Hollywood loves to step-and-repeat a popular story. The bump in ticket prices for 3-D has driven the production of 40 releases for 2011, and more for 2012. Likewise for exhibitors, 3-D has driven the adoption of digital projection, proving to be more of a driver for world-wide acceptance of the technology than even the VPF. RealD, who produces neither content nor projectors, but only 3-D add-on technology, doesn’t seem to be getting the benefit of the story. There are reasons for investors to be skeptical, but not the ones they hear in the press.
RealD was flying high a year ago. Its IPO was priced at $16 a share, and shares climbed to over $25 within three months. Its high flying days appear to be behind it. The past 90 days witnessed a swing in share prices from a high of $34 to a low of $12, well below it’s IPO price. This, in spite of the fact that the company posted a profit when analysts were predicting a loss.
One would have to be living under a rock to not know that 3-D box office is down. It should be. Too many movies wear the 3-D badge to command a bump in ticket price, and audiences are bound to react. While the press likes to portray this as doomsday for 3-D, it more likely represents a search for equilibrium than a predictor of the end. RealD’s pricing model can offer some insulation from box office swings, by offering both fixed fee licensing and per-ticket royalties. But for RealD, the evidence is in the numbers. It’s screen count grew by 133% over the one-year period ending June, with revenues down 9% over the same period. Added to which over 50% of its revenues are now coming from outside the US, where the trend in 3-D box office has been slower to follow that of the US.
RealD has other problems looming in front of it. Stereoscopic projection is not a new field of research, and an older patent base in this area exists, many of which have expired. This fact affects all 3-D add-on technologies to some extent, and is the reason that XPAND, a manufacturer of 3-D add-on shutter glasses, is facing several competitive copies of its technology in Asia and Europe. RealD is affected by this as well. Many of the patents it gained when purchasing StereoGraphics, a 3-D technology company formerly owned by Lenny Lipton, are now in the public domain. This includes a patent addressing an optimal method for driving LCD shutters, as employed in the RealD Z-Screen(R), which became public last year. There are reports that competitive copies of its Z-Screen(R) shutter will soon enter the market.
Ultimately, the 3-D add-on business is about the recurring cost of glasses, service, screen type (polarized or non-polarized), and image quality. (Generally prioritized in that order.) RealD has protected itself by building a brand name, by securing licensing contracts, and by building its service relationships with exhibitors. But as with other Hollywood stories, it remains to be seen how this one plays out.