in Miramar, Wellington, at Stone Street Studios, which is having a new huge soundstage built to accommodate our needs. All postproduction will occur at Weta Digital for CGI and Park Road Post for the sound mix and lab work -- both in Miramar also. There will be some, but not much, location shooting elsewhere in New Zealand, but we're not sure where yet.

THR: Did you ever think "Lord of the Rings" would become the phenomenon it has, and what has most surprised you about its success?
Jackson: No. Even dreaming of this kind of success is something you just don't do during production. It would jinx it! We were all hoping New Line would get its money back, and we worked very hard to try and achieve that. If that happened, we would hopefully get to make other films. I have been surprised by how many non-Tolkien readers we have now converted. Having young kids plow their way through his rather difficult books is something I'm proud to have inspired.

THR: How important was DVD to the boxoffice success of "Rings," and who conceived the strategy of the extended cuts?
Jackson: I suggested the extended cuts when we were locking down the "Fellowship of the Ring" cut in 2001. Until we actually knew how much deleted footage we would end up with and how worthwhile it was, there was no thought about alternate cuts. Having multiple units shooting three movies at once, out of sequence, with continual script revisions, made it difficult to keep track of exactly how long each of the films was going to be. As it happened, we had nearly an extra hour of deleted scenes for each of the three movies. I've always regarded those deleted scenes as being a legitimate part of our "LOTR" adaptation. The DVD release of the theatrical movie was very helpful in maintaining a marketing momentum and profile during the 12 months between the cinema releases of each of the films.

THR: How do you see technology affecting the production, distribution and exhibition of movies in the future? Is "Lord of the Rings" a template for how movies can be filmed and postproduced anywhere now?
Jackson: Obviously, the future of production, distribution and exhibition of films lies in the digital technology currently being developed. We shot "LOTR" on film, as we will with "Kong." However, we did digitally scan and color-time the three movies, which I found to be a wonderful creative tool. It also enabled us to make completely digital intermediates, which had less quality loss than their film equivalents. That's a kind of compromise approach as I'm waiting for a completely digital filmmaking world to solidify over the next few years. As high-definition DVDs arrive next year and home cinema takes a huge quality leap, I think that the future of theatrical presentations will move to larger-event-type formats like Imax. Big-budget, complex films with extensive CGI effects can be made anywhere now.

THR: What do you most regret you couldn't achieve with "Lord of the Rings"?
Jackson: I don't have regrets -- only a rather stunned disbelief at what has transpired. Ask me in five years.

THR: How would you describe the state and heart of the New Zealand film industry?
Jackson: I feel that the N.Z. film industry has been floundering without strong direction from the film commission or support from the government. You can only judge an industry by the films it produces each year, and in my mind, the New Zealand films of the past 10 years have seemed less interesting than the decade before that. Or maybe I'm just getting older. A decade ago, the film commission made a policy of trying to create a producer-led industry in New Zealand. Unfortunately, there are very few producers in this country who know anything about developing good screenplays or making good movies. On the other hand, develop a great screenplay under the supervision of a good director, and there will be any number of competent producers who can make the thing happen. It was a policy that has hobbled, restrained and frustrated the country's writers and directors, whilst all these people walk around calling themselves producers, soaking up development money and achieving nothing. It has produced 10 years worth of weak films. A film industry should be built on its talent, i.e. writers and directors. They should be identified, nurtured and supported. In my opinion, most of the tiny N.Z. Film Commission budget should be targeting the country's six best writers and six best directors, investing in their talent. Unfortunately, such a focused strategy flies in the face of the film commission's mandate to support anybody who can fill out the forms correctly and jump through the hoops.

THR: Can the industry sustain the momentum of "Lord of the Rings" and "King Kong"?
Jackson: I hope so.

THR: Do you ever see yourself making movies outside New Zealand? What kind of project would it take?
Jackson: I'd go elsewhere if I needed a specific location, but I'd always come back to N.Z. for postproduction.

THR: How important do you see the Large Budget Screen Production Grant scheme being for attracting more offshore production here?
Jackson: It's very important to have some form of government incentives, just so we can compete on a level playing field with everyone else.

THR: Would the government be better to spend the $40 million a year the scheme could cost directly on the domestic industry, and if so, in which areas?
Jackson: Why is it either/or? Isn't that small-minded? Both offshore productions and the domestic industry should be supported. The government has made a real effort to listen to the industry voice during the past year or so. As a result, it has established this tax incentive, or whatever they wish to call it, plus it has also increased the domestic film fund by $10 million. As a supporter of a better New Zealand film industry, I will always say it's not enough. But at some point, we just have to stop complaining and concentrate on making better movies. When the movies are successful, then one has to assume a case can be made in the future for more government support. It's important that profits from the occasional successes are fed back into the pot. If the rumors are true that not one cent of the "Whale Rider" profit will be returned to the government agencies that partially funded it, then it makes it hard for the industry to argue for more government funding. (David Gascoigne -- chair of the Film Fund, the biggest investor of the three public funding agencies, which include the film commission and NZ On Air -- has dismissed the "Whale" rumor as "absolutely untrue." He says that as well as recouping the agencies' entire investment early, for reinvesting in other projects, "we negotiated a significant premium to recognize the use of our funding over the period it was committed.")

THR: Do you think your staggering success will encourage the next wave of New Zealand filmmakers to reside and make movies here, or will Hollywood always lure most of our top talent?
Jackson: It will depend on the individual. Working where you want to work is a luxury that is dictated by one's status within the industry to some degree.

THR: How does a New Zealand director win creative control/final cut and a record fee as you reportedly have for "King Kong"?
Jackson: By making "The Lord of the Rings." But don't forget, "The Lord of the Rings" was made by somebody who had been making low-budget films, often with government support since 1986 -- and for 18 years before that with the support of my parents.