Hollywood's 3-D vision: out of focus?

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Hopes run high for James Cameron's 3-D epic "Avatar" to be a hit and pave the way for more 3-D successes, but insiders fear Hollywood's vision of releasing up to 60 3-D films in coming years is out of focus.

Some expect the success of recent 3-D films -- from Walt Disney Co's "A Christmas Carol" to Warner Bros.' "Final Destination" -- to boost box office returns for a media industry struggling to re-engage viewers migrating in droves to the Internet.

But Morgan Stanley's Benjamin Swinburne question 3-D's long-term profitability and whether ticket premiums are sustainable with the imminent avalanche of 3-D films.

"Roughly 60% of a film's attendance needs to be in 3-D in order to break even," he said.

While Swinburne had not seen a sharp increase or decrease in attendance, despite eight wide-release 3-D films in 2009, he expects the number of 3-D films to more than double in 2010.

"To date only about 55% of audiences have chosen 3-D, thus holding the future of 3-D in limbo," he said.

Cameron's sci-fi epic opens on Friday and is expected to rake in more than USD 75 million at North American theaters over the weekend. Analysts say 20th Century Fox needs to make USD 800 million worldwide just to break even at the box office, while studios hope the film will be the game changer that dramatically expands the 3-D audience.

Studios including Disney and News Corp's 20th Century Fox are expected to release about 60 3-D films over the next 2-1/2 years, said Michael Lewis, chief executive of RealD, which provides 3-D equipment to theaters.

DreamWorks Animation has pledged to make all future movies in 3-D at an incremental cost of USD 15 million per film. And Piper Jaffray expects 3-D films, priced at a USD 3 to USD 5 premium to regular tickets, to boost box office sales by 12% by 2011.

Preparation is underway. RealD has deals to convert more than 9,400 screens worldwide to 3-D in the next two years, part of a digital upgrade funded by theaters and studios betting 3-D will lure more people into cinemas at higher prices.

Analysts estimate the cost of upgrading North American theaters alone at about USD 3 billion.

But Peter Brown, ex-CEO of cinema chain AMC Entertainment Inc, warns ticket prices may be pressured by a huge film pipeline, waning novelty, and better home 3-D technology.

A dwindiling premium

TV manufacturers are pushing 3-D as the next big thing and companies like Sony Corp and Panasonic Corp are ramping up plans to roll out 3-D capable sets. But some analysts estimate it costs 50% more to make 3-D content than a regular 2-D TV program.

"The premiums on average may settle down," said Brown, now chairman of Grassmere Partners, a private investment firm based in Kansas City, Missouri. "We're going to soon have TV makers providing 3-D in the home and the early advantage the big screen has over the little screen might be eroded."

Others say Hollywood tends to push things too far. "With any new technology, there's a tendency to push it to see how far you can go, and then overuse it. I'm sure it will be the same thing with 3-D," said Michael Goldenberg, screenwriter of "Harry Potter and the Order of the Phoenix."

Swinburne said his analysis of a typical 3-D film shows many do not recoup the extra production cost.

"The roughly 45% higher ticket price will be put to the test as more films are priced above 2-D," he said.

Audiences have cycled through 3-D before, but the latest wave emerged with films like "The Polar Express" in 2004 and is considered superior to the headache-inducing 3-D of the past.

Dreamworks CEO Jeffrey Katzenberg hails 3-D as the biggest development since color and sound, but others are not sold.

"You saw this phenomenon in a much less spectacular fashion after 'Pulp Fiction,'" said Jonathan Handel, an entertainment lawyer. "It spawned a dozen and a half imitators and the public washed out. I think there's a real risk that people will tire of 3-D at some point."

For theaters, the potential for a 3-D glut is not as dire as the megaplex over-expansion in the 1990s that led various chains to seek bankruptcy protection.

"Most of our investment on the industry side for the 3-D is a revenue share. We are not making a large capital investment in 3-D," said Amy Miles, chief executive officer of Regal Entertainment Group, the leading theater operator.

"And again, as long as 3-D is with a good picture, we think it's going to be something the consumer is interested in."