Asia Faces 3D Conversion Revolution

Opportunity, Challenge for Cinema Operators, Equipment Manufacturers

HONG KONG -- As the speed of 3D moviemaking picks up, with more than 30 titles coming from Hollywood alone in 2011, Asia presents a challenge and an opportunity to the companies helping the region’s theater owners and operators join the stereoscopic revolution.

At the CineAsia distributors and exhibitors trade show here this week, Technicolor Asia is promoting a stop-gap technology designed to help theaters in the two hottest growth markets, China and Indonesia, make the leap from 2D to 3D to earn more money from higher-priced tickets.

The company’s 35mm 3D solution is needed because while films such as Avatar have proven to make more money in 3D, middle-class consumers in many of China’s dozens of second- and third-tier cities with populations of over a million aren’t yet fully ready pay for the costlier 3D tickets that will underwrite expensive new digital hardware.

Technicolor hopes its $25,000 package solution will fill a void for two to three years before China’s digital conversion process is complete, Tim Meade, Technicolor’s Asia Pacific 3D sales and marketing director, told The Hollywood Reporter on the sidelines of the annual three-day CineAsia event.

“The Technicolor 35mm 3D solution is designed to provide exhibitors with a low-cost alternative to digital 3D that gets them into the business of 3D,” said Meade, who joined NYSE-listed Technicolor in June at its Asia headquarters in Bangkok.

Since then, Meade has overseen the installation of four of these 35mm 3D systems in Thailand, three with SF Cinemas and one with Major Cinemas, and they’ve already paid off for these leading Thai cinema chains, whose 3D release of Warner Bros.’ Legend of the Guardians: The Owls of Ga’hoole grossed a higher average than the film did in 2D.

Sourcing silver screens that cost roughly $5,000 from vendors such as Harkness in the U.S. and Spectro in South Korea, Technicolor Asia hopes also to set up Chinese second- and third-tier cinema operators with 3D projector lenses costing about $15,000. Further, some Chinese theaters will require a power upgrade from a 3K projector to a brighter 4K machine, which can cost up to $5,000.

“The package includes a silver screen that exhibitors eventually will use for digital projection when they can afford the full conversion,” Meade said.

China now has about 6,000 screens, including 3,364 digital screens that are 3D-ready, according to Sunder Kimatrai, Asia Pacific senior vice president of 20th Century Fox International and the man who oversaw Avatar grossing $207 million in China alone.

While the Chinese government is subsidizing much of the country’s digital cinema conversion, companies such as Technicolor and Panavision are hoping to get into the game next March when a World Trade Organization ruling opening the Chinese market to greater foreign participation is supposed to take effect.

In 2011, Technicolor will focus its efforts on selling its 3D solution into China and another hot growth market, Indonesia, Meade said, setting the aim of achieving 250 installations in the coming year and about 600 over the next three years. 

Whereas much of China’s digital conversion is led by chains owned or operated by the state-run China Film Group or the Shanghai Media Group, Technicolor is talking to independent Chinese equipment suppliers to act as sales agents for its package solution to independent cinema chains such as Wanda, Stellar and Dadi.

The advantage for these big independent chains to work with a 35mm 3D system is that there are at least 30 3D titles set to be printed on film in 2011 from Warner Bros. Universal, Paramount, DreamWorks, Summit, The Weinstein Company and Lionsgate, Meade said.

“This is a bridge technology that will last about two to three years,” Meade said, noting that Technicolor has more than 300 of these 3D systems installed in the U.S., more than 50 in Spain and Italy and more than 30 in Germany and the U.K. “So, 250 in Asia in the next year isn’t bad business at all.”

But not everybody’s as bullish on the China opportunity. MasterImage has a stereoscopic 3D system that sells for about $33,500 and has installed 80 of them in South China, the country’s richest region. Sales team manager Dan Zheng said despite exploring opportunities with local sales agents in northern China, most of that business appears to be locked up by state-owned firms or to be going to a solution from RealD that has a lower initial cost of entry. 

“Our strategy at MasterImage is to offer theaters a lower cost of ownership over time, by having them purchase our systems outright versus renting them and being subject to perpetual seat taxes.” Zheng . “Theaters recognize the technological advantages of the MasterImage system, but it can be difficult to get them looking at the longer-term cost of ownership issues when they’re focused on the immediate investment. That tide is turning now, and as contracts with competitors start to come up for renewal, we’re getting a second look.”

Still, it’s hard to ignore the growth. Bill Archer, publisher of industry research website Digital Cinema, noted that Burbank-based cinema solutions company DoReMi will this year ship its 20,000th digital cinema server and has just opened a second plant to meet demand.

Archer said that of the world’s current 150,000 cinema screens, only 30,000 are digital and thus, 3D capable. Only 21,000 screens are 3D-ready, worldwide. “It’s 3D that’s driving the switch to digital,” Archer said, noting that Asia show the greatest potential.

Whereas the U.S. now has 12,000 3D-ready screens, and Europe has 7,000 -- with 1,200 in France alone -- all of Asia has only 6,000 3D-ready screens. “All the countries in Asia are on the move,” Archer said.

So it is that nine companies are vying for Asian cinema conversion business, firms such as Real D and MasterImage, whose 3D systems offer cheap 3D glasses with an expensive projector, Archer said. Dolby and Panavision offer a color separation 3D system that comes with more expensive glasses and cheaper projectors. Still other firms offer the next generation and most expensive “active glasses,” which convert 2D images to 3D, literally right in front of the viewer’s eyes.

Fox’s Kimatrai noted that some markets are faster to adapt than others. All of the digital screens in the Philippines, New Zealand and Indonesia, for instance, are now 3D-ready, Kimatrai said.

According to Rance Pow, president of Shanghai-based consultancy Artisan Gateway, Indonesia’s growth in digital theaters was up 14.4% this year -- raising the country’s count to 668 screens -- and that Vietnam is “on turbo,” with 17 3D screens today, up from zero a few years ago.

Boiling the case for Asian 3D conversion down to a two-market comparison, Kimatrai noted that Hong Kong’s 199 screens grossed $101 million from the top 50 films through November, while Singapore’s 176 screens brought in only $84 million from the same movies. Why? Because Hong Kong has 129 stereoscopic 3D systems installed and Singapore has only 43, Kimatrai said. While the gross from the 2D film The A Team was roughly the same in both markets -- $1.5 million in Hong Kong and $1.1 million in Singapore -- 3D Avatar brought Hong Kong theaters $23.5 million and Singapore theaters only $8.3 million.

The ability of 3D to create buzz among viewers means that a film’s box office gross after it has been open a while is much stronger than the average 2D film. “3D films have a longer tail and other things being equal, there’s a case for 3D as a real value addition,” Kimatrai said.

With between three and four 3D films slated to release each month in 2011, Kimatrai said theaters not 3D-ready are going to miss out: “There’s money being left here on the table here.”

To bring the point home to CineAsia attendees, Artisan Gateway’s Pow noted that Los Angeles’ population of 17.7 million is served by 2,237 screens, or one for every 7,946 people. Of those, 476 screens are 3D-ready, one for every 37,345 residents. Beijing, by contrast, has 17.5 million people served by 278 screens – one for every 63,129 capital dwellers. Citizens there have access to only 21 3D-ready screens, one for every 83,333 people.