Looking into their crystal ball, George Lucas and Steven Spielberg predicted the imminent arrival of a radically different entertainment landscape, including pricey movie tickets, a vast migration of content to video-on-demand and even programmable dreams.

Speaking on a panel at the USC School of Cinematic Arts, Spielberg and Lucas took a grim view of the future of the majors and predicted theatrical motion pictures will become a niche market.

“They’re going for the gold,” said Lucas of the studios. “But that isn’t going to work forever. And as a result they’re getting narrower and narrower in their focus. People are going to get tired of it. They’re not going to know how to do anything else.”

Spielberg noted that because so many forms of entertainment are competing for attention, they would rather spend $250 million on a single film than make several personal, quirky projects.

“There’s eventually going to be a big meltdown,” Spielberg said. “There’s going to be an implosion where three or four or maybe even a half-dozen of these mega-budgeted movies go crashing into the ground and that’s going to change the paradigm again.”

Lucas predicted that after that meltdown, “You’re going to end up with fewer theaters, bigger theaters with a lot of nice things. Going to the movies will cost 50 bucks or 100 or 150 bucks, like what Broadway costs today, or a football game. It’ll be an expensive thing. … (The movies) will sit in the theaters for a year, like a Broadway show does. That will be called the ‘movie’ business.”

“There’ll be big movies on a big screen, and it’ll cost them a lot of money. Everything else will be on a small screen. It’s almost that way now. ‘Lincoln’ and ‘Red Tails’ barely got into theaters. You’re talking about Steven Spielberg and George Lucas can’t get their movies into theaters.”

Both see “quirky” or more personal content migrating to streaming video-on-demand, where niche audiences can be aggregated. “What used to be the movie business, in which I include television and movies … will be Internet television,” said Lucas.

“The question will be: Do you want people to see it, or do you want people to see it on a big screen?” he added.

The longtime friends appeared on a panel on the future of entertainment at the grand opening of the Interactive Media building at the USC School of Cinematic Arts, along with Don Mattrick of Microsoft. Julia Boorstin of CNBC moderated.

But Mattrick took a back seat as the two old movie pros dominated the hour-long talk, teasing each other at times and agreeing at others. When Lucas complained about how hard it was to get “Lincoln” or “Red Tails” into theaters, Spielberg quipped, “I got more people into ‘Lincoln’ than you got into ‘Red Tails,'” drawing guffaws from the crowd.

Addressing the evolution of vidgames, Spielberg said so far, games have not been able to create the same empathy with onscreen characters that narrative forms have. Though gamers might empathize with characters in the cut scenes between game play, he said, “The second you get the controller something turns off in the heart, and it becomes a sport.” Lucas was more sanguine, saying the game industry can and will create empathetic characters, but it hasn’t so far because it’s been driven by hard-core gamers who enjoy onscreen violence.

“The big game of the next five years will be a game where you empathize very strongly with the characters and it’s aimed at women and girls,” Lucas said. “They like empathetic games. That will be a huge hit and as a result that will be the ‘Titanic’ of the game industry, where suddenly you’ve done an actual love story or something and everybody will be like ‘where did that come from?’ Because you’ve got actual relationships instead of shooting people.”

But Spielberg, looking farther ahead, said he thinks the real shift will come when game controllers are obsolete and games are controlled by Kinect-like devices that completely immerse the player in the story. “I believe need to get rid of the proscenium,” Spielberg said. “We’re never going to be totally immersive as long as we’re looking at a square, whether it’s a movie screen or whether it’s a computer screen. We’ve got to get rid of that and we’ve got to put the player inside the experience, where no matter where you look you’re surrounded by a three-dimensional experience. That’s the future.”

The most out-there suggestion for the future of entertainment came from Lucas, who sees brain implants within the relatively near future. He noted such implants are already being used to control artificial limbs; they just haven’t been used for entertainment yet.

“The next step is to be able to control your dreams,” he said. “You’ll just tap into a different part of your brain. You’re just going to put a hat on or plug into the computer and create your own world. … We’ll be able to do the dream thing 10, 15 years from now. It’s not some pie-in-the-sky thing.”

Asked by Boorstin what that might mean for the Entertainment Industry, he said: “You still have to tell stories. Some people will want to be in a game… and some people will want to have a story told to them. Those are two different things. But the content always stays the same. The content hasn’t changed in 10,000 years.”