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Avatar Spurs 3D Film Conversions, New Pay-Per-View Options

Despite Avatar's overwhelming success and impact, Fox Filmed Entertainment is taking nothing for granted in the face of floundering aftermarket revenues and the Chinese government abruptly yanking the hit 3D film from theaters there. Sites are set on more 3D film conversions and new pay-per-view options.

Much like the fantasy world Avatar director Jim Cameron created, Hollywood's movie-making ecosystem is being bombarded by dramatic challenge and opportunity. The film's stellar returns blunt - rather than eliminate -- concerns. Avatar soon is expected to surpass domestic and international box office records set by Cameron's Titanic, pushing its overall gross past $1.8 billion.

Avatar grossed a record $76 million at the box office in China before the government yanked the film from more than 1,600 2D theaters there this past weekend in favor of a biography of Confucius. Although Avatar continues on 3D screens there, Chinese officials reportedly are concerned about the film's dominance and message about oppression.The incident underscores the growing volatility and unpredictability of all-important global markets.

"Avatar represents a tipping point. It is a culmination of the 3D technology that has been perfected over prior films. It encourages new options like generating revenues from the 3D re-release of select films," Fox Filmed Entertainment chairman and CEO Jim Gianopulos told me in a recent interview.

The industry is buzzing with speculation about the 3D re-release of blockbusters such as Star Wars, Lord of the Rings and Titanic. (Note: Cameron and Gianopulos are pictured above at an Avatar opening.)

"3D conversion is economically viable now that there are 10,000 live action 3D screens worldwide on which to generate returns. That's more than double the number of 3D screens last summer," Gianopulos said.

"The cost of converting a film to 3D is millions of dollars-not tens of millions. Consumers' willingness to pay an additional $2 to $3 per ticket creates a new value equation for everyone," he said. Digital technology lowers the cost of film making which offsets some of the 10 percent to 20 percent overall revenues lost to piracy.

In the case of Avatar, 30 percent of the movie theaters have generated 60 percent of the revenues. As 3D technology becomes more pervasive, it could account for about one-third of total film industry revenues in several years, Gianopulos said.

The incremental cost of converting existing films to 3D to generate a new revenue stream comes at a pivotal time. The new technology is not easily captured in bootleg copies. Film industry value has shrunk. Profits were evaporating even before the credit crisis set in, he said.

There has been a serious disruption of the "logic and reason" of progressive film exhibition windows at a decreasing cost and increasing profits to studios by the steady drive of new technology that empowers consumers to have entertainment their way.

Video on demand - and more specifically, the premium home window -- is poised to become the biggest exhibition platform. It is a way for technology to give consumers unlimited choices.

On the momentum of Avatar's success, Fox soon will test simultaneous release of a movie at the box office and in high definition homes willing to pay a premium price for one-time access over a secure link.

The carefully managed one-time home showing will not cannibalize the theatrical or video windows, Gianopulos insists. Similar enterprising moves have created controversy among studios, hardware manufacturers and theater owners. "We need to experiment and allow consumers to use the new technology that provides convenience and choice," he said.

The Motional Picture Association has asked the Federal Communications Commission for a waiver for technology to transmit films through secure TV connections. Cable and other service providers, and Internet film rentals from Netflix are expected to experiment with price points and timing of home film releases. Such new models further upending DVD releases cannot come fast enough given YouTube's plans to provide premium movie rentals.

"If you can't control those windows and you can't control access to your products, then making movies is irrelevant. You have lost the ability to make money from what you've created," Gianopulos said.

The recent annual Consumer Electronics Show unveiled a new generation of 3D television devices for the home, signaling that the technology is now more than a gimmick. It is at the center of a lucrative new revenue stream.