Real D CEO Michael V. Lewis Let’s start with a little background. How long ago did Real D get started?

Michael V. Lewis: We started the company back in 2003, and we thought there was a big opportunity in this next generation 3D area. We weren’t exactly sure how we were going to get it out there to thousands of theaters, but our view was that we had to create a big enough platform, so that filmmakers would show up and the economics would make sense. What we did is we went out and looked at companies in other markets and other businesses using a very high-end 3D, and our first acquisition was a company called Stereographics. They’ve been in the high-end 3D visualization market for about thirty years, so they supplied technology for the military, for NASA, Fortune 5000 companies, to see the way that we see as human beings. We acquired them in 2005 and then we spent some time marrying that technology that had been used by those companies with a digital cinema projector, and this was the very early days of digital. The hope was that we can somehow bring next generation 3D science together with digital, which we hoped was going to transplant the analog way that we’d been seeing films for the last 80 years. We got to a place in June of ’05 where we said, “You know what? Wow, that image looks pretty good,” and it was a very -simple upgrade to a digital projector—hardware and software—took about 15 minutes, and we had the Walt Disney Company come over. Dick Cook came over and said, “Wow, that’s really great. Can you get 100 screens up for ‘Chicken Little’?” So we went out and did deals with exhibitors and now the rest is history. We’ve done seven films that have now been shown in Real D and we’re now at 1,200 screens worldwide. We’re at about 1,000 at 680 locations in the U.S. Some locations have more than one Real D screen, multiple screens. We have 1800 time-tracked right now, so it’s grown in two years. It’s really exploded and we have 70 exhibitors in 25 countries now. We have a couple overseas in the international markets and that’s taking off now. The biggest challenge for us right now is the digital cinema, and if we can get that rolling, which I think we will over the next few months, where there is digital, 90+% of those locations have Real D, so the 3D has been a big driver and the reasons is that the experience is better, but the exhibitors have been able to charge a lot more because it’s a premium experience, it’s better, and they’ve been able to get $15 a ticket for “Hannah Montana,” all the shows.

CS: I wasn’t sure if Disney was actually using Real D because they’ve released most of their movies as “Disney Digital 3D” although they obviously use the same glasses and technology.

Lewis: Yeah, they’ve kind of co-opted it. They use “Disney Digital” to talk about their production process, but there is confusion in the marketplace, so one of the things we’re working on this year is really reinforcing the brand, and seeing Real D theaters, and that’s one of the main things we’re focusing on this year in terms of getting the word out to consumers that if you see a movie in Real D, it’s going to be a great experience and we hope you come back.

CS: There’s been an amazing amount of growth in the 3D market in the past few months. At least year’s ShoWest, there was some talk about 3D but it’s become this year’s buzzword due to the number of box office hits.

Lewis: What has happened literally in the last three to six months is there’ve been a tremendous amount of… people have been using the word “game change” or “biggest thing since color and sound” and it’s been driven at the end of the day by filmmakers. We spend a lot of time with filmmakers. We bring them in and show it, and they get excited. They go, “Wow, this is a new way to tell my stories, this is cool. I want to play.” So you got the best filmmakers in the world going “I’m doing this!” and at the end of the day, all the other stuff doesn’t matter. It’s about them wanting to tell their story in a new way.

CS: Obviously, there’s a lot of animated movies being made using the technology, but the computer generated animation is generally 3D anyway, so what are some of the biggest challenges of doing the live action movies using the process?

Lewis: What you’re doing with 3D very simply, we’re trying to replicate the way that we see, and so, in animation, you’re already in stereo, you’re creating another eye if you will. Left eye, right eye, so you move the camera over. In live action, you’re just using two cameras, a left and a right eye camera, and much as Real D has benefited on the delivery side to theaters with digital, that allowed us to do what we’re doing now, get it right and perfect every time. Same thing with camera technology. If you used to need big 350 pound IMAX cameras to shoot 3D, now it’s 2 digital cameras side-by-side. Cameron is using a 19-pound camera, it’s just gotten a heck of a lot easier, so we have these perfect storm of digital helping us, digital helping the production, so all these things have come together. You saw the result today with what Jeffrey Katzenberg showed. The filmmakers are getting smart really fast, and the tools that allow them to do this are getting a lot easier to use. It used to be hard to edit… all these problems that plagued 3D are being solved very quickly.

CS: How much more does it add in terms of cost to the production side to do something 3D?

Lewis: Well, it depends what it is. Animation, if you talk to Katzenberg, he’ll say that DreamWorks is spending about 15 to 20 million dollars extra per film. You’ve got more rendering time, because you can’t get away with the cheats that you get away in 2D because the eye picks it up. It’s just more time-consuming. Live action people say anywhere from ten to 25% of the below the line production budget, but again, if it’s visual effects intensive, it’s going to be more, if it’s not so much, it’s going to be less.

CS: Do you see a point where all movies are going to be done in 3D because moviegoers just get more used to that?

Lewis: We have all the big blockbusters over the next couple of years. 30 3D films I think have been announced over the next three years or in production, and some of the big movies, but I think you will see an expansion to a much broader audience. Younger filmmakers will start using it. A few weeks ago I had Baz Luhrman in our screening room and he was going, “Wow, this is fantastic.” We spent hours going through and he said, “Well, I have to rethink this because my actors, they look so much smaller….” He was thinking in his brain how he was going to recompose his shots. He said that he wished he could have done “Australia” that way, because it would have been fantastic. I think the answer to your question is “yes” but I don’t know in what period of time, is it five years? Ten years? I think it is very hard… it’s much like color. When you shoot color, it’s very hard to go back to black and white, and so we think this is the evolution of how we see in visual media, driven by cinema, so I think the answer is “yes.”

