3D is either A) The industry’s biggest bigscreen innovation in decades and its biggest growth opportunity; B) In danger of fading within a year; or C) All of the above. According to Jeffrey Katzenberg, the answer is C.The DreamWorks Animation head says Hollywood is at a “genuine crossroads,” and the decisions studios and producers make in the next few months could ensure a healthy life for film-going — or kill the goose that lays the golden egg. Last weekend was significant in the evolution of 3D because it marked the bow of the highest-profile 3D conversion: “Clash of the Titans,” which Warner Bros. converted from 2D at the last minute. On that weekend, DreamWorks Animation’s “How to Train Your Dragon” was in its second week and Disney’s “Alice in Wonderland” continued its run — giving auds a chance to experience three very different applications of the same technology. The issue for Jeffrey Katzenberg is what he calls the “cheeseball” conversion of “Clash,” with results that have been almost universally panned by critics. Warners insiders conceded to Variety that some at the studio were unhappy with the look of “Clash 3D” as it was seen at some screenings. But in public, Warner execs have defended the movie and argued that its strong box office performance proved that moviegoers are satisfied. All over town, in film and TV offices, 3D is being debated. To get the dialog started, Katzenberg was invited to meet with a group of Variety reporters and editors for a wide-ranging discussion on 3D and why, in his opinion, the industry is in danger of incurring a major self-inflicted wound and setting back the entire bigscreen experience. Here are excerpts of that discussion. Jeffrey Katzenberg: I think we are at a genuine crossroads. Today, 3D in theaters offers probably the greatest innovation and opportunity for movie makers, studios, exhibitors and, most importantly, the consumers, of anything that’s come along in several decades. I think people have really misunderstood what my anxieties have been about in these last few weeks. We had the largest 3D release platform for “Dragons” than any movie today. It’s not been about losing 3D screens for “Dragons.” So the issue of “Clash of the Titans” is actually not about theater (capacity) and theater access, it is about (what) that movie represents — a different experience. And in my opinion, one that, if replicated, and becomes the standard, is the end of 3D. We’ve seen the highest end of (3D) in “Avatar” and you have now witnessed the lowest end of it (in “Titans”). You cannot do anything that is of a lower grade and a lower quality than what has just been done on “Clash of the Titans.” It literally is “OK, congratulations! You just snookered the movie audience.” The act of doing it was disingenuous. We may get away with it a few times but in the long run, (moviegoers) will wake up. And the day they wake up is the day they walk away from us and we blew it. Does it take the moviegoing public one movie, three movies, five movies to get to the point where they are discerning the difference between good and terrible? By the time that happens, there will be another 20 or 30 or 40 movies in the pipeline but we (will already have) killed that goose that is delivering us golden eggs. Every company right now is sitting, assessing what approach and what process and what economics to invest in the 3D platform. There are dozens of decisions literally that are about to be made or have just been made in the last 30 or 60 days and in the next 30 or 60 days, the sum of which will determine what happens to 3D. Variety: You’re talking about the bad post-converted 3D on “Clash.” How is “Clash of the Titans” any worse than “Alice in Wonderland?” There was a lot of criticism of the converted 3D in that movie. JK: All 3D is not created equal. It is first and foremost a very, very powerful creative storytelling tool. Starting with a filmmaker who designs and shoots his story with 3D as part of that storytelling is going to be a huge difference from a 2D film that is put through a down and dirty post-production technical process. It is absolutely analogous to taking a black and white film and colorizing it. It’s technically possible to do but it’s not what the creators designed. And it doesn’t look right. (“Alice” director Tim Burton) said “Look, I’m not gonna shoot it in 3D but I will very specifically design shots and sequences in this film” which then in the post production process can be amplified and, through special effects, actually deliver a pretty high-end 3D experience. So you have movies that are authored in 3D. You have movies that are conceived and post-produced in 3D and you have 2D movies that are converted. I say with absolute confidence that right now, today, for this year, there is no technology that exists that can take a 2D film and post produce it into a 3D premium offering. And if we as an industry choose this 2D to 3D