The Big Picture

Patrick Goldstein and James Rainey
on entertainment and media

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3D movies: coming sooner than ever?

October 2, 2008 |  1:13 pm

Katzenberg_2Jeffrey Katzenberg must be breaking out the champagne. Hollywood's new obsession with 3D has finally ended a prolonged staredown between studios and movie theater owners over who would foot the bill for theaters converting to digital projection. You can't show 3D movies in theaters without digital equipment, which is a key reason why five film studios announced agreements yesterday with the nation's top theater chains to help cover the costs of converting roughly 14,000 screens to digital projection over the next three years. According to Variety, the five studios -- 20th Century Fox, Disney, Paramount, Universal and Lionsgate -- will pay a "virtual" print fee to help exhibitors defray their conversion costs.

Of course, the "virtual" print fee is something of a misnomer. The studios have been hammering away at theater owners for years to make the digital conversion so they can save millions by no longer having to ship film prints around the country. By going digital, everything gets done over a phone line. It's probably better to call it a digital conversion fee, with the studios giving theater owners cash to help pay for the $70,000-per-screen cost of installing digital projection equipment.

Studio distribution experts have privately acknowledged that this massive investment in digital upgrading is really a Trojan horse for 3D movies. With the thousands of newly available digital screens, studios will have a much bigger playing field to show 3D products, which they see as a way to boost flagging theater attendance while also making more money (since theaters can charge consumers more for 3D movies). The exhibitors, who've formed a consortium called the Digital Cinema Implementation Group, now have to raise $1 billion-plus in financing for the new digital roll-out. The studios "virtual" print fees only last until the exhibitors have paid off the conversion costs.

If I sound like a little bit of a skeptic, perhaps it's because while the studios have happily made a concerted effort to bring movie theaters into the digital age, they're still dragging their feet when it comes to bringing the digital age into our homes. The millions of movie lovers who've upgraded their home entertainment systems would love the comfort and choice of downloading movies and watching them at home. But desperate to protect their current pay TV and DVD business models, the risk-adverse studios, as this recent Economist piece points out, have hobbled virtually every possible delivery system with cumbersome restrictions.

For now, the digital cinema conversion is being sold as a win-win: It enhances revenue and reduces cost for everyone (well, everyone except the consumer). The studios improve their profit margin on films by cutting distribution costs. The theaters can not only charge more money, but once they've gone digital, they can try to expand from being largely a weekend-only business by showing concerts, opera, sporting events and other alternative programming during their week-day down time. With digital screens, they can also provide more programming flexibility. If only 15 people show up for a film playing in a 250 seat theater, you can instantly move it to a smaller 100-seat theater, opening up the bigger screen for a more popular film.

Of course, speeding the conversion to 3D won't make the quality of movies any better. But the studios and theater owners are betting that a huge percentage of their audience simply come to theaters to see big events. With the marketing clout of 3D, they're betting it will be easier to create the illusion that there are more Big Events than ever. And, hey, the movies are all about creating illusion, right?

Photo: Jeffrey Katzenberg. Credit: Laurent Emmanuel / Associated Press