Theaters not yet ready for Hollywood's infatuation with 3-D
By Brooks Barnes The New York Times
Monday, January 12, 2009
http://www.iht.com/articles/2009/01/12/business/movie.php
The imminent full-bore return to 3-D filmmaking, upon which the movie industry is placing many of its hopes, is in danger of becoming Hollywood's latest flub.
Some of the mightiest forces in film - Jeffrey Katzenberg, James Cameron, John Lasseter - think the multiplex masses will soon demand that all movies be shown in newly available digital 3-D. Katzenberg, in particular, has pushed the format, trotting the globe to herald the technology as a transformative moment for cinema akin to the introduction of sound.
His bandwagon has a lot of passengers, at least in Hollywood. Walt Disney alone has 15 three-dimensional movies in its pipeline.
20th Century Fox is betting at least $200 million on "Avatar," a 3-D space adventure directed by Cameron and set for December release, his first nondocumentary film since "Titanic" in 1997.
There are more than 30 pictures on the way that rely on the technology.
But analysts are starting to warn that all of those movies could find themselves sitting on a loading dock with no place to go. Studios, thrilled by 3-D's dual promises of higher profits and artistic advancement, have aggressively embraced the technology without waiting for movie theaters to get on board. And without those expensive upgrades to projection equipment, mass-market 3-D releases are not tenable.
"It's starting to look like there will be a lot of disappointed producers unable to realize the upside of these 3-D investments," said Harold Vogel, a media analyst and the author of "Entertainment Industry Economics." Filming in 3-D adds about $15 million to production costs, he said, but can send profit soaring because of premium ticket-pricing.
Only about 1,300 of the 40,000 or so movie screens in North America support digital 3-D. Counting IMAX theaters would add 250. Overseas, where films now generate as much as 70 percent of their theatrical revenue, only a few hundred screens can support the technology. It costs about $100,000 for a full upgrade at each screen.
Studios require about 3,000 screens in North America for most new releases. Popcorn movies like "Avatar" or "Monsters vs. Aliens," a coming 3-D entry from DreamWorks Animation, typically open on more than 4,000 screens.
"The crunch has everybody scrambling," said Chuck Viane, president for domestic distribution for Walt Disney Studios. "We had expected many more screens to be available by now, no doubt about it."
Upgrades have lagged primarily because of a dispute over who should shoulder the cost. Studios expected theaters to take the lead because digital equipment would allow them to raise prices - tickets to the new crop of 3-D movies run as high as $25 each - and lure consumers away from their big-screen living room TVs. Exhibitors, hurt by soaring real estate costs, wanted studios to pay for largely the same reasons.
Theater chains and four of the six major Hollywood studios agreed in September on a plan to convert more than 15,000 screens using $1 billion in debt financing arranged through JPMorgan Chase. But the squabbling took too long: The financing plan came together just as the credit markets froze.
Studios and exhibitors say the upgrade plan is not in jeopardy of disintegrating. Katzenberg, the chief executive of DreamWorks Animation, recently told media analysts that he expected the credit markets to open sufficiently by the end of March, a position echoed by Digital Cinema Implementation Partners, a consortium of exhibitors and studios that arranged the financing package.
"This is a long-term commitment and a long-term strategy," Katzenberg said during a recent interview.
Meanwhile, the consortium is pursuing alternative financing that would allow the plan to proceed in steps. "Rather than just being patient, we are aggressively exploring all options," said Rich Manzione, the group's vice president for strategic planning.
Other participants seem less optimistic. Will the credit markets open up in the first quarter of this year, as Katzenberg predicted? "Your guess is as good as mine," said Mike Campbell, the chief executive of Regal Entertainment Group, which owns the largest movie theater chain in the United States.
Even if debt financing becomes available, there will be competition at the credit trough from other Hollywood entities. Steven Spielberg, for one, is seeking about $750 million in debt financing, also via JPMorgan, to get his new boutique studio off the ground.
Meanwhile, the shortage of 3-D screens is upsetting profit projections at various studios. When DreamWorks Animation releases "Monsters vs. Aliens" on March 27, it will have to settle for half the number of 3-D screens it wanted. While acknowledging the shortage, Katzenberg recently told analysts there were enough screens available to "recover our upfront investment and make a profit."
The chief financial officer of DreamWorks, Lewis Coleman, recently estimated that one of its hit titles, if released entirely in 3-D, would earn an additional $80 million.
The shortage is sending mixed messages to moviegoers, many of whom are already skeptical of the industry's transformative claims about 3-D. Because of a shortage of outlets last summer, Warner Brothers had to scramble to change the marketing for "Journey to the Center of the Earth 3D" - ultimately dropping "3D" from the title - and offer a two-dimensional release in tandem. Lionsgate will have just 900 3-D screens available for "My Bloody Valentine 3D" on Jan. 16, requiring the studio to show a standard version on about 1,600 screens.
The delay is also threatening to undercut one of the primary benefits for theaters - the ability to deliver an experience that consumers cannot replicate at home. But the home entertainment market is rapidly catching up, with companies developing 3-D options for the home.
RealD, a California company that is the lead provider of 3-D technology for theaters, last week demonstrated a similar product for televisions at the Consumer Electronics Show in Las Vegas. Lasseter, a co-founder of Pixar Animation Studios, took the stage to trumpet the ability for consumers to use Blu-ray discs to watch movies in 3-D from their couches.
Michael Lewis, the chief executive of RealD, said during an interview that he expected Americans to own 10 million 3-D-capable television sets within five years.
People who remember 3-D from the 1950s roll their eyes at Hollywood's renewed fascination with the medium. They associate 3-D with cheesy films ("Creature From the Black Lagoon"), stiff cardboard glasses and jerky, stomach-turning camera movements.
This time, movie executives insist that everything has changed.
Digital projectors deliver the images with perfect precision while new, slightly more stylish plastic glasses have replaced the cardboard.
Most important, filmmakers say, new equipment allows movies to be built in 3-D from the ground up, providing a better viewing experience, not one based on visual gimmicks.
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