Crunch time for 3-D cinema

With a bold digital cinema deal inked and dozens of releases coming, the scramble to convert theaters is on.

Has 3-D reached its tipping point? With a $1 billion deal announced last week between the major theater chains and five studios to convert more than 15,000 U.S. screens to digital projection, hopes are high that a slew of new 3-D-enabled theaters will follow. But that is far from certain, and any delay in installing could curtail releases for the coming onslaught of 3-D films.

"It's definitely a critical time," says Doug Darrow, marketing manager at Texas Instruments, which makes the chips that power digital cinema projectors. "While 3-D is greeted with excitement and anticipation, there's also a level of concern -- albeit optimistic -- that the output will be there when the content comes."

The numbers back up that sentiment. Only about 1,000 screens in the U.S. are currently digital 3-D-ready. This is about the same as when "Beowulf" opened last November and not nearly enough to provide the desired screens for the dozen 3-D titles slated to open in 2009, not to mention the 30 or so in the pipeline beyond that.

The question that exhibition and distribution execs are asking as they gather at ShowEast in Orlando on Monday is: Will there be sufficient screens to handle the 2009 slate?

"There is an urgent need for (conversions) to happen," says Cary Granat, co-CEO of Walden Media, which released "Journey to the Center of the Earth" this summer on 2,811 screens. Only 854 of those were equipped to handle 3-D, yet they accounted for 57% of the film's $21 million opening weekend. "We were thrilled with boxoffice for 'Journey,' but we certainly left money on the table," Granat says.

While studios, exhibitors and other stakeholders all express support for 3-D, they differ on how much a priority conversions should be and, more important, who should pay for them.

In order to show any digital 3-D films, a theater first requires a digital cinema installation. These are generally financed on a "virtual print fee" model, through which studios contribute an agreed fee per screen, per movie, to offset exhibitors' installation costs, which can run as high as $100,000 per system.

The deal announced last week between Universal, Paramount, Disney, Fox and Lionsgate and Digital Cinema Implementation Partners -- a joint venture owned by AMC Entertainment, Cinemark USA and Regal Entertainment Group that represents 14,000 screens in the U.S and Canada -- could result in 3,000 digital conversions within the next year or so, with many more to follow. Warner Bros. and Sony, which at press time were not yet parties to the deal, are expected to contribute on the virtual print fee model.

The addition of 3-D systems in many of those newly converted digital theaters is planned, although a timetable and financing scheme are far from clear.

In addition, Access Integrated Technologies -- the integrator for the majority of digital installations in North America -- is developing a "Phase 2" program, which follows a recently completed effort that put nearly 5,000 digital screens in North America. Its CEO, Bud Mayo, cheers the DCIP deal. "We think it's a catalyst for the industry," he says.

And smaller theater owners, nervous about being left out of the 3-D party, are pursuing their own conversions. The Cinema Buying Group -- a buying program of the National Association of Theatre Owners for small and independent theater operators -- has inked a deal with AccessIT to integrate its 600-plus members in the U.S. and Canada. The move represents more than 8,000 screens, the majority of which are expected to fit into Phase 2 deployment -- if funding comes through.

Internationally, key D-cinema markets include China, with roughly 700 screens; the U.K., with roughly 300; and France, Germany and Korea, all with 150-190 each.

Imax could also play a major role. The large-format chain is beginning a transition from 70mm film to digital projection and plans to convert its global base of 300 theaters, in addition to accommodating more than 200 new orders.

The revenue upside for 3-D is clear. Estimates suggest that exhibitors can charge a 20% premium on a ticket for a digital 3-D (non-Imax) movie. Like with "Journey," 3-D versions also tend to outperform 2-D on a per-screen basis. And 3-D films are viewed as less susceptible to piracy.

This is why studio toppers like Disney's Dick Cook and DreamWorks Animation's Jeffrey Katzenberg can't say enough about 3-D. Katzenberg in particular has gone on a hiring binge to prepare for planned 3-D versions of all DWA films going forward.

There are drawbacks, however. Buzz Hayes, Sony Pictures Imageworks 3-D producer of stereoscopic 3-D films, estimates that the added cost of producing a 3-D version of a computer-animated film is typically 8%-15% of the below-the-line costs, while a live-action 3-D feature would be closer to 15%-25%.

But the few digital 3-D releases have generally demonstrated the additional expense is worth it. Disney's 3-D "Hannah Montana/

Miley Cyrus: Best of Both Worlds Concert Tour" opened at No.1 on only 683 screens and went on to gross $65 million domestically.

The "Hannah Montana" movie also demonstrated that 3-D production tools and techniques are advancing. The concert film was posted in 11 weeks and carried a production budget of less than $7 million.

At the same time, many in the studio world remain cautious about devoting too much attention and expense to a format that hasn't proven itself in the mainstream market yet.

"Universal Studios supports 3-D," Universal's vp cinema technology, Wade Hannibal, told a crowd at the Hollywood Post Alliance Technology Retreat earlier this year. "That said ... we must balance the short-term competitive advantages of 3-D against the long-term industry advantages of a full-scale D-cinema conversion."

Still, filmmakers as varied as James Cameron and Robert Zemeckis have embraced the format, although new converts must learn everything from how one shoots and posts to how to factor time and costs into the equation.

"Now that mainstream filmmakers are jumping in with total enthusiasm, there is an education process that needs to happen," says Steve Schklair, founder and CEO of 3ality Digital, a Burbank-based 3-D technology developer and service provider.

Schklair believes that if 3-D is to avoid becoming a passing fad, the education process must focus on achieving consistently high-quality images that do not induce headaches. "The larger technological issues have been solved," he says. "(But) badly photographed

3-D images have the potential to actually be painful to watch."

Adds Phil McNally, global stereoscopic supervisor at DWA: "The biggest thing to overcome right now is 100 years of experience in 2-D filmmaking. We're all trying to perform on a NASCAR level when we have our learner's licenses."

To that end, organizations, including the DGA, American Society of Cinematographers, Visual Effects Society and Siggraph, have been hosting member events about 3-D filmmaking.

Efforts are also under way to create technical standards.

The Society of Motion Picture and Television Engineers, a standards-setting body, has already published some 3-D guidelines and is working on more. Some theatrical 3-D recommendations have been presented to the community by studio consortium Digital Cinema Initiatives.

And many believe the studios will commit even more to 3-D production when they see a greater opportunity for the home market.

"(Studio) production commitments are often based on the here and now, instead of thinking about how much value there is to this 3-D product in the future," says Vince Pace, president of Pace, a 3-D production service company.

The first 3-D-ready TV sets have already started to roll out, and "glasses-free" sets are in development. But while the Society of Motion Picture and Television Engineers has started an initiative to create 3-D mastering standards for content viewed in the home, these standards are at least 18 months away.

In that time, the format could also go mobile. For example, director Randal Kleiser and inventor Michael Mehrle started a company, Neovision Labs, whose technology is designed to enable the viewing of stereoscopic 3-D content on mobile devices without special glasses.

"I can see 3-D becoming much more pervasive than we are thinking now," Cameron says. "Are we looking at a situation maybe 10-15 years out where most laptops are sold with 3-D stereoscopic screens, most monitors are stereo compatible, and most DVD players can run stereo content?"

Cameron believes 3-D is here to stay. But some support the format while also warning against overhype.

"Let's agree to stop saying that 3-D will be the savior of the theatrical business," Universal's Hannibal told the HPA retreat crowd. "Theaters need to compete on the basis of long-term quality of service, not on the temporary uplift that 3-D may grant."

Matthew Belloni contributed to this report.
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