3D – the back seat driver of digital cinema

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Or is it the cart before the horse?

While the 3D grosses of Beowulf and Hannah Montana have distributors and theater owners hungry for more 3D content and seem to be driving the appetite for digital cinema installations, NATO’s president, John Fithian, suggested at the National Association of Broadcasters’ Digital Cinema Summit, that 3D may actually be a speed bump instead of an accelerator.

With at least ten 3D features slated for next year, including James Cameron’s Avatar and DreamWorks Monsters vs. Aliens, Fithian noted

“We are at an extremely critical juncture in the transition to digital cinema, but the (deployment) deals have to be done. (…) We are at an impasse over the financials.”

The deployment deals generally rely on a virtual print fee model through which studios contribute an agreed fee per screen, per movie to offset exhibitors’ installation costs.

“Unless digital cinema deals are made in the next one to two months, we will not have time to (deploy the screens) for 2009,” Fithian said.

Despite that, some of my friends at the studios are insisting that they should pay lower VPFs (in current negotiations) than they did in the first round of deals,” he said, asserting that the model worked in the first round. “3-D cannot be an excuse for lowering VPFs.”

There are currently fewer than 1,000 3D screens in North America. It is estimated there will need to be more than 4,000 to support 2 major 3D releases at the same time. There are currently only 4,600 digital cinema screens in the region.

Whatever the potential for additional box office for 3D – and it is, currently, just potential (Hannah Montana’s $67 million on just 680 screens may be less of a demonstration of the power of 3D than it is the power of 9-year old girls.) – the one certain financial benefit of the transition to digital cinema is the roughly $1 billion dollars per year the studios will save on prints forever, infinity-eleven.

In a separate panel at NAB, NATO’s D cinema consultant Michael Karagosian pointed out that none of the VPF agreements have been signed by all studios, possibly increasing exhibitors’ share of the latest round of VPFs from 20% to 32% or more, depending on how many digital releases come from non-signatory studios. Furthermore:

(t)he costs for an exhibitor to transition to digital cinema compared with film is 200%-300% higher in a 25-year period, Karagosian estimated. This includes the costs of installation, maintenance and other operational expenses.

There are some problems to be solved if there are going to be enough 3D screens to support the studios’ ambitious plans for 2009 and 2010. If they aren’t solved soon, there won’t be enough time to install the screens – even if Jeffrey Katzenberg installs them himself.

Variety’s take is here.

 Update, 8:21 pm: Dave Poland gets it.

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