Regardless of what the best thing to do was in terms of the story and pacing it and all of that, Jackson made the mistake of making it into three films because the concept of doing so still hasn't connected with the potential audience yet. Those people who know that he did it, like us here on this board, are all scratching our heads as to what aspects about the story merit a longer length (The battle of the 5 armies, etc) but the main concern is that so many people - even Hobbit fans, don't know that he even made into three films.
This week I went to two gaming meet-ups and no one that attended (yes we're all geeks) even knew that he had done this. Some people knew by happenstance that he was making two films. Like I mentioned before, people like my mother who like the story were flabbergasted by this: 3 films? WTF?
I think Jackson has caused a lot of confusion among the devotees and the casual film-goers with his decision, regardless of how he justified doing this with the studio. That is the point I think this thread hasn't quite gotten to.