The frame assembled
So here’s how I envision the frame in the original edition of AUJ. First, there’s a conversation between Old Bilbo and Frodo that will make Bilbo feel guilty about the things he has never told Frodo; it probably deals with Frodo’s idolization of him rather than the Ring. Then, Bilbo composes the cover letter; his very serious demeanor here will be a bit of a puzzle at first. Next, he writes “In a hole in the ground there lived a hobbit” and probably the rest of the famous opening paragraph — but not on the very first page of the Red Book, but rather on an inner leaf. (At what point he wrote the title page and “Concerning Hobbits” will be left unclear.) Then we fade to the story. And at first it seems that the missing truth that Bilbo is concerned about must be his lack of heroism; it’s only later that we’ll understand that his lies about the Ring were more troublesome, and hence understand why he looked so serious while penning the letter to Frodo.
The history of that letter can be easily divined. When Bilbo leaves Bag End, Frodo has no idea that he’s begun a memoir. And yet when Frodo first sees the Red Book in Rivendell, he is not surprised by its existence; in fact, he reacts to it as if it’s something he has heard about, and has been looking forward to seeing. This has never jumped out at viewers as a plot hole because Frodo’s reaction is subtle, but it’s unquestionably there, now that we know to look for it. So Frodo has clearly read the letter in the interim. And if you look at the scene where Gandalf seals the Ring in its envelope while Frodo watches, there are already two sealed letters on that small table. (One wonders whether the other is to Sam, telling him to look after Frodo, or to the Sackville-Baggins, telling them to leave him alone.)
I don’t think we’ll ever see a scene where Frodo reads the letter, by the way; that he must have done so can be left for viewers to conclude. It’s far from the largest such elision in the movies: note that Frodo acquires the Red Book from Bilbo on the return journey from Minas Tirith, and the only hint that they’ve even seen each other is that the tracking shot showing the path of the journey on the map passes through Rivendell.
Finally, here’s one more good question. The frame doesn’t consist of Bilbo telling his story to Frodo. Nor does it consist of Bilbo writing the entire memoir, because he writes most of it in Rivendell, and showing that in The Hobbit would thus be a spoiler for LOTR; it would violate the principle of trilogic independence. So what does that leave? I think the answer is that the story we see played out on the screen over eight hours is the one in Bilbo’s head as he starts to write the memoir. It’s everything he remembers and everything he plans to write. This is a perfectly ordinary convention for flashbacks, one Jackson has already used for Gandalf’s escape from Saruman, left untold to Frodo as he sits by his bedside in Rivendell. Gandalf pauses for just a second, and we see a one-minute flashback that covers hours of his life. So I don’t think we’ll return to the frame until late in the last movie, when we’ll see that Bilbo is still at his writing desk, and still at the same early point in chapter 1. Having grasped the entire story in his mind, he’s now ready to begin writing it.