post-production conversion, it’s the end. As quickly as it got here, that’s how fast it will go away. We have seen post-production conversion of 2D movies to 3D which actually play pretty sensationally on a television. On a smaller monitor, the images hold up in a much more compelling way. So I think there is (going to be) a market for 2D conversion (for the home). I think it’s a disaster for movie theaters. V: Do you think once homevideo starts going to 3D, that will be significant enough to change the economics of the studios? JK: You mean to convert their library into 3D? It’s a couple of years away. And maybe it’s why I am just sort of apoplectic about this because the revenue (today) from a successful 3D release net to the studios is greater than the erosion in the DVD market over the last two years. Look, for the last 40 years, every time we’ve reached this (economic downturn), something’s come along to save the movie business. Home television, pay television, VHS, DVD. Now 3D comes out of the blue, out of nowhere. Nobody expected this. V: Why will these post-conversions kill 3D? In the early days of sound, there were quick-and-dirty conversions of silent movies to sound, and that didn’t kill talkies. JK: Here’s the difference: We are asking the moviegoers to pay a 50 percent premium to come see these films. So I think (there will be a) backlash. It will be a whiplash. They will walk away from this so fast. V: It seems you’re talking about two different things. You’re not talking about 3D itself going away. You’re talking about 3D as a premium experience, as an opportunity for the industry being so undermined that it collapses. JK: Well, de facto, (3D) will go away, because with no premium being paid for it, and the cost (to) exhibition in terms of what they have to invest in it, I think it all does collapse. V: But what if TV goes 3D? Don’t movies have to keep up? JK: It’s bigger than this. We have been waiting now for 10 years for the rollout of digital cinema, literally one decade. For years and years and years, it’s gone nowhere. Talk about the savings of that to Hollywood, it’s billions. Once you’ve reached a full digital platform, you’ve (eliminated the cost of) prints. So for the last four or five years, the raging debate here has been the inability of Hollywood to convince exhibition, because there’s really nothing in it for exhibition. It doesn’t change the economics of their business. They can’t charge more for a digital experience. The thing that finally got everybody off the dime was when there was something in it for exhibition, which was 3D. So now take that 3D out of the equation and you derail that (digital) train. And who’s the biggest beneficiary of digital, of a full digital platform? Hollywood. So when you want to talk about the effect of actually blowing this, it’s unbelievable. V: James Cameron says that ultimately he’s not worried about the future of the technical quality of movies as long as TV keeps getting better, because movies have to be better than TV. JK: Well, if you look at the last 10 years, the home experience has gone through spectacular innovation. The movie theater experience in that same 10-year period of time hasn’t innovated at all, and moviegoing declined. Now suddenly here are two new formats (Imax and 3D). For the first time in almost a decade admissions are way up. Almost all of it can be attributed to 3D. There’s a reason to get out of the home and go back to the movies. V: Isn’t the concern right now to some degree the great reception that “Clash” has had when you look at the numbers? I haven’t heard any backlash yet, except from critics. JK: The leadership of Hollywood is ultimately going to determine whether we take the low road or the high road. And I am convinced that there (is) a high road to take, and that it would produce the best opportunity to come along for our business in a decade. I’m even more convinced that if we take the low road, we’ll be out of the 3D business in 12 months. Warners is not alone (in considering after-the-fact 3D conversion). They’re just the first one to come to the party. It’s surprising in that it is the biggest, richest, most successful and best-run studio in the world. So you expect more. V: Have you talked to your colleagues over at Warners about this? JK: I have said this directly to all of them. But I have not talked to them since I saw the movie. I want to be really clear. Barry Meyer, Alan Horn, Jeff Robinov are the best in our business. They are people who have run their business with such a high level of integrity. Alan Horn has such a great conscience about things that go on in his movies that come out of his studio. He cares. What happened on “Titans?” Katzenberg was questioned by Variety Group Editor Timothy M. Gray, Daily Variety Editor Leo Wolinsky, Variety.com Editor Chris Krewson and reporters David Cohen, Peter Debruge, Michael Schneider and Andrew Stewart.