CS: You’re obviously working with Disney and with DreamWorks…

Lewis: We’re working with all of them.

CS: Is it a matter of getting the filmmakers on board first or does it have to come from the studios that are willing to invest in using the technology?

Lewis: You know, it’s both. It comes from all directions. In the case of Disney, they said “okay” so what we do is we provide the studios… we have a Pro line, we provide a lot of visualization technology so they can actually see what they’re producing. Eyewear, different things, while you’re shooting, so you can see what’s going on. We provide that. Most of the screening rooms in Hollywood are now equipped with Real D so they now can see what the heck they’re doing. We spent a lot of time doing outreach with directors, producers, production personnel, and we do a lot of 3D 101 classes.

CS: One of the things that’s been discussed a lot is the cost of the projectors, and it’s not just the amount for digital projectors but also the add-ons to be able to do Real D.

Lewis: Yes, so if you have a digital projector, then you’re a candidate for a Real D upgrade and then we license our technology, includes all the maintenance, the upgrades. We’re constantly improving the system. Today you saw an example of something that’s never been done before, which is in the last two years, we’ve only been able to get the image to 45 feet in terms of screen width. Today, you saw 60 feet, and that was on a single projector, which has never been done before. We’re light challenged but we came up with a technology that allows us to get recyclable light and show a much better image.

CS: I know Zemeckis when he made “Polar Express,” he did it in IMAX 3D, so what did it take to get him to switch over to your system for “Beowulf”?

Lewis: He came over and he saw it and thought it looks great, and he likes the way digital looks. IMAX is film-based, we’re digital, and so he said, “Well let’s do our next film (which was ‘Monster House’)” and that’s how we got into the Bob Zemeckis-Steve Starkey-Jack Rathke business, and the next one they’re doing is “Christmas Carol” in 2009. It’s using the same performance capture as “Beowulf” in 3D.

CS: As far as getting the theaters to be compatible to do 3D, do you think there’ll be a point where every theater is going to be ready to show movies this way?

Lewis: I think the entire industry obviously is going to go digital. How long that takes is probably a five to seven year process to go all digital, and then any of those digital projectors can be upgraded, so right now most of our deals is we’re doing a third of a chain in Real D. We just did a deal with Odeon last year, which is the biggest international chain. They have 1,500 theaters, we did a 500-screen deal, so it’s about a third of the complex.

CS: There are other 3D technologies out there, so do you think there ever might be a format war issue like with HD DVD and Blu-Ray Disc?

Lewis: You know, I don’t think so, because if DreamWorks makes a movie, it’ll show on other formats, so it’s not like DVD. Right now, we have 97% of the market. We’re happy… well, actually, we’re not happy with that. We want to get the other 3%.

CS: Now was the U2 movie shot using one of those other technologies?

Lewis: No, they shot it digitally and they showed it in IMAX. We had “Hannah Montana” which soaked up all our screens, so “U2 3D” had to go IMAX and it’s now showing in Real D.

CS: What future content do you foresee being shown in Real D in the future? Obviously, there’s a lot of big national acts who could have their shows filmed that way, but when U2, a huge act that sells out stadiums can’t get as many people into theaters as Hannah Montana, it makes you wonder what the market can stand.

Lewis: I think a lot of it is marketing and distribution. One, you had the Walt Disney Company, which makes a big difference, but I think the opportunity is to program these theaters much like you program a TV station and with digital, you can do that, so we’re going to see over the next couple of years and we actually did a live event last year with the NBA, we broadcast the All-Star Game directly to the Mandalay Bay in Real D, and we hope to do a lot more of that, to program these theaters with something new every time.

CS: One thing that a lot of people have mentioned this week as one of the benefits of 3D is that it helps fight piracy.

Lewis: Yeah, you’ll see a blurry image without the glasses.

CS: Also, it’s given people a new reason to go see movies in theaters. That said, do you think Real D will ever work on bringing that experience into home theaters for those who may want that experience?

Lewis: Well, we’re focusing on cinema right now. One of the big advantages and why the theater operators love it so much is the differentiator, it’s something unique to the cinema, it brings the magic back. Our view is that all visual display devices will go this way, whether it’s your cell phone, your iPod, but right now, cinema has a minimum of a five-year window before there are other technologies in the home and so forth. We love cinema so we’re going to make sure that cinema is the top of the food chain.

CS: Another factor at least until “Beowulf” came out was that 3D was a gimmick only for kids’ movies, so are you seeing adults getting more comfortable with the glasses?

Lewis: Yeah, you know, it’s interesting. It’s generational because when we first got going, if you’re over 30 and you grew up with red and green glasses, you go “Oh, I have to wear the glasses” but you put them on, you’re comfortable and you forget about them. We tried to make them high end, so they don’t look so cheesy and comfortable, but if you’re younger, people say, “Oh, I GET to wear the glasses.” Because kids are used to video games and all that, so it is generational, and hopefully, as more people experience Real D and they see how great it is, they’re going to be okay with it. Eventually, it will go to no glasses. We’re working on that.