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Katzenberg: HD is a Niche

29 Mar, 2007 By: Erik Gruenwedel

The studios apparently are embracing next-generation 3-D — not HD DVD and Blu-ray Disc — for future animation and live-action movies, said Jeffrey Katzenberg, CEO of DreamWorks Animation Inc.

Speaking last week at an investor conference in New York, Katzenberg said he believed the next-generation optical-media formats will evolve into no more than a niche business catering to special interest consumers.

“I don't think it is going to become the next platform for anybody's business,” Katzenberg said. “We are not going to go VHS, DVD, HD DVD or Blu-ray.”

He said the formats will likely become “a videophile business” for consumers interested in spending the resources on equipment necessary to see “the richness of the content in detail.”

“For the general consumer, there is not a big enough delta between standard DVD and next generation,” Katzenberg said.

The CEO said he was pleased the studios had moved the majority of their libraries and TV DVD product through the marketplace and that the focus was again on first-run product.

He said recent flatlining of DVD sales can be attributed in part to the studios inability to sustain recent levels of output of catalog and TV fare on DVD on an annual basis.

“They ran out,” Katzenberg said. “The library is empty.”

Conversely, he said the DVD business for first-release product was doing well and better than it had in the past 18 months.

Katzenberg said the promise and the potential of digital delivery remains huge in the long-term but that the impact of digital delivery in the next two years will be negligible. He said less than 1% of the industry's revenue in 2007 will come from digital distribution.

“We are big advocates of it, but it has to come to market in an orderly manner,” he said. “And it has to get to market in a way we can get the value from it. Those are the issues that everyone is struggling with.”

Katzenberg, whose Shrek the Third is slated to release theatrically May 18, said directors such as Steven Spielberg, James Cameron, Martin Scorsese and George Lucas are actively pursuing projects that involve authoring new movies and post-production classics in 3-D for theatrical release.

Advances in digital theatrical projection and 3-D authoring have led DreamWorks Animation to consider releasing all of its theatrical titles in 3-D by 2009.

He said the format has moved beyond cheesy glasses and objects flying off the screen through visual trickery. New authoring tools allow creators to pull the audience into the film and make them feel a part of the movie's environment.

“It is a huge creative opportunity and tremendous business opportunity,” Katzenberg said.

Specifically, the CEO sees charging consumers a premium on tickets to 3-D movies, which he said are impossible to pirate and wouldn't encroach upon DVD since the format can't be transferred to optical disc.

He eyes re-releasing the top 45 films from the past three years in 3-D to generate significant incremental revenue.

“This is the first thing that has come along since I've been in the movie business that actually creates a premium experience for the moviegoer,” Katzenberg said. “It creates variable pricing. The movie business is the only business in the world where there is no variable pricing. That's ridiculous.”

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