A Battle in the Third Dimension: Studios vs. Theater Owners

April 5, 2009 — -- These should be ebullient times for those in the movie business.

Patrons are flocking to theaters in numbers not seen since the advent of television. Ticket sales are on pace to hit $10 billion this year, an all-time high. And with a recession that shows no sign of slowing, theater owners, along with fast-food chains and discount retailers, find themselves in boom times they could not have predicted a year ago.

But a rift is growing between the people who make movies and the people who show them, a dispute that could grow as heated as when exhibitors weighed featuring "talkies" nine decades ago.

At the center of the debate: the cheap plastic glasses that render films in three dimensions.

They would seem a throwaway item, if not a throwaway issue. Last year saw fewer than a dozen 3-D films, and several made little impact on the box office. This year's anticipated "Jonas Brothers: 3D Concert Experience" was one of the few flops in an otherwise stellar year.

But as the ShoWest convention of theater owners showed, it's clear that Hollywood's most powerful brokers are growing more impatient with multiplex owners slow to spend the millions on 3-D technology, digital equipment and other improvements.

The revolution in image and sound is coming, they say, and movie houses that aren't on board will go the way of the eight-track.

Some theater owners argue their profit margins don't come close to those of major studios. They wonder whether audiences will see 3-D as a fad similar to the "Sensurround" effects of shaking floors and blaring speakers for films such as "Earthquake" in the mid-1970s. Studios and theaters are even feuding over who should pay for the glasses.

At stake is millions, perhaps billions, in revenues for studios, filmmakers and theater owners. Some exhibitors, though, worry that the gamble could cost them their multiplexes if it fails.

"We've been waiting for 30 years for an opportunity like this," says Jeffrey Katzenberg, head of DreamWorks Animation, which just had a monster hit in the animated film "Monsters vs. Aliens." "We're seeing business pick up in a way it isn't even for Wal-Mart or McDonald's. The time to move is now."

It isn't that simple, says Robert Kern, owner of the four-screen Sayville Theaters in Long Island.

"Us doing better business isn't exactly the same as them doing better business," Kern says. "Business is up lately. But we're not just rolling in money."

The 3-D revolution got its early push from a Tom Hanks animated Christmas film.

In 2004, Katzenberg went to see The Polar Express in part for entertainment, in part to check out the competition. He says he came out a changed man.

"I remember walking out of that thinking, 'This is the future of movies,' " Katzenberg says. "I haven't thought twice about it since."

He helped raise $165 million for Monsters vs. Aliens, which he saw as a lab experiment for America's appetite for 3-D.

"There aren't 10 movies made in Hollywood a year for that kind of money," he says with some pride. "We were going to do this right, tell the best possible story, and see how people liked it."

They turned out in droves. The film, playing in both 2-D and 3-D, took in $59.3 million — almost $10 million more than most analysts had projected.

More important to Katzenberg and executives at DreamWorks were the audience survey results from some of the most extensive polling in the studio's history: Though they made up only 28% of the theaters, 3-D-equipped movie houses made up 56% of business.

About 38% of the audience said they saw the movie in 2-D because they couldn't find a 3-D screen.

"Imagine what those numbers would have been like if we had the number of 3-D screens we should have," Katzenberg says.

Many moviegoers are already converts. Jessica Kay of Northridge, Calif., drove her two boys 25 miles to see the film in 3-D at Universal Studio's high-tech Citywalk Stadium theaters.

"Kids expect things to look as good as their video games," says Kay, 47. "It's worth the drive, even if traffic is a pain."

For other movie fans, though, the hullabaloo is a mystery.

"Personally, I don't see the fuss," says James Ballantine of Culver City, Calif. "I don't like the glasses. It's too gimmicky."

The sentiment won't slow big 3-D projects, including James Cameron's Avatar, due Dec. 18, and Shrek Goes Fourth, slated for May 21, 2010.

Among industry professionals, there's little debating the advantage of 3-D and the digital movie experience. The 3-D films of today are worlds beyond the gimmicky trend of the '50s, with such titles as Gorilla at Large and Cat Women of the Moon.

Digital projectors eliminate the worry over film degradation because movies are held on a hard drive, and they allow theaters to simulcast concerts and sporting events.

But both remain nascent and expensive technologies. A digital projector alone can cost $75,000, and the cost is more than double for 3-D equipment. So far, about 6,000 of the nation's 39,000 movie screens are digital, and 2,000 are 3-D capable.

The numbers are growing, but the push to get theater owners in line has gotten testy. Katzenberg has been outspoken in his criticism of those reluctant to join the revolution.

Earlier this week, John Fithian, head of the National Association of Theater Owners, shot back. "With all due respect to my friend Jeffrey Katzenberg, who keeps bashing the cinema experience," Fithian said, "moviegoing has never been as exciting, as comfortable and convenient as it is today."

Still, he acknowledges that 3-D is a force all theater owners will eventually face. "This is a game changer," he says. "And there aren't too many of those in our business."

The last one?

"Sound."

Indeed, the debate over 3-D harks back to the battle over movies with sound in the late 1920s. Purists, including Charlie Chaplin, believed that sound would rob films of their imaginative quality. He refused to use dialogue in his 1931 classic City Lights as a protest to the movement, even though talkies had become the norm by then.

Lynne McQuaker of the seven-theater Studio Movie Grill company in Dallas doubts the battle will ever be that pitched again. If anything, she says, theater owners will be the agents of change.

Her theater chain, for instance, has not only gone digital, but also grills dinner to order for customers. When Sex and the City made its debut last year, the chain mixed 30 gallons of the show's signature drink, Cosmopolitans, and sold every last drop, she says.

"You have to be willing to do just about anything," she says. "We're competing with too many alternatives to stand still. Even if it costs some money."

Jeff Brein of Seattle's nine-house Far Away Entertainment Theater Group isn't so sure the 3-D uprising is a sure bet. Yet.

"I know, at some point, the movie industry is going to have to upgrade to hard drives and digital screens and all that," he says.

But his fear is that "people will see 3-D as some craze that's going to pass," he says. "The last thing you want is to spend all this money and have people roll their eyes when they hear another 3-D animated movie is coming."

Ultimately, Brein and McQuaker agree, the fate of the film industry lies in something basic.

"All of these advancements are great," Brein says. "But it's still going to come down to the movies themselves. If the stories are good, people are going to come to see it, regardless of how it looks. If the stories are good, we'll be fine. If they're not, we're in trouble."