3D Liftoff Accelerates on Theater and Home Fronts

Joshua Greer, president & cofounder, RealD

Joshua Greer, president & cofounder, RealD

January 16, 2009 – As evidenced by an outpouring of 3D demos at this year’s Consumer Electronics Show, the 3D phenomenon has quickly moved from a theater-centered development to one that touches everyone involved in distribution of home entertainment services. But the pace of 3D penetration into the home market depends heavily on how fast the new viewing experience takes hold in theaters.

While the 3-D comeback in moviemaking has surged ahead since our last report on these developments appeared (July ScreenPlays, p. 1), there’s still a big question hanging over the industry with respect to the pace of conversion from 35 mm film to digital technology in theaters, which is essential to enabling 3D showings. At present somewhere between 5,000 and 6,000 theater screens are equipped for digital showings out of about 40,000 total screens in North America, notwithstanding expectations that once digital projection is pervasively available, the motion picture industry stands to save about $3 billion in annual film distribution costs.

But recent developments promise to quicken the conversion pace. Most significant was the signing of a long-awaited agreement that assures studio backing for a funding effort aimed at adding upwards of 15,000 digital screens under control of the top three theater chains and another 5,000 or so screens at other theaters over the next three years. Five studios – Disney, Universal, Paramount, Fox and Lionsgate – agreed to pay in the neighborhood of $1,000 per screen in virtual print fees for every film shown to help offset costs in a hard-wrought pact with Digital Cinema Implementation Partners, a joint venture representing AMC Entertainment, Cinemark and Regal Cinemas.

Film print and distribution costs run to about $2,000 per screen, so, in effect, the studios are sharing half their savings with the theater chains. But, with costs of digital transformation running about $70,000 per screen, much more money is needed, which is slated to come in the form of a $1.1-billion line of credit to be arranged with the assistance of JP Morgan Securities and The Blackstone Group. Just how quickly financing can be secured in the midst of the economic downturn is a matter of great concern. And it remains to be seen when the other major studios – Warner Bros. and Sony – will sign onto the pact.

Out of the current total of digitized screens in North America only about 1,300 are equipped for 3D showings, but the ramp-up is underway. “I think conservatively we’re hoping to be at 4,000 screens by the end of 2009,” says Joshua Greer, president of RealD, the provider of 3D technology for the lion’s share of 3D-ready theaters worldwide. “But we’d like to do better than that if we could.”

This could be the year when 3D begins to penetrate the cultural consciousness in a significant way, Greer adds. “We’re anticipating somewhere between 80 and 100 million patrons going through RealD theaters wearing RealD eyewear seeing great films,” he says. “I think that will be the beginning. I’m hoping by the end of 2009 we’ll see a much more educated, sophisticated consumer audience for 3D.”

Equally important, following on strong performance of a handful of releases offered in 3D in 2008, the studios are rapidly expanding the volume of 3D releases, most of which are also offered in 2D. These include My Bloody Valentine, now in distribution from Lionsgate, Fox’s Avatar, a $220-million space adventure from director James Cameron slated for December release, Dreamworks’ animated Monsters vs. Aliens coming in March and several releases from Disney.

“We’re now up to 13 announced films for 2009 alone,” Greer notes. “And they’re beginning to line up really nicely in the years beyond that.”

At CES consumer electronics manufacturers made clear they’re ready to capitalize on the inevitable transition of 3D to the living room just as soon as market conditions allow. Sony, Samsung, Panasonic, LG and others demoed sets equipped to work with 3D at CES, which had been done at previous CES events with respect to sets using Texas Instrument’s DLP (Digital Light Projection) technology. But this time there were LCD-based 3D capable HD sets, and there was much more emphasis on 3D demos and more technology flowing into the 3D home environment.

One development that should serve to drive 3D-enabled HD sets into the market fairly quickly is the fact that manufacturers are pricing these sets at levels comparable to non-3D sets. Samsung and Mitsubishi, for example, currently price 3D-ready TVs at between $1,000 and $2,800. More advanced models due out over the next year from the major manufacturers will be costlier but not at big premiums over comparably advanced 2D models, analysts say.

“If we can start getting companies like Sony and Philips to really embrace this and put out significant numbers of TV sets, then this infrastructure could start making sense,” Greer says.

CES also highlighted the dramatic impact 3D is likely to have in the gaming space. For example, Mitsubishi wowed booth visitors with use of its Nvidia graphics driver software to transform legacy 2D PC games into 3D displays with the aid of 3D glasses. The $200 set-top box required to support this advance for viewing on LCD HDTV sets works in conjunction with a home entertainment PC equipped with a Nividia graphics card. In another version of 3D gaming possibilities, Sony demoed 3D-formatted games over its PlayStation3 using technology supplied by RealD but demurred on revealing the timing of any 3D game releases.

“Sony’s PlayStation3 is a wonderful game platform that could be outputting stereoscopic games right now,” Greer says. “I’m guessing over the next couple of years we’ll see a few real big 3D breakouts for games that will really drive adoption.”

RealD was a factor in many other CES 3D presentations as well, including a Sony-sponsored showing of Fox’s broadcast of the college BCS championship game at a CES screening and on 82 3D-equipped theaters nationwide. RealD technology was also used in a CES preview of Dreamworks’ Monsters vs. Aliens. Earlier this past fall, in another demonstration of the 3D theatrical potential for sports events, RealD teamed up with 3D television producer 3ality and the NFL to offer a live 3D broadcast of a game between the Chargers and the Raiders on theaters in Boston, Hollywood and New York.

Moving 3D from theatrical to TV distribution will require be expedited once there’s a standardized format for TV displays, which right now is a matter of the usual contention from competing formats. Panasonic executives at CES expressed expectations the industry would settle on a standard for 3D over Blu-ray by year’s end, allowing introduction of 3D product for the home viewing platform in 2010.
“Blu-ray is beautiful,” Greer comments. “We’ve shown our demos, tests to the studios, where we’ve taken their content and mastered it for Blu-ray in our format, and I think they’re pretty impressed in terms of what you can accomplish with that.”

The emergence of 3D for home viewing will also be greatly assisted if costs associated with reformatting existing 2D content to 3D can be reduced. Presently costs for reformatting a movie not shot in 3D range between $20,000 and $80,000 per minute, Greer says. “That’s a little out of the range of converting my kids’ Sponge Bob Square Pants,” he quips.

But there’s hope for reducing the costs of the process, given that a dozen or so companies are addressing the challenge. “We’ve seen incredible work by companies like In-Three, who’s worked on Star Wars and is working on a lot of products right now, and also Sony Imageworks,” Greer says.

It won’t happen overnight, but, clearly, the momentum toward making 3D viewing a part of the home experience is increasing rapidly. What happens at the 3D box office this year will go a long way toward determining just how fast 3D gets to the living room.