Analysis of 3-D and 3-D Conversions

5/18/10 - Shares of DreamWorks Animation were down nearly 5% after an analyst expressed concerns that the latest entry in the company's "Shrek" franchise may not live up to expectations.

DreamWorks was off 4% to $34.79 in recent action as Benjamin Mogil of Thomas Weisel Partners lowered his estimates on domestic and international box office for "Shrek Forever After," the fourth and, apparently last, entry in the venerable animated franchise.

Mogil said "Shrek Forever After," which is coming out in the increasingly popular 3-D format, is tracking lower than what consensus estimates have indicated.

"Our new estimate for the film domestically is $315 million, down from $375 million, which is where we understand that consensus lies," Mogil wrote in a note to clients. "Our global box office estimate is now $756 million, compared to the $900 million figure for consensus."

There is also speculation that Dreamworks is not happy with Viacom/Paramount, their distributor, and want to cut their distribution fee to Paramount from about 8% to 6%.

Another analyst said that appetite for 3-D films continues to grow and that 'Shrek 4' should play on well over 10,000 3-D screens worldwide.
 

2/15/10 - Hollywood studios, juiced by the success of "Avatar," are tripping over each other to release movies in 3-D. In the process, they risk overloading multiplexes, which are equipped to handle only a portion of the 3-D pack at a time.

More than 20 3-D releases are scheduled already for this year, and additional titles are expected to be announced. Costly productions could wind up cannibalizing each other as they jostle for screens. As of the beginning of the year, less than 10% of the U.S.'s roughly 40,000 screens were 3-D enabled, according to the National Association of Theatre Owners.

"It's an unfortunate situation to have more 3-D films coming out than the market can currently accommodate," says Patrick Corcoran, director of media and research for the National Association of Theatre Owners. "It puts theaters and studios in a really difficult position."

Early next month, Walt Disney Co.'s "Alice in Wonderland" will hit theaters at a time when "Avatar" is still running and hoping to capitalize on the Academy Awards, where it was nominated in nine categories. Some theater owners worry they will not have enough screens to play both films. "Avatar" has grossed $2.4 billion so far.

More serious traffic jams follow. In early April, Warner Bros.' "Clash of the Titans," which is undergoing an 11th-hour conversion into 3-D, is set to open just a week after DreamWorks Animation SKG Inc.'s "How to Train Your Dragon." Some 3-D screens will still belong to Disney's "Alice" at that time.

Some exhibitors say they even got the impression from Warner Bros. that the studio was prepared to withhold its other films from theaters that wouldn't agree to make way for "Clash".

In July, Universal Pictures' "Despicable Me" is set to open three weeks after Disney's "Toy Story 3." November ushers in another pileup: Warner's seventh "Harry Potter" movie is to open two weeks after "Megamind," another DreamWorks release, along with Disney's "Tangled" around the same time.

Theater owners in North America are collectively adding about 250 screens a month, and they will pick up the pace to have roughly 5,000 to 7,000 by the end of the year to accommodate a crush of holiday releases.

Leading up to the current 3-D boom, the movie industry was spiraling downward. Wall Street had pumped billions into Hollywood, leading to a glut of films. By 2007, film production had increased so much that there were 2.6 more films at the theater every weekend than there had been five years earlier. The movies ate into each other's take at the box office, and many lost money. At the same time, DVD sales— which had become Hollywood's biggest source of profits — fell 13% last year.

The rollout of new-generation 3-D technology injected the industry with optimism. Audiences flocked to 3-D movies, and they have been willing to shell out the roughly $3 premium tacked onto each ticket.

For big-budget movies that come with a global audience, a 3-D version may increase a film's profits by about 25%. "Avatar" consistently sold out its higher-priced 3-D and IMAX screens before its 2-D ones; 75% of its revenue came from 3-D screenings.

But maintaining the profitability of 3-D is tricky. Last year, Universal's "Coraline" was bumped from some screens after just three weeks when a 3-D Jonas Brothers concert film was released.

While some of the coming movies were initially produced in 3-D, like "Dragon" and "Alice," others, such as "Clash," are being converted from 2-D just before they are released.

"There are dozens of projects that are being looked at right now for last-minute 3-D conversion to be released in 2010," says Chris Bond, who heads up the 3-D team at Prime Focus, the special-effects company working on "Clash" but has never before converted a major feature film into 3-D. "A lot of studio executives are going to look at 'Clash,' and if it works—then 3-D conversion will explode."

However, some in the industry are concerned that quick 3-D conversions, if they are visually inferior, could end up cheapening the genre.

Demand for quick 3-D conversions is skyrocketing. Legend 3D, a special effects company that converted parts of Disney's "Alice" and "G-Force," is converting about five major studio movies to 3-D at the moment.