Three-way Battle over 3-D Heats Up

While the entertainment industry has gladly put the recent homevideo format war behind it, another sort has broken out behind the scenes, one with smaller combatants but very large, long-term stakes. As 3-D has become the "killer app" driving digital cinema adoption in some areas, several contenders have introduced add-ons to ready d-cinema projectors for digital 3-D. Each uses its own approach, and each has its own business model. And while the battle is new, it's growing fiercer as 3-D takes off.

The three main combatants -- with more rumored to be entering the fray -- are Real D, the established industry leader; Dolby, with its entrenched relationships with theater owners; and upstart NuVision, which is getting traction in Europe. Imax, long a leader in 3-D, uses its own system and is not competing with the others.

No less an authority than James Cameron, a major evangelist for 3-D for some years now, says he sees little difference between the systems when it comes to quality. "I have the Real D system and the Dolby system in my projection space in Santa Monica. It might be the only place in the world that has both. The differences are too negligible to debate."

Vince Pace, also a 3-D pioneer, concurs that "all of them done correctly, calibrated correctly, are good viewing environments for 3-D."

So the conflict comes down to business models and costs, not the audience experience.

Michael Lewis, CEO of Real D, says some 70 exhibitors have pacted to install Real D systems. "It starts with a licensing fee -- we license our technology. That includes installation, upgrades and maintenance. Most prominent deal is revenue-sharing; we get a royalty from each ticket." Deals vary slightly, but a typical royalty is around 50¢ per ticket.

You got the silver?
Glasses for the Real D system are disposable, inexpensive and -- best of all for exhibitors -- provided free by distributors, at least for the moment. Even if the cost were passed to the theater chains, the giveaway glasses are around 75¢ each -- though that may rise due to the soaring price of petrochemicals.

There is a catch, though, that many exhibitors balk at: The polarized light for the Real D system requires an expensive silver screen in each auditorium. Some refuse to use a silver screen for normal 2-D projection, complaining of a central hot spot and darkness at the edges. So, because most exhibs don't convert all their auditoriums, it's therefore difficult to move a 3-D pic from room to room.

That and cost considerations led some exhibs, including Belgium's Kinepolis, to choose Dolby. Even so, Real D has captured 97% of existing U.S. 3-D orders prior to Cinema Expo, representing around 2,300 screens, and claims more than 90% of existing orders worldwide.

Dolby, which entered the market more recently, uses a different technology and a different business model. It puts a spinning color wheel inside the projector operated by a simple controller. Its glasses slice the visible color spectrum into six bands, with each eye getting half the spectrum. The glasses are multiuse, running around $35 apiece and requiring washing between shows. But Dolby works with a standard matte white screen and doesn't charge a royalty. To turn the 3-D function off for a standard 2-D movie, the operator need only throw a switch on the controller, and the wheel retracts.

The list price for the one-time purchase of the wheel and controller, says Dolby's cinema production manager, Jeff McNall, is $26,000, "but generally people get lower than that." Much of that cost is for the wheel, which is easily moved from projector to projector, so it's easy for a movie to move from bigger to smaller rooms.

Dolby has also done well in Europe, McNall says, because of the company's deep relationships there. It has long had a plant in England. "(European customers) feel a strong local presence. Their account managers are English; a lot of the dealers in the area have had relationships with Dolby for decades." Dolby's customers aren't always exhibitors. Many Dolby sales go to aggregators who assemble the 3-D system for the exhibitor. Dolby doesn't even keep track of where they're installed.

Specs on specs
The third alternative, from NuVision, uses yet another technology: shuttered glasses that lighten and darken on alternate eyes many times a second, in sync with the picture on the screen. Like Dolby, this system works on a matte white screen, and its system is arguably the easiest to move between projectors.

Dolby and NuVision attract business by not requiring royalties or screen upgrades. But Kodak Digital Cinema's Bob Mayson, whose company acts as a sales agent for Real D in some territories, argues flatly, "Your royalty is the glasses." He contends that with breakage, glasses for a 500-seat auditorium in Dolby could run $100,000 a year, assuming three sets of glasses (one in use, one in the washer, one drying) and assuming that breakage and wear would mean turning over the glasses two or three times in a year. Dolby's McNall, however, maintains the Dolby glasses are more durable and that Mayson's estimates are inflated.

As the three duke it out for supremacy, the stakes are quite high, both for the companies and the industry. The number of 3-D installations to date is minuscule compared with the total number of screens worldwide. There is a vast market still waiting to be tapped. And there are ancillary markets waiting to open up. 3-D televisions and videogames are on the horizon; they too will require eyewear, and fashion-sunglasses makers are already getting ready to offer alluring "entertainment glasses" to style-conscious gamers and moviegoers. That business will have a hard time taking off, though, if those "entertainment glasses" work some places but not others.

This war is just getting started and is only a preview of the more dramatic format war to come, when 3-D TV and home video hit the streets. The competing formats add expense and time to digital cinema mastering, which gives distributors and studios a headache, but from the exhibitor side there is one message. "I'd like to see more 3-D," says John Ellison, UltraStar Cinemas topper. "The public just loves it. If you put it side by side, even with an increased admission charge, 2-, almost 3-to-1, they prefer the 3-D."

By David S. Cohen, Variety