How 3-D Tech Is Saving Hollywood

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Did you catch James Cameron's Avatar in 3-D yet? If not, there's no need to worry: Three-dimensional movies are here to stay. You will have plenty of opportunities to don the special glasses over the next few years.

Seventy-five percent of Avatar's $2.3 billion in gross receipts (and counting) came from a combination of 3-D and super-sized IMAX (Nasdaq: IMAX  ) screenings, where the ticket prices are as eye-popping as Cameron's special effects. According to Walt Disney (NYSE: DIS  ) CEO Bob Iger, it's about 25% more expensive to make a 3-D version of a live-action movie, but the upgrade is pretty much free for computer-generated animation. Those larger-than-life ticket prices sure juice the returns on the investment.

In other words, expect to see a lot more of this three-dimensional fare. In fact, the success of Avatar inspired Time Warner (NYSE: TWX  ) to invest in a 3-D conversion of Greek mythology drama Clash of the Titans, due to hit your local movieplex in early April. "A lot of studio executives are going to look at Clash, and if it works -- then 3-D conversion will explode," a special-effects representative responsible for Titans told The Wall Street Journal.

Less than 10% of America's 40,000 screens can show pictures in glorious digital 3-D today, but the conversions are rolling in at breakneck speed. Theater chains like AMC and Regal Entertainment (NYSE: RGC  ) are installing digital projection systems as fast as they can, and once you have a digital projector in place, it's trivial to slap on the 3-D equipment. Equipment providers are certainly one way to invest in the 3-D revolution.

And the transition really can't happen fast enough. The limited number of 3-D-capable screens plus the oncoming rush of 3-D content adds up to a traffic jam at the theater. If Avatar is still playing on your theater's only 3-D screen, where will Alice in Wonderland go? There's a veritable crush of 3-D movies coming this spring (and more than 20 for the year), and this will be a trial by fire for the cinema chains.

But the trend is clear: Action movies and cartoons are destined for the 3-D treatment until plain old 2-D content becomes fashionable again. Avatar isn't breaking attendance records, but it is crushing box-office marks by the dozen. That's good enough for Disney, Sony (NYSE: SNE  ) , DreamWorks Animation (NYSE: DWA  ) , and all the other movie studios, and the 3-D trend will restore both gross receipts and profits to full health after a few lean years.

Thanks to 3-D technology, this looks like a great time to invest in entertainment stocks. Many of these companies are already riding high on this trend, but Lions Gate Entertainment (NYSE: LGF  ) has underperformed over the past year even though Saw VII is coming out in 3-D this fall. Does this respectable operator tickle your fancy, or do you have other ideas on how to invest in the resurgent entertainment industry? Share your thoughts in the comment box below.

Fool contributor Anders Bylund owns shares in Disney, but he holds no other position in any of the companies discussed here. He does, however, own shares in a digital projector installation specialist. Walt Disney is a Motley Fool Inside Value recommendation. Walt Disney and DreamWorks Animation SKG are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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