Kevin Maney offers up: I have a story about 3D movies in the latest issue of Portfolio magazine, and for space reasons, some great details got left on the cutting room floor -- bits about 3D camera inventor Vince Pace, for instance, and about Walden Media's Journey to the Center of the Earth 3D movie coming out July 11.

So for anyone who is so deeply interested in the topic they may actually want more, I'm offering up -- in true Hollywood form -- the director's cut of the story. It's the version just before it had to get trimmed. Also, it's a version just before an interview with Journey star Brendan Fraser came through. So he's not in the story below, but you can read all his comments in my previous blog post about the interview.

The story...

Jeffrey Katzenberg, the pied piper of 3D movie-making, gets on a conference call with analysts in April. He runs DreamWorks Animation in Glendale, Calif. - the folks who make Shrek and Toy Story movies - and he's not happy. He's been relentlessly saying for a year that 3D is the biggest thing to happen to film since the advent of color. He's pledged that all DreamWorks' animated movies from now on will be in 3D, adding $15 million to the cost of making each one. His 3D animated Monsters vs. Aliens is coming out in March 2009, and Katzenberg was hoping 5,000 theaters would be 3D-ready by then. Not happening. Not even close. Which spells trouble for his movies. "Things have dragged along, and it's been pretty disappointing," Katzenberg says on the call. He knows that if 3D doesn't hit big, he's going to wind up in the False Promises Hall of Fame with people who have touted things like the paperless office and cold fusion.

Not far away in Los Angeles, Cary Granat, the CEO of Walden Media, is living his own three-dimensional nail-biter. Walden's Journey to the Center of the Earth will be the first major live-action, digital 3D release when it comes out July 11. It's a huge gamble this early in the gestation of 3D cinema. The movie's story is basically Indiana Jones Goes Spelunking. Its big selling point is its 3D visuals. "We created a 3D map (of the story) and hired writers to write to the map," says Granat, best known for making the Narnia movies. He initially hoped to open Journey in 1,700 theaters equipped for 3D. About 1,000 are ready. Granat, though, sounds confident. "I believe in 3D greatly," he pledges.

In a completely different universe - Arkansas -- Mike Thomson, vice president of operations for theater chain Malco, pulls his truck up to a McDonald's drive-through. He lowers his window and orders a breakfast of a sausage, egg and cheese McGriddle. He's been with Malco 43 years and speaks with the weariness of someone who has seen crazes come and go. Thomson believes in 3D, too - but clearly not with the zeal of Katzenberg, Granat and much of the rest of Hollywood. Malco is moving some of its theaters into digital 3D, yet Thomson sounds cautious. "We need to give people something they can't get at home," he says, reflecting an industry-wide concern with prying people away from their big-screen TVs and getting them back into theaters. "Three-D is a piece of the puzzle - but it's not the magic bullet."

Thomson drives off with his McGriddle, leaving the movie industry on the edge of its collective seat. This 3D story might not turn out the way Hollywood imagined.

***

Hollywood studios are latching onto 3D for the same reason Bob Dole took Viagra.

Most of Hollywood's business is working pretty well, making money from DVDs and cable TV. (Heck, for all Katzenberg's complaining, DreamWorks' first-quarter profits were up 69%, mostly on DVD and TV sales.) But the essential part that makes Hollywood feel best about itself - theatrical showings - is going flaccid. The difference in the experience of seeing a movie in your average multiplex versus seeing it on a 52-inch HDTV with surround-sound is shrinking. As that happens, consumers find fewer reasons to put up with the inconvenience and cost of going to a theater. So, increasingly, they don't.  They stay home, watch a DVD, and do things they can't do in most theaters - like have a glass of wine.

The Motion Picture Association of America argues that 2007 was a good year for the theatrical movie business, with U.S. ticket revenue up 5 percent to $9.6 billion. But that's an unsupportable spin. The 5 percent jump in revenue is entirely because of price increases. The number of tickets sold in the U.S. stayed flat from 2006 to 2007, at 1.4 billion, according to MPAA data. Worse, attendance is down from 1.6 billion in 2002. (In 1950, before TV took off, U.S. theaters annually sold 3 billion tickets.) What's more, the number of U.S. screens has been rising by 500 or more a year, so theaters are watching attendance per screen diminish. Add it up, and movies are doing worse than ever in theaters.

This stuff gives Hollywood the vapors. Some of the whining sounds like sheer ego. Directors such as James "Titanic" Cameron talk about how they make movies to be seen in the grandeur of the big screen, not TVs or - horrors! - iPhone screens. But studio executives worry about the effect on business. Publicity and excitement from a theatrical release drives lucrative DVD sales and HBO showings, not to mention ancillary money-makers like toys, Happy Meals and video games. "We make films for the theater and want to exhibit there first," says Chuck Viane, president of distribution for Walt Disney. "It's the engine that pulls the train."

