Hollywood Presses 3-D Even If Profits Aren't Jumping Off Screen

Hollywood will continue to push 3-D movies to bolster box-office revenue even if profits aren’t what the studios envisioned when “Avatar” ignited widespread enthusiasm for the format.

Studios will release at least 26 films in 3-D next year, up from 22 in 2010, according to Hollywood.com Box-Office. 3-D winners include James Cameron’s “Avatar,” the No. 1 film of all time, and Walt Disney Co.’s “Toy Story 3.”

“Jim showed how it can be done well,” Bill Mechanic, the former chairman of Twentieth Century Fox and producer of the 2009 3-D release “Coraline,” said in an interview. “A lot of it depends on how you use it.”

For many of this year’s releases, the typical $3 to $3.50 surcharge for a ticket to a three-dimensional film more than covered added production costs of $5 million to $20 million per movie, studios say. Still, not all 3-D movies have succeeded, and 2012 may see a smaller number as studios complete projects approved in the glow of “Avatar” and become more selective.

“If you get a 10 percent or 15 percent boost in your box office, it’s completely worth it,” Mechanic said.

Executives will discuss the success and the future of 3-D films today at the 3D Entertainment Summit in Los Angeles. Speakers include DreamWorks Animation SKG Inc. Chief Executive Officer Jeffrey Katzenberg and director M. Night Shyamalan.

The biggest cost factor is the added time needed to set up scenes to accommodate the depth that 3-D allows, Mechanic said.

In the stop-motion animated “Coraline,” 3-D added $5 million to $6 million to the budget, Mechanic said. The film, based on the Neil Gaiman book, was made for about $60 million and generated $124.6 million in worldwide ticket sales, according to Box Office Mojo, an industry website.

DreamWorks’ Spending

DreamWorks Animation, based in Glendale, California, spends about $15 million extra to make its computer-generated films in 3-D, Katzenberg said on a May 2009 conference call.

“3-D is one of the most profitable investments we’ve made as a company,” Katzenberg said in July.

3-D viewings have generated sales of $1.49 billion this year, or about 20 percent of the total domestic box office, according to Bloomberg Research. For all of 2009, 3-D films generated $1.1 billion, or 11 percent of the total, according to the Motion Picture Association of America.

“Avatar” has taken in $2.77 billion in box-office sales, including $2 billion since Jan. 1, on production costs of $230 million, according to Box Office Mojo. The movie was released on Dec. 18. “Toy Story 3” cost about $200 million and has had sales of $1.04 billion following its release on June 18.

‘Toy Story 3’

“Toy Story 3” helped lift third-quarter operating profit in Burbank, California-based Disney’s film division to $123 million from a loss of $12 million a year earlier. “Avatar” and the 3-D “Ice Age: Dawn of the Dinosaurs” increased fiscal- year operating income in New York-based News Corp.’s movie unit to a record $1.35 billion, the company said on Aug. 4.

“3-D will be meaningful, but right now it is more of an event technology,” News Corp. President and Chief Operating Officer Chase Carey said yesterday at the Hollywood Radio and Television Society in Los Angeles. “You can’t put it on every movie.”

3-D doesn’t guarantee box-office appeal. New York-based Time Warner Inc.’s “Cats & Dogs: The Revenge of Kitty Galore,” cost about $85 million and generated $98.4 million in global ticket sales, according to Box Office Mojo, located in Sherman Oaks, California. Weinstein Co.’s “Piranha 3D,” made for $24 million, has taken in $24.3 million since its Aug. 20 release.

3-D Sales

The share of sales generated by 3-D showings of films has declined since “Avatar” set a benchmark at 80 percent. “Toy Story 3” produced 57 percent of its sales from 3-D showings, according to Bloomberg Research, a possible sign some fans were unwilling to pay the premium and chose 2-D instead.

The flops may help studios focus on those best suited to 3- D, said Matthew Harrigan, a Denver-based analyst with Wunderlich Securities.

“The experience is going to improve over time,” Harrigan said.

Theaters are likely to keep the ticket premium at about $3, particularly if studios become more discerning about which movies are worth the extra investment, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles.

Attendance has fallen 1.6 percent this year even as the 3-D surcharge has boosted revenue.

“It’s going to be hard for them to raise 3-D prices,” Pachter said. “Right now, I’d say no way.”

To contact the reporters on this story: Michael White in Los Angeles at mwhite8@bloomberg.net; Ronald Grover in Los Angeles at rgrover5@bloomberg.net.

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net.

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