Unleavened Media: Can 3D save Hollywood?

Hollywood is in need of a financial Superhero. Box office revenues and ticket sales have been flat the last three years while DVD sales decline and costs continue to soar. In fact, major studio releases now average $78 million to produce and $40 m. to market. Studios are reacting by playing it safe creatively. In the last twelve months, 17 of the top 23 grossing films were sequels. More worrisome is the abrupt decline of DVD sales and the painfully slow adoption of Blu-Ray. In the length of time it took the DVD to reach 20 percent penetration, Blu-Ray has attained a measly 6%. With improvements in the quality of the 3D viewing experience and a proven track-record of bringing in higher revenues, the buzz around Tinseltown is that 3D could be an industry windfall.

Let's be clear about the source of this excitement: M-O-N-E-Y. The same film in 3D supports a ticket price that is 25-30% higher and earns 2.4 times more revenue than the 2D version. For example, according to Jim Gianopoulos, Chairman and CEO of Fox Filmed Entertainment, the 3D version of Ice Age accounted for 20% of ticket sales but 40% of revenues. Ka-Ching! Even better, there is little evidence of audience cannibalization. No wonder 3,000 cinemas in the US, with financing assistance from the studios, have undertaken the expensive ($140-150,000) 3D installation process.

However, that's still a small portion of the 38,000 cinemas in the United States. The much easier, and less costly, transition is to modify the existing 12,000 US digital cinemas for 3D. According to Gary Sasaki, President of Digidia, "It is hard to find two letters that are changing so much of the value chain at one time. We are seeing a buzz because there is actually money there." For their part, the studios are providing financing incentives for 3D exhibitors and will release more 3D films this year (34) than at any time in history.

In addition to the number of screens, there are other technological and creative challenges. For example, there is still no way to view 3D without those goofy glasses. There are two types of glasses - Passive ($0.75 and one use only) and Active (~$50 and good for 5000 viewings). In the US, the passive glasses are more common, while active glasses are more typical in Europe.

If you watch a 3D film in the theater, choose your seat carefully. Viewers seated in the center will have a much better 3D experience than those on the sides. In fact, 4-8% of viewers are unable to perceive 3D at all. According to Phil Lelyveld, formerly an executive at Disney and now Program Manager of the Consumer 3D Experience Lab at USC, "there are huge opportunities for technology providers that can improve the viewing experience and reduce the cost of creation, transport and display."

The non-technical challenge is creating libraries of 3D content and learning to tell stories in three dimensions. Buzz Hays, Executive Producer at Sony Imageworks, has been making 3D content since 1982 and understands the creative constraints. "We are still learning. It is important that 3D enriches the story and doesn't just come off as a gimmick," he says. Lenny Lipton, who is a Fellow of the Society of Motion Picture Television Engineers and a long-standing 3D champion, agrees. "3D can be much more than just a special effect. If 3D is not more beautiful and more entertaining, there is a problem."

Legendary film producer and former Sony Pictures Chairman Peter Guber goes further. "The role of technology is to bring Artists closer to their audience. People don’t give a #%&@ about State of the Art... people care about State of the Heart." Already, some of the best storytellers in the business have undertaken that challenge, including Robert Zemeckis, Steven Spielberg and James Cameron. Much of this content has been animation, as the incremental cost to create animation in 3D is 8-15%, compared to 25-30% for live action. However, the cost of conversion from 2D to 3D is still quite expensive. While prices are coming down, at the high end, this can be as much as 50-100k per minute.

By far the largest opportunity for 3D is not at the theater. Americans visit the cinema less than once a month but spend more than four hours each DAY glued to their TV. Eager to sell you a new, more expensive TV set, already Hyundai, Mitsubishi, JVC, Samsung and Panasonic have introduced 3D TV sets. These need to be much faster, as standard television sets project only 30 or 60 frames per second while 3D requires at least 120 frames per second. Reaching a critical mass of 3D enabled TV sets will require several years.

According to Ami Dror, Chief Strategy Officer of active shutter glasses manufacturer XpanD, "By 2011, there will be a slow entry to the home. This will be a gradual process." Among the 2.5 billion TV sets globally, projections for 3D set penetration in the next four years vary widely from the pessimistic (80 million) to the more hopeful (200 million). Some broadcasters, particularly in Europe, are preparing for this eventuality. Sky will begin broadcasting in 3D next year so that Rupert Murdoch can dominate another sector. Eutelstat has already begun 3D trials this year. Israel-based NDS demonstrated their 3D enabled set-top box at the International Broadcasting Conference in September.

3ality Digital is the market leader in 3D cameras and image capture equipment. 3ality CEO Sandy Climan is not only supplying equipment to content creators but also encouraging original 3D content. This includes the 86 minute concert film "U2 in 3D" as well as NFL football games. "In 3D, there is far less movement so we can place the viewer in the best locations and still use one third the number of cameras. Football in 3D will make it even harder to pull husbands off the couch on Sunday afternoons," said Climan. In fact, sports programming has been the first genre to embrace 3D. In the UK, British pubs subscribing to Sky TV's upcoming Sky 3D service will be provided glasses for patrons to view the upcoming English Premier League season.

While there are technology challenges, 3D may also be expanding to a broader audience. For example, Acer will launch a 3D laptop this year. Israeli technology company Virtuera is creating 3D tools that allow interaction using common tools. "People should be able to experience 3D using their laptop, cell phone or remote control," says CEO Lior Tagor. Advertisers are also getting into the game, commissioning production houses like iConception of Tel Aviv to develop in 3D. CEO Guy Ben-Yakov says, "We often go for a mix of real footage with 3D animation in order to demonstrate the best attributes of our customers' products or services."

But will this save Hollywood? That answer will be heard loud and clear this Christmas when James Cameron's 3D epic "Avatar" hits theaters. With an estimated production budget of $350 m., if this film achieves the success of his last release (Titanic), Hollywood will have found its next Superhero: 3D.