posted 03-28-2009 12:03 AM                    

quote: Michael White, Bloomberg

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March 26 (Bloomberg) -- Theater owners, slowed by funding delays that have hampered the adoption of 3-D technology, raced to complete upgrades for tomorrow’s opening of “Monsters vs. Aliens.”

Regal Entertainment Group, the largest U.S. exhibitor, and Carmike Cinemas Inc. were still converting screens this week for the DreamWorks Animation SKG Inc. movie, which casts monsters as good guys defending Earth from an invasion.

The last-minute additions will put “Monsters vs. Aliens” on more than 2,000 screens in the U.S. and Canada, the widest 3- D opening ever. The credit crunch has threatened to spoil the plans of DreamWorks and other Hollywood studios that will release more than a dozen 3-D films this year to increase box- office revenue and entice audiences with the special effects.

“It is something that really cannot be achieved at home,” said Bruce Olson, president of Milwaukee-based Marcus Theatres, which is digging into its own pocket to double the chain’s 3-D screens to 27 out of a total of almost 700.

“Monsters,” featuring the voices of Reese Witherspoon,Seth Rogen, Hugh Laurie, Rainn Wilson and Stephen Colbert, is expected to take in $55 million in its opening weekend, the estimate of Pali Capital analyst Rich Greenfield.

Jeffrey Katzenberg, chief executive officer of Glendale, California-based DreamWorks Animation, said in July 2007 he hoped 5,000 or more 3-D screens would be ready for the opening, which at the time was set for this summer.

That was before the credit crisis stalled campaigns by two industry groups to borrow as much as $1.7 billion to replace thousands of 35mm projectors with digital equipment.

Bad Timing

DreamWorks officials declined to be interviewed. Enough screens are available worldwide to produce a return on the studio’s investment, Chief Financial Officer Lew Coleman said on a Feb. 24 conference call.

DreamWorks climbed 54 cents, or 2.6 percent, to $21.36 at 4 p.m. New York time in Nasdaq Stock Market trading, and has declined 15 percent this year. Regal rose 17 cents to $13.19 on the New York Stock Exchange and Carmike lost 10 cents to $2.55 in Nasdaq trading.

The crunch hit just as studios prepared to release their largest slate of 3-D films. Movies scheduled for later this year include “Avatar,” director James Cameron’s first feature film since “Titanic” in 1997. The movie will be distributed by News Corp.’s Fox studio in December. Walt Disney Co. is releasing the animated Pixar comedy “Up” in May and a 3-D version of the original “Toy Story” in October.

“The timing couldn’t have been worse,” said Michael Campbell, CEO of Knoxville, Tennessee-based Regal, which has almost 6,800 screens.

Added Cost

Conversion to 3-D comes in two steps. First theaters must jettison traditional projectors for digital equipment. Additional modifications are needed to show 3-D films.

A theater can be converted to digital projection for $50,000 to $75,000. Additional equipment needed for 3-D movies, including an add-on for the projector and a new screen, runs $5,000 to $10,000, according to Michael Lewis, chief executive officer of RealD, the largest 3-D equipment supplier.

Carmike switched all of its 2,300 screens to digital on its own in mid-2008 and is bearing the added cost of upgrading to 3- D, Fred Van Noy, chief operating officer of the Columbus, Georgia-based chain, said in an interview.

The company planned to add 3-D to two screens this week, bringing the total to 500, the most of any U.S. chain.

AMC Entertainment Inc., the second-largest theater chain, today announced an agreement with RealD to convert 1,500 of its 4,628 screens to 3-D. Closely held AMC operates about 309 theaters in five countries.

‘People Gravitate’

“If the movie’s good and the effects are there, people just gravitate to this technology,” Van Noy said.

Regal is also putting 3-D hardware on digital projectors this week, Campbell said in an interview. The exhibitor has added 3-D to about 80 screens in recent months to reach about 240 for “Monsters vs. Aliens.”

Owners are making the investment because 3-D films tend to generate two times to four times the box-office sales of regular movies, Carmike’s Van Noy said. They draw bigger audiences of people willing to pay $2 to $3 more per ticket, he said.

“From a business-plan perspective, it’s a very solid investment,” Van Noy said. “Studios are pretty committed to delivering 3-D content in a pretty huge way.”

Analyst Greenfield estimated in a March 18 note that the ticket premium for “Monsters vs. Aliens” will average $3.18 at theaters in the U.S. and Canada. Exhibitors and studios typically split box office sales, making the premium attractive to both, he said.

“They’ll do enough to recoup the costs of the 3-D, but I think there’s more benefit than just what they recoup today,” said Michael Pachter, a Los Angeles-based analyst for Wedbush Morgan Securities. “Seeing the movie in 3-D is an experience and it will make people more likely to see the next one.”

To contact the reporter on this story: Michael White in Los Angeles at mwhite@bloomberg.net.

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