Jeffrey Katzenberg, the newest champion of 3-D movies, is on a conference call with analysts. Katzenberg, who runs DreamWorks Animation SKG—the Glendale, California, studio that made the Shrek films—is not happy. It’s April, and he’s been proclaiming for a year that 3-D is the biggest thing to hit Hollywood since color. He has vowed that all his new animated movies will be in 3-D, which will add $15 million to the cost of each. DreamWorks’ Monsters vs. Aliens is coming out next year, and Katzenberg was hoping that 5,000 theaters would be 3-D-ready by then. Not happening. Not even close. Maybe 1,500 will be ready to show Katzenberg’s new film, and this spells trouble for DreamWorks. “Things have dragged along, and it’s been pretty disappointing,” he says. He knows that if 3-D doesn’t hit big, he’s going to look like the guy with 10,000 unsold Segways in a warehouse. (View a pop-up graphic showing some of the biggest 3-D blockbusters and bombs.)


Not far away, in Los Angeles, Cary Granat, the co-C.E.O. of Walden Media, is in his own 3-D nail-biter. Walden’s Journey to the Center of the Earth 3D—which is basically Indiana Jones Goes Spelunking—will be the first major live-action digital-3-D release when it comes out on July 11. He hoped to open Journey in 1,700 theaters, but only about 1,000 are 3-D-ready.

Far, far away—northwest Arkansas—Mike Thomson, vice president of operations and technology for Malco Theatres, pulls his truck up to a McDonald’s drive-through. For 43 years, he’s worked for Malco, which manages more than 320 screens, and he speaks with the weariness of someone who has seen innumerable fads come and go. Thomson believes in 3-D too, but clearly not with the zeal of Katzenberg and Granat. Malco is upgrading a handful of its theaters for digital 3-D, yet he sounds cautious. “We need to give people something they can’t get at home,” he says, reflecting an industrywide worry that borders on panic. “3-D is a piece of the puzzle, but it’s not the magic bullet.”

Thomson drives off with his McGriddles sandwich, and the movie industry perches on the edge of its collective seat. This story might not turn out the way Hollywood imagined.

Studios are latching onto 3-D for much the same reason that Bob Dole took Viagra. Most of Hollywood’s businesses are making money—for all Katzenberg’s complaining, DreamWorks’ first-quarter profit was up 69 percent—but the sector that makes Hollywood feel best about itself, theatrical showings, is deflating, in large part because the difference between seeing a movie in your local multiplex and on a 52-inch high-definition TV in your family room is not that vast.

The Motion Picture Association of America claims that 2007 was a good year for the cinema business, with U.S. box office revenue up 5 percent to $9.6 billion. But that’s unsupportable spin. The jump can be almost entirely attributed to a bump in ticket prices. The number of tickets sold in the U.S. stayed flat from 2006 to 2007, at 1.5 billion. (In 1950, while TV was taking off, U.S. theaters sold 3 billion tickets a year—and the population was half what it is today.) Meanwhile, 379 screens were added between 2006 and 2007. Do the math and movies are doing worse than ever in theaters.