Hollywood hopes 3D can fix that wheezing engine. So Katzenberg is re-rendering DreamWorks' three existing Toy Story movies in 3D and making both a new Toy Story and new Shrek in 3D. Cameron just started shooting Avatar, a 3D movie planned for 2009. Peter Jackson, who directed the Lord of the Rings films, is adapting comic book character Tin Tin into a 3D movie. Robert Zemeckis (Beowulf, Forrest Gump) started making Dickins' A Christmas Carol into a 3D flick. Every major studio has leapt aboard. By 2010, Hollywood will be releasing a parade of 3D movies.

Is such faith in 3D justified? Hollywood puts forth its Exhibit A: Hannah Montana/Miley Cyrus: Best of Both Worlds. The 3D concert film blew apart records by grossing more than $45,000 per screen when released in early 2008. Some theaters charged $15 a ticket. Hannah, a Disney film, was 3D's nuclear event.

Yet when pressed, Disney can't be sure Hannah did better because it was in 3D. Disney's Viane says that relatively few theaters could show digital 3D when the movie came out, which meant Hannah played on only 683 screens. It broke revenue records per screen because Hannah Montana is so popular, families made pilgrimages to theaters that showed the movie, packing those limited screens for show after show. Did Hannah fans go because it was Hannah or because it was 3D? "If we did it in 2D and opened on thousands of screens, would we have made more money? Hard to say," Viane concludes. "More screens typically mean more gross."
Malco's Thomson is more direct: "Hannah would've been huge in 3D or not."

***

If you want to talk 3D movie technology, you have to talk to Vince Pace, who these days spends much of his time helping Cameron shoot Avatar. The low, unmarked building that serves as the office for the shoot could be a Milwaukee ball-bearing dealership: wood veneer desks, fluorescent lights, thin beige carpeting. I sit in a conference room the size of a walk-in closet. Pace finally comes in, wearing a blue golf shirt and jeans and carrying a paper plate loaded with barbecue and macaroni and cheese. It's Avatar's lunch break.

Pace developed the technology used to shoot almost every live-action 3D movie - in some cases co-developing with Cameron. The new technology is completely unlike 3D from any other era, Pace explains. It's based on digital cinematography, which is relatively new to moviemaking. Pace developed dual-lens cameras that mimic the way a human's two eyes capture an image from a slightly different angle. Computers digitize the images and allow a director to manipulate and edit them. All of that digital technology has only become workable in the past few years, and it's quickly getting better and cheaper.

When images captured by Pace cameras get projected on a screen, the twin overlapping images look slightly blurry to the naked eye. You have to put on plastic, high-tech 3D glasses that filter the images so one goes into each eye. Your brain mixes the two images - much as it mixes the dual images of real life - and creates a 3D effect.

"The tools and approaches are getting better," Pace says. "This raises the bar for entertainment. I don't think it can be stopped."

Of course, 3D has famously failed before - most notably when theaters fought a previous battle against home entertainment. Theater attendance peaked in 1950 and then got slugged by television and dropped by half in eight years. Hollywood and theaters tried 3D, starting with Bwana Devil in 1952, to goose ticket sales. The film-based technology could be unsteady and nauseating. Many movie-goers got headaches. Soon Hollywood abandoned 3D, except for an occasional revival -- like the 1983 bomb Jaws 3D. Other than an occasional IMAX movie or theme park ride, the industry has since stayed away from 3D.

In a screening room at Walden headquarters, I watched Journey to the Center of the Earth wearing 3D glasses that looked like the giant sunglasses you'd see on a ninety-year-old man in Florida. (The movie cost about $60 million to make; shooting in 3D added $7 million to $8 million to the total cost.) The 3D seemed solid and easy to watch. Other than some obvious tricks, like when a tape measure sticks right out at the audience, the 3D blends into the whole experience. "Good 3D is when the screen disappears," says Pace, whose technology was used for Journey, too. "My job is to make you forget its 3D in the first ten minutes."

***

Three-D movies are a chicken and egg problem -- which can be helped along if you have control of both the chicken and the egg. Journey to the Center of the Earth - funded by Anschutz -- sits right in the middle of this evolutionary head-scratcher.

In order for 3D movies to become a mass-market success, movie studios need to deliver a stream of 3D blockbusters. Shooting in 3D adds 15 percent to 20 percent to the cost of a film. If too few screens are equipped to show a 3D movie, there's little point in spending the extra money to shoot in 3D.

On the flip side, to show 3D movies, theaters must install a 3D system from one of the two suppliers, Real D or Dolby Technologies. The price can be $25,000 or more per theater, plus some ongoing costs.  Today's 3D only works with digital projectors, which are fairly new to the theater industry. Only 4,600 of the 37,000 theaters in the U.S. have digital projectors. Many theater owners first have to buy $75,000 digital projectors before they can buy a 3D system - which gets the total price up over $100,000. Theater owners don't want to spend that kind of money unless they know they'll get a stream of 3D blockbusters from Hollywood.

