3D still a gimmick

3D In the 1950s, 3D cinema was supposed to save moviegoing from the ravages of newfangled television techology. But it turned out to be a classic gimmick: a technological response to what was really a market problem. Consumers weren’t choosing TV over the movies because movies lacked spectacle; they chose it because it filled the need for casual entertainment in the convenience of their living room. If moviegoing was to compete with television it would have to be with more compelling product, not more spectacle.

It took Hollywood more than a decade to muster a viable response to the change in consumer habits wrought by television, when, in the late 1960s and early 70s a new generation of filmmakers make American movies interesting and culturally relevant again. In the meantime, the television itself evolved into a valuable secondary market for movies, despite being 2D.

The latest iteration of 3D technology was supposed to be different. Technological advances supposedly made 3D movies more naturalistic, comfortable to watch and less gimmicky than the old red/blue glasses version. And this time, TV would be an ally rather than a rival, with the development of 3D TV technology for the home.

That vision is already falling flat, however. As BTIG Research analyst Rich Greenfield has been documenting recently (see here, here, here and here [reg. req.] and table below), the 3D thrill has begun to fade for moviegoers.:

While we continue to expect Transformers 3D to do a very high percentage of its box office in 3D (could reach over 80% including IMAX), Cars 2 illustrated that the family segment is clearly tiring of 3D (both due to wearing glasses and the higher cost of 3D tickets).  Cars 2 did only 40% of its total box office in 3D, with 5% of that coming from IMAX, meaning the non-IMAX 3D… fell to just 35% of box office or 28% of the film’s attendees…  Just over a year ago, How to Train Your Dragon had 57% of its box office in non-IMAX 3D and 52% of its attendance on meaningfully fewer screens.

• Consumer 3D fatigue is clear… with the family segment illustrating the greatest declines year-over-year.
• We continue to wonder how long before the 3D fatigue issues that are occurring domestically start to spill-over into international market.

Home viewers are yet to feel the thrill at all. According to a new study by SNL Kagan, only 2 percent of U.S. homes will have a 3D TV set by the end of 2011, despite an enormous promotional push from leading CE makers. The total is expected to rise to 5 percent of homes by the end of 2012, and to reach 21 percent by 2015.

Contrast that with the 14 percent of homes projected to have an Internet-capable TV set by the end of this year, and 51 percent by 2015, despite a much lower-key rollout, and the slow growth of 3D TV sets is clear.

“Here’s what we learned last year: 3D as a technology wasn’t necessarily a primary driver for why a customer would want to buy a TV,” Sony Electronics SVP Mike Abary told CNN this week.

Sony and other manufacturers have been forced to slash prices on 3D sets and glasses to try to spur sales.

So why hasn’t it turned out to be different this time? But the exercise was fundamentally the same.

Once again, the studios (joined this time by CE makers) opted for a technological response to a problem that is not fundamentally about technology.

Movie theater attendance has been falling steadily for several years, posing an obvious threat to the studios (to say nothing of theaters). Worse still for Hollywood, the home entertainment market has been falling as well.

Rather than address the underlying problem, the studios have tried to paper over the declines by using the gimmick of 3D to try to force a price hike on moviegoers and theater operators.

Greenfield again:

On June 1st (click here), we highlighted a letter we received from an independent exhibitor that was told that they had to either play the 3D version of a movie on their one 3D screen or they would not be able to show the movie at all (meaning they could not have the 2D print instead of the 3D one).  Since that time, several other independents have reached out to us with similar stories of being bullied by the studios.  If you want Cars in 3D, you had to play Mars Needs Mom in 3D a couple months ago, if you want Harry Potter 3D, you had to play Green Lantern in 3D and the list goes on and on.

• Now add to this what Nikki Finke’s enumerated in Deadline yesterday (click here). For Transformers, Paramount threatened that any theater that did not show Transformers on Tuesday in 3D, would lose the rights to show the film at all (Paramount is opening the film in 3D-only on Tuesday, ahead of its 3D/2D official release Wednesday). Paramount has also mandated a four-week minimum for digital theaters, preventing a theater from shifting that screen to Warner Bros.’ Harry Potter 3D in a few weeks.

Many in Hollywood, of course, will tell you that the real problem with declining attendance is piracy, not the product, echoing their predecessors’ view of television half a century ago. Just as it was supposed to then, 3D is seen as a hedge against the latest technological menace.

Yet, just as it was 50 years ago, the real problem is how to get more people to want to go the theater to see a movie, not to get them to more of them in 3D.

TV set makers have made a similar error. 3D technology seemed like an ideal response to falling prices and shrinking margins. It costs relatively little to add 3D processing capability to a TV set and it promised to command a premium retail price. Rather than a shortcoming, the clumsy electronic glasses need to watch 3D TV provided another opportunity for a substantial markup.

In contrast, adding Internet connectivity and digital video processing capability to a TV set can be expensive for manufacturers. But it actually delivers genuine added value to the consumer in the form of access to more content. And consumers have voted with their wallets.

Same as it ever was.