With more than 10 major motion pictures slated to be released in 3-D next year, theater owners are scrambling to covert as many as one-third of the 38,000 estimated screens across North America to digital cinema technology that can show the movies.
Since 3-D films can only be viewed at theaters through modified digital projectors, movie studios and theater owners are hoping that the slate of big-budget 3-D movies will get people back into the seats, pumping much needed revenue into anemic box-office numbers.
Beverly Hills-based Real D, a privately held company that has already captured more than 95 percent of the North American market, stands to gain significantly from the rush to digital 3-D movies.
Real D developed 3-D software and hardware technology that allows a 2-D digital projector to show 3-D movies. Once theater owners have converted from film to digital projection, Real D's conversion is an additional modification, involving software and hardware that make images jump off the screen when viewers wear special polarized glasses.
While several major studios are helping theater owners to defer the estimated $700 million cost to convert from film to digital projectors, Real D charges a royalty fee of 50 cents per ticket to cover its $20,000-per-screen conversion and maintenance costs. The royalty is negotiable depending on the amount of theaters the company will equip per deal.
Investment in Real D conversion is recovered from higher-priced tickets, which are typically 30 percent or more above the national $10 average.
"Not only can they charge and get more for 3-D movies but they can also show live events like concerts, adding an entirely new revenue stream to their business," said Michael Lewis, Real D's chief executive and founder.
In some cases, theater owners have even charged double than for most movie tickets.
When Walt Disney Co.'s "Hannah Montana & Miley Cyrus: Best of Both Worlds Concert" 3-D extravaganza recently hit theaters across North America, tickets sold for $15 at the box office, generating more than $30 million during its first week in release on just 683 screens. (For comparison, a typical studio film opens on 3,000 screens.) By its third week in release, the 3-D concert film had reached nearly $65 million in ticket sales on a fraction of the screens most other films would be shown.
"We were in virtually every 3-D screen available and we could have filled a lot more if they had existed," said Chuck Viane, president of distribution for Walt Disney Studios Motion Pictures.
Major studios are moving forward with great zeal to produce 3-D family films.
Jeffrey Katzenberg, chief of DreamWorks Animation, has pledged that all future animated films will be made and shown in 3-D format. Warner Bros.' New Line Cinema, 20th Century Fox, Paramount Pictures and Universal Studios have joined Disney and DreamWorks in the commitment to make and exhibit more than 20 3-D movies over the next two to five years.
All this adds up to vast potential for Real D, which is in the midst of negotiating big-block deals with national and regional theater chains to convert thousands of screens by next summer. "We're working on a 500-screen deal right now," Lewis said.
Real D was the first to market with its 3-D technology about three years ago, giving it a huge advantage over its competitors Dolby Laboratories Inc. and Imax.
"Real D is clearly the leader for now," said Aaron Parry, chief executive of Main Street Pictures. Parry conducted a study of 3-D moviemaking for Viacom Inc.'s Paramount Pictures.
One potential handicap for Real D is that exhibitors will have to buy new screens to get the best viewing results with its technology.
That puts San Francisco-based Dolby Laboratories in a competitive position. Dolby has converted about 50 screens across the country since the beginning of the year.
Dolby executives believe that once theater owners realize that its technology doesn't require them to change their screens, their product will win out.
"A lot of theater owners don't want to commit exclusively to 3-D and with our technology, they don't have to," said Jeff McNally, cinema production manager for Dolby Laboratories.
Then, there is the issue of the special glasses that can be entertaining for youngsters but feel cumbersome or irritating for adults to use.
Real D uses throwaway plastic glasses that are not environmentally friendly, although they're recyclable. Dolby technology incorporates reusable glasses but they need to be cleaned by theater staff and are vulnerable to theft.
And with the boom in home entertainment, how long can theater owners keep 3-D to themselves?
While 3-D movies cannot yet be played on DVD or any other home-viewing media, that exclusivity may vanish within the next five to 10 years, when 3-D technology is expected to be introduced into home theater systems without special glasses.
Nasser Peyghambarian, professor at the University of Arizona's College of Optical Sciences, has developed 3-D technology for flat-panel display but it is currently limited to rewritable snapshots shown on an 8-inch screen.
"We should be able to enlarge those images to life-size within a few years and within five to 10 years the technology should be such that it can be displayed in a video format," Peyghambarian said.
Core Business: 3-D software and hardware technology development, installation and maintenance
Employees 2008: 75
Employees 2007: 60
Goal: Maintain the company's leadership position in the 3-D sector by installing its equipment in more theaters
Driving Force: Exhibitors' need to be equipped to show the work of top filmmakers, who want to produce more 3-D animation and live-action features
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