Is Hollywood Overestimating the Appeal of 3-D?

The film industry has performed well at the box office as of late, buoyed by 3-D releases like Avatar and Alice in Wonderland. And now Hollywood is looking to cash in even further — by raising prices for movies by as much as 10 percent. But will the increase drive people to look for cheaper entertainment elsewhere?

Beginning last Friday, movie theaters owned by national chains Regal Entertainment (s rgc), Cinemark Holdings (s cnk) and AMC Entertainment raised ticket prices an average of 8.3 percent, according to BTIG research analyst Richard Greenfield. The increase varies by movie to movie (depending on whether it is a 2-D, 3-D or 3-D IMAX print) and by theater to theater, but the bulk of it is coming from 3-D titles, which have scored big at the box office over the last year.

Growing interest in 3-D films was the top reason that Hollywood box office outperformed expectations last year, with box office receipts rising 10 percent and 3-D movies accounting for 11 percent of total box office in 2009, compared to just 2 percent in 2008. The recent success of Avatar, which has grossed about $750 million domestically, and Alice in Wonderland, which has pulled in $275 million since opening just a few weeks ago, has further pushed demand for 3-D entertainment.

One reason for increased prices is the limited number of 3-D and IMAX theaters that are available for the films to be shown in. Last weekend’s box office opening of How to Train Your Dragon, for instance, pushed previous box office leader Alice off more than 2,000 3-D screens and about 185 IMAX screens last weekend. The limited number of 3-D screens will continue to impact releases, as five major 3-D films are set to be rolled out over the coming months, including Clash of the Titans and Iron Man 2. Given the limited window in which these movies have access to 3-D theaters, theater owners and Hollywood studios both want to maximize their revenues during those runs.

But could Hollywood be overestimating the number of people willing to pay $15-$20 for a 3-D film? While consumers came out in droves to see Avatar in 3-D, the vast number of entertainment options available — from TV to online to gaming — could lead to a potential backlash if they decide that there’s not enough value in filmed entertainment.

And not all 3-D films are created equal. While Avatar was fully shot in 3-D, most films coming out over the next several months were shot in 2-D, with 3-D elements added later. This was true of Alice, which was shot in 2-D with plans for a 3-D release, but is also true of Titans, which didn’t get the 3-D treatment until January.

Furthermore, box office greed doesn’t extend just to the higher-cost (and higher-grossing 3-D titles) — theaters are raising prices across the board. Hollywood could argue that the increased cost in creating a 3-D film, combined with the limited number of 3-D and IMAX theaters that are available, but 2-D titles are also being affected. According to Greenfield, theaters are increasing 2-D ticket prices about 4 percent on average. If consumers begin to believe that their money is better spent on other things, Hollywood could be worse off for its price increase.

Photo courtesy of Flickr user bark.

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