ShoEast at the 3D Tipping Point?

Steve Sechrist Senior Analyst and Editor

3D and the shift to the digital cinema technology that empowers it were the hot topics at this year’s ShoEast, the theater-owners’ expo.  So much so that in a recent article in the Hollywood Reporter, Carolyn Giardinaasks, “Have we reached the tipping point in 3D?” 

It’s a fair question in light of the recent $1B deal between Digital Cinema Implementation Partners and five film studios to convert as many as 14K AMC, Regal and Cinemark theaters to digital.3D offers Hollywood a “double-whammy ” boost to the bottom line.  The novelty of 3D films attracts higher per seat revenue (about 20% more per seat).  Plus, digital distribution saves money for the studios.  Hollywood also likes 3D because it makes the films less susceptible to piracy. 

The numbers are impressive.  Of the 2,811 screens showing Journey to the Center of the Earth (Journey), 854 presented the film with its 3D effects and garnered 57% of the film’s opening weekend revenue.  That’s 57% from 30% of the screens.  In another example, Miley Cyrus: Best of Both Worlds Concert Tour opened at No.1 on only 683 screens and went on to gross $65M domestically. 

Cost estimates for going 3D typically are 8% to 15% of the below-the-line costs for animation and 15% to 25% for live-action films.  This is on top of the learning curve on the production side.  But the industry is learning quickly.  For example, the Hannah Montana concert film was posted in 11 weeks and carried a production budget of less than $7M.

3D Content Oversupply??

Beyond the cost, concern is building over the shortage of 3D cinema venues in which to show all the content that’s in the pipeline, plus the blockbuster re-makes in the planning stage.  There still are only about 1,000 3D-ready theaters in the US today, about the same number as when Beowulf premiered in late 2007. 

But with the return-on-investment film producers have seen, supply is quickly building.  Currently about 12 3D films are scheduled for release in 2009 with another 30 3D films to follow.  But some top producers are looking to remake blockbusters in the new format to squeeze out yet more dollars.  (Oh, sorry:  to enrich the lives of the audience by offering old films in the new 3D format.) 

For example, George Lucas has announced plans to reissue all six Star Wars films in 3D, and Disney plans a 3D version of Toy Story, with Toy Story 2 to follow in February 2010.    Others 3D projects include Dawn of the Dead, the Disney classic Tron, and Step Up. 

Remakes aren’t cheap, so the moviemakers must be sure there is demand (and there are venues) to recoup the investment.  David Seigle, CEO of In-Three (Westlake Village, CA; www.in-three.com) estimates the price for live-action film conversion is $75K to $135K/minute of film, depending on the content.  Newer animation films cost less because they already reside in data files.  The other concern in moving content to 3D is the perceived lack of 3D home venues, since Hollywood assumes there is no 3D home market in which to sell a re-mastered film. 

3D in the Home

That assumption may be mistaken.  Insight Media has forecast that there will be about 2M 3D-ready TV sets in US living rooms by the end of the year.  In fact, in May we reported in Large Display Report that 3D sets from the likes of Samsung and Mitsubishi are becoming a commodity.  Insight Media Analyst Bernard Mendiburu wrote, “Samsung 3D-ready HDTVs have been available for almost a year – one can buy them for a couple grand at the mall – and they were present in many booths at NAB supporting the presentation of other 3D products, mostly 3D digital-cinema servers or dual-stream HD DVRs.  To some extent, they were nothing more than mere commodity electronics, bought like any other HDTV, with a 3D purpose.  And this, itself, is news: 3DTV is closer to a commodity than to rocket science,” he said.  “These TV sets use a DLP at half Full-HD resolution and double frame rate. When provided with a specifically encoded stereoscopic image in the now-famous ‘checkerboard’ format, they can drive active glasses and display an excellent 3D in your home today.”

These sets are already selling in Best Buy, Circuit City and other big-box retailers.  Samsung and Mitsubishi are starting to offer new lines of 3D-ready TV sets, and they won’t sell for a premium, as the upgrade to enable 3D in these sets only adds a small incremental cost.  The availability of these TVs will spur the move to 3D, since Hollywood will be able to factor in 3D DVD or Blu-ray sales in 3D film-production ROI. 

Conclusion

3D cinema is becoming the central focus of ShoEast and ShoWest, and much like the move from analog broadcast to digital in the television world is driving the flat-panel revolution in American living rooms, we think the major force behind digital cinema is the incremental revenue generated from 3D films. 

Hollywood and theater owners have talked about the cost and benefits of moving to digital film distribution and projection for years.  It’s been slow because theaters have borne the cost of renovation, while the studios stand to reap the lion’s share of savings. 

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