Movie Studios Try to Reinvent Themselves in 3D

U.S. film studios enjoyed a lock on the moving picture experience for many years before television invited itself to the party. Movie moguls were afraid that television was replicating the movie house experience so they completely changed the format from a standard 4:3 aspect ratio screen to a much wider screen. This helped them differentiate the experience in hopes of continuing to attract the public to paid showings. It was for the most part a successful strategy. But home theater has advanced significantly over the last 15 years and now many consumers have wide screen TVs that display beautiful high definition pictures. Blu-ray HD DVDs are coming close to replicating the visual acuity of the theater experience without the expensive ticket price and even more outrageous prices for tubs of popcorn and soft drinks.

The studios are working hard on 3D. Not a cheesy version usually reserved for blood bucket, low budget pics, but one that is much more refined and ready for grown-up subject matter. This potential evolution might seem radical, but these are desperate times, so anything goes. Studios think they can charge significantly more for a ticket to a 3D version of a film vs. the standard version, perhaps as much as $25 per seat. When you couple the increased profits with a unique experience and throw in world class filmmakers like James Cameron, it’s a tempting proposition for investors.

There is one minor glitch. The film houses are not ready for the switch to 3D. Exhibitors must upgrade the technology to be able to project the new format, which can cost up to $100,000 per screen. The studios hoped the exhibitors would pick up the tab, as their part of the investment, since the studios would bear the additional production expenses (shooting in 3D can add up to $15 million to a film) as well as the need to also produce and distribute a regular version of the film for the foreseeable future.Unfortunately the credit markets are a bit frozen right now, so the technology upgrade money is not available.

Of the approximately 40,000 screens in North America, only 1,300 of them are ready with the 3D technology. The story is much bleaker oversees, which is important to note, as well north of half of a film’s grosses come from that market. But Fox is readying James Cameron’s Avatar for a prime December release date. Many other major studios have numerous 3D projects in the pipeline, including Pixar, putting even more pressure on the system.

It’s an interesting problem that studios find themselves in. The entertainment world expanded so quickly and there was is much pressure to produce profits, that simply making great films hasn’t been enough for a long while. Franchises like Batman and Spiderman have helped studios stay viable. They have launched web sites that promote films using social media functionality as an accelerant to their astronomical marketing budgets. Other owned media properties are leveraged to promote and sometimes even re-purpose material for the home screen.

We have seen the television networks completely give up on drama and turn their slates over to the reality format for the last few years. The cable networks like HBO and most recently with AMC’s Mad Men are leading the way with serious subject matter that is garnering critical acclaim and engaged viewers. The movie studios must guard against over-betting on the potential promise of 3D profits only to find themselves in a creative wasteland.

Obviously not ever project will work in 3D, and ultimately the consumer will decide if 3D is a great new format, or simply a trick to squeeze more money out of each ticket. But there is another major consideration. If it does work the studios could ruin their home video distribution channel by not being able to at least approximate the 3D experience. If someone loved it in 3D but can’t have that same experience at home for repeat viewings, will they just pass on renting or adding that film to their collection? There are firms working on 3D TV, but it’s not ready for prime time yet.

My advice to the system is be cautious and think through the life-cycle of the product. Hollywood needs more sources of value, not less. Theatrical box office revenues will not make up for lost home video sales. The infrastructure is simply not there and films have such a short shelf life in the cineplex. And above all, don’t leave the serious film projects behind.

YouTube and the recently launched MeHype site are giving rise to personal production companies. It certainly is no threat to the craftsmen in Hollywood, but consumers don’t seem to mind lower production values as long as they can be entertained. Netflix is moving quickly on their streaming concepts and partnering with LG for OEM tests. A TV is not a PC, at least not now. I will be watching this space closely.