The news from Hollywood Wednesday was striking. After hearing (and seeing) the possibility of fabulous, pure, efficiently distributed digital cinema for years, major studios have agreed to begin in earnest to begin making it happen everywhere. While a number of 2D and 3D digital cinema system have rolled out in the last few years, momentum stalled waiting for the next round of funding to be put in place. Now five Hollywood studios have agreed to help pay for a $1B-plus second wave of rollouts of digital technology on about 20,000 movie screens in North America. This move will also lead to widely showing movies in 3D.

John DiLoreto
Analyst and Editor for
Insight Media

Digital Cinema Implementation Partners (DCIP), a consortium of major theater chains, is the vehicle that will fund the rollout to theaters in the U.S. and Canada, covering about half of all screens, starting early next year. The studios in the deal include The Walt Disney, Paramount Pictures, Twentieth Century Fox, Universal Pictures and Lions Gate Entertainment Corp. The group hopes to sign several other studios by the end of the year, including Sony Pictures, Warner Bros., The Weinstein Co. and Metro-Goldwyn-Mayer Studios.

To help offset the consortium’s ~$70K cost per screen, the studios will to pay the consortium slightly under $1,000 per movie per screen, about what it costs them to print and ship a celluloid film copy. This "virtual print fee" formula, pioneered for the first phase of rollouts, has been the critical element to make the deal work for all parties.

The next wave of digital cinema installs will also enable the showing of 3D movies, which have packed theaters and commanded higher ticket prices than their 2D counterparts.

Michael Karagosian, president of MKPE Consulting was a Digital Cinema Panelist at 3D Biz-Ex Digital Cinema Panel in Universal City on Wednesday, when the plans were announced. Panel members included representatives from RealD, TI and Disney.

Mr. Karagosian spoke with Insight Media today at length about the panel discussion and what this agreement means to 3D digital cinema. According to Karagosian, 3D has historically been technology driven and has a track record of coming and going, handicapped by a value proposition that has been questionable.

Digital makes it a better economic proposition than with film projectors. That is why he calls this deal a win-win for the studios as well as the theater owners. The studio money will help the transition, while building an audience for the more than 20 3D movies, which are set to hit theaters through 2010. Disney alone plans to release five 3D movies next year. The studios have already invested in their 3D movie-making capability, which Karagosian said costs 20-30% more per movie in equipment and processing.

Meanwhile, the exhibitor has to add on for 3D, buying or licensing equipment, which can still be hard to justify. But exhibitor interest remains high because of the large number of 3D movies coming out in the next couple years. Exhibitors, he thinks, will go for it anyway to compete for audience, aided by increased concessions numbers.

The other key touch point of this technology has been the directors. "It has been the content creators that have made 3D tick. A lot of new content creators (directors) want to do 3D. It’s all about telling the story. And Disney is one of the drivers," he said.

It has also been shown that audiences prefer the 3D version when available. Right now 3D theaters are seeing "2-3 times box office multiples" in receipts, Karagosian said. But things should "equalize out" and overall attendance for a given movie will remain the same once there are a large number of 3D screens.

3D ticket premiums "should ultimately improve the grosses," said Chuck Viane, president of domestic distribution for Walt Disney Studios Motion Pictures, who expects 1,500 to 2,000 locations, many with multiple screens, to be able to show 3D movies by the end of 2009. The entire rollout is expected to take more than three years.

Despite its checkered past, Karagosian thinks 3D here to stay this time - and sprinkling a billion dollars around sure helps.

Michael Karagosian, 818-225-8030, michael.karagosian@mkpe.com