James Cameron is back at a movie theater near you, and he's shaking up the entire film industry as usual.

Avatar is a $300 million special-effects extravaganza that was in development for more than 16 years. Cameron was waiting for computer technology to catch up with his technical needs. It's not much of a story -- your basic boy-meets-alien plot on a raging battlefield -- but it's a showcase for a revolution in digital effects. Yep, there's still virgin ground to break in the field of special effects.

And nobody will appreciate Cameron's audacity more than IMAX (NASDAQ:IMAX). Avatar was made to look awesome on larger-than-life megascreens. Did Cameron just invent the toxin for the common home theater?

The conundrum
In case you hadn't noticed, the movie industry is in the throes of an extreme digital makeover, like the music industry before it and publishing trailing close behind. Big-screen, high-definition TV sets with surround sound and Sony (NYSE:SNE) Blu-ray players have become an easy and obvious replacement for going to the movies. On top of that, the DVD format may have topped out its revenue potential -- and the replacement is not necessarily those higher-capacity Blu-ray discs with their gorgeous high-def content and bloated price tags.

Instead, consumers are turning to alternative sources for their entertainment fix, including cable and satellite TV subscriptions and legal or illegal download and streaming solutions. And though box-office receipts are set to break records this year with a $10.6 billion take, that high point was reached more through ticket-price hikes than long lines at the ticket window. In order to keep a hand in your pocket, movie studios like News Corp. (NYSE:NWS) subsidiary 20th Century Fox and Walt Disney (NYSE:DIS) are doing all they can to entice us back to the theater.

The tech
That's where Cameron and Avatar come in. The technology behind Avatar does for motion-capture animation what the Steadicam did for moving cameras 30 years ago.

In 1976, a cameraman could follow Rocky up the steps to the Philadelphia Museum of Art without giving the audience motion sickness from the bumpy ride. Now, Steadicam shots are everywhere, putting audiences right into the action.

Cameron's motion capture experiments bring one major innovation to the table: facial expression capture.

When Jar-Jar Binks flailed his limbs around in the Star Wars prequels, the motion of the digital character was of course modeled on data from an actor in a motion-capture suit. But when he flapped his mouth in time to some bad dialogue in faux-Caribbean patois, a team of artists and engineers had to pull the lips into position, frame by frame.

The blue aliens in Avatar have no such issues. Specialized systems make sure that Sigourney Weaver's facial expressions when acting her blue-skinned part translate to the digital model, without any manipulation after the fact. For the first time, filmmakers have access to a relatively simple method for capturing the entirety of a real actor's performance and translating that into a digital world.

Nine-foot-blue-alien big
This is big. TechCrunch editor Michael Arrington compares Avatar to the Apple (NASDAQ:AAPL) iPhone: "Movies will never be the same after Avatar. Like the iPhone in the mobile world, this movie disrupts an entire industry."

Avatar opens a Pandora's box of new possibilities. Making it easy to film natural-looking action and drama in entirely imagined worlds should bring about a renaissance for science fiction, fantasy, and horror film. These genres are also perfect for big-screen spectacles, and when paired with modern-day digital 3-D projection, you have the makings of a return to theaters.

The likes of Sony and Panasonic (NYSE:PC) are working on 3-D technology for your home theater that won't give you headaches, but they're not quite there yet. In the meantime, the cinema is undoubtedly the best way to enjoy a hyper-realistic special-effects fest. And the ultimate movie experience comes in very, very big packages.

Arrington argues that 3-D IMAX is the only way to really appreciate Avatar, and the movie-going public agrees: Thirteen percent of the opening weekend's gross domestic sales happened in IMAX theaters, which make up 3% of the number of screens showing the movie. Some IMAX locations added shows at 3 a.m. and 6 a.m. to meet demand for Avatar -- and sold them out.

The investing takeaway
If Cameron's movie-making tech catches on, IMAX will have premium fuel for its fires for years to come. It's an exciting time for cinema, and this could be a great time to invest in stocks like IMAX, the movie studios, or digital film maven Cinedigm Digital Cinema (NASDAQ:CIDM). Only 21% of American movie screens are powered by digital projection today, and only half of those are fitted for 3-D projection. I'd say there's plenty of growth left to grab.

How would you invest in the movie industry today? Share your thoughts in the comments below.

Fool contributor Anders Bylund owns shares in Disney and Cinedigm Digital Cinema, but he holds no other position in any of the companies discussed here. IMAX is a Motley Fool Rule Breakers pick. Apple and Walt Disney are Motley Fool Stock Advisor recommendations. Walt Disney is also a Motley Fool Inside Value selection. 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.