One hitch might be the glasses. Will people get tired of wearing them? Will consumers buy their own? (No company such as Oakley or Ray-ban has said they'll sell 3D glasses to consumers, and so far there is no single standard that would work on every 3D system.) Real D systems rely on cheap disposable glasses, but that means theaters or studios have to pay for millions of glasses. Dolby uses expensive glasses - around $40 each -that are supposed to be returned and cleaned at the end of every showing, but people steal them. "That is the fly in the ointment there," says Thomson of Malco, which is buying Dolby systems. "You have to get the glasses back or you lose your ass."

Anyway, you can see where this is going. Theaters don't want to invest until Hollywood invests, and Hollywood doesn't want to invest until theaters invest. Once both do, the industry should get into a positive-reinforcement cycle.

Walden's Journey is an early gamble on this cycle. But less than you might think. Walden is part of Anschutz's empire. Anschutz also owns more than half of Regal Entertainment Group, the world's largest movie theater chain with more than 6,000 screens. Regal is aggressively installing 3D systems. In fact, Regal leads all theater companies in Real D installations.

And Anschutz is connected to Real D. Former Walden executive Joshua Greer started developing the 3D projection system while inside the company. "We didn't want Walden to be in the business of selling a 3D system to theaters," Granat says. "So Josh took the project out of Walden and built Real D with knowledge from Walden."

***

"I wish I could say the movie theater experience will never go away, but I'm not sure," says Jonathan Kuntz, a film history professor at the University of California at Los Angeles. The concept of movies in a theater, which has been a monumental part of entertainment culture for nearly 100 years, has never been so challenged. It's not just home theaters competing for consumers' time. Audiences are being pulled away by other forms of entertainment, such as YouTube, Facebook, Guitar Hero, World of Warcraft, IMs and blogs. "I'm not sure theatrical films will ever again be as significant as they were historically," Kuntz concludes.

I've been researching a book about the trade-offs consumers make between the fidelity of a product or service and the convenience of getting it. We're willing to do something that's really inconvenient to get a very high-fidelity experience - like going to a U2 concert. And we're willing to put up with lesser fidelity if it's extremely convenient - like hearing a U2 song on an iPod. But we're not that interested in something that is both inconvenient and not-so-great fidelity compared to other options. Movie theaters have fallen into that category. They are inconvenient (you have to drive there and pay a lot) and the fidelity isn't fantastically greater than increasingly nice home theaters. It's a difficult place to be.

Three-D is an attempt to boost the fidelity of what's on the screen far above home theaters. But that could sputter on a couple of fronts. Once 3D movies become commonplace, they might not seem so special - might not be perceived by audiences as a huge boost in fidelity over home theaters. At the same time, home theaters at some point will be able to show 3D. I visited a Kodak lab where a team is working on 3D TV, and the images rivaled seeing Journey in Walden's screening room. "It will be three years before the price and package is appropriate for consumer applications," says Kodak researcher Patrick Cosgrove, but 3D home theaters will happen. (Viewers will still have to wear polarized glasses - not a great arrangement if you're watching a movie while, say, keeping an eye on your toddler.) Samsung, Hyundai, Philips and Mitsubishi have 3D TV prototypes.

Then there's another potential problem: "Three-D doesn't address the core problem," says George Mason University professor Tyler Cowen, who has written extensively about the economics of entertainment. "It's missing the point." People don't choose to go to a theater because the image on screen is bigger or is in 3D, he says. They go because they want to go out. Theaters have suffered to a large degree because they're often not great going-out experiences - crummy seats, expensive yet bad food, no alcohol. If true, efforts by Malco, Landmark and others to experiment with amenities like couches and waitress service might have more impact on the theater business than 3D movies.  Cowen makes me wonder if the money theaters are spending on 3D might be better spent elsewhere.

So, basically, Hollywood's fantasy of a theater experience in about 2012 looks like this: The usual popcorn concession stands are gone. The lobby looks like an upscale café, and it's packed. A busy gift shop sells movie soundtracks, T-shirts, posters and designer 3D glasses. The theater seats are couches, recliners and beanbag chairs. Waiters dressed in black drift in and out, serving martinis, coffee and appetizers. The screen is nearly 70 feet wide. When the movie starts, everyone puts on their 3D glasses and feels like they're actually inside the movie - almost a participant. The audience is in awe of a new golden age of Hollywood.

Yet despite all the muscle applied by Katzenberg, Anschutz, Cameron and other power hitters, the greater forces at work here suggest something other than happily ever after. Three-D might indeed be Hollywood's Viagra - a temporary cure for a situation that will only get worse over time.