Hollywood vs Wall Street

Sound like a video game with heroes and villains? It is not; it is a challenge to the emerging and energetic 2D and 3D electronic cinema industry. In September of 2007 Insight Media forecast that by end of year 2009 the US would have 14,850 digital cinema screens and about 2520 of them would also be 3D. According to an article in Variety, currently about 4000 screens are digital and only 1500 3D screens will be available for the debut of Monsters vs. Aliens on March 27. But, Insight Media has learned that there will be closer to 2,500 3D screens available — and those are just the Real D screens! According to Bob Johnson of Paradise FX (a leading 3D production company), Dolby has an additional 220 US 3D screens and 430 more in the rest of the world; XpanD has about 500 3D screens, mostly outside the US, and IMAX has many more 3D screens. That’s a lot of 3D screens!

So why are 3D screens surging and 2D digital screens lagging? The answer to both is economics.

For 3D, the cost to upgrade 1000 2D digital screens to 3D would cost about $30M. This extra cost for 3D is easier to justify and accounts for the higher proportion of 3D screens in the current digital cinema mix than in the original forecast: 70% of digital screens are now 3D vs 17% 3D in the forecast. The added cost of the digital 3D is justified by the higher ticket sales at higher prices.

For example, the recent My Bloody Valentine 3D from Lionsgate (shot in 3D by Paradise FX) drew 86% of its $53M box office revenue from 3D screens compared to 14% from 2D screens. This is higher than the typical 67% to 75% for a 3D movie — but even those typical numbers are enough to get everyone’s attention, provide some enthusiastic optimism and, more to the point, investment.

Part of this added income comes from higher attendance; part from a premium charged for 3D tickets compared to 2D tickets to the same movie, typically $2 or $3. According to Michael Karagosian, this premium may go up. "DreamWorks is asking exhibitors to charge a $5 ticket premium for the 3D version of Monsters vs Aliens. If successful, the ticket premium is likely to become the norm for all future 3D releases." Of course, why only charge $3 if people are willing to pay $5 for the same thing?

And how are all these 3D screens coming on line? According the RealD CEO Josh Greer, by the exhibitors self funding the upgrades from 2D digital screens.

The situation for converting film screens to 2D digital screens is much different, but again involves economics. It now looks like only about 4,000 digital screens are currently installed in the US — a far cry from where the industry hoped to be. Want to convert another 10,000 screens from film to digital in the US by yearend? Not likely.

To install 10,000 additional digital screens to match the 2007 forecasts would cost about $600M. That may be small change to AIG or the Federal government, but it isn’t small change to the film industry. At a March 12th conference in New York hosted by research firm Gabelli & Co, the film industry got a chance to make its pitch to Wall Street investors. Participants included Ballantyne of Omaha, Inc., Carmike Cinemas, Cinedigm Digital Cinema Corporation, Cinemark Holdings, Marcus Corporation, Marvel Entertainment, IMAX Corporation, National Cinemedia and Regal Entertainment. There has been a recent surge in box office revenues as people go to the movies instead of the Bahamas so the requests for investment seem to make good economic sense.

Cinedigm is one of the main companies that facilitates the installation of 2D digital screens though the virtual print fee model. The deals to roll out the 10,000 screens are in place, but the funding evaporated last fall. Cinedigm’s CEO Bud Mayo perhaps summed it up best, according to the Hollywood newspaper Variety. "We’re finding pockets of credit available," Mayo said. "And we could probably do a few hundred screens that way. But the exhibitors’ resolve is there, the studios are committed. This is a moment when we could be doing a lot more."

In fact, the exhibitors are ones who are stepping to the plate — at least to fund 3D screens. For the larger sums, larger investors are needed.

By Matt Brennesholtz, DisplayDaily