It isn’t as easy as it used to be. Not that making a living in 3D has ever been that easy. 3D had its moment of sunshine in 2010 and for some years after. The one company that took best advantage of the trend was RealD, achieving a market cap of $650M for renting its 3D modulator equipment to exhibitors. However, not surprisingly, RealD this month said it would consider a buyer. This prompted Patrick von Sychowski, former Screen Digest analyst, to pen a no-holds-barred critique in Celluloid Junkie titled Why RealD is For Sale and Who Would Want to Buy It.
That RealD’s once-clever business model is no longer clever is not news. It was interesting, however, to see the results of $20M a year in R&D spending on display at the Hollywood Post Alliance trade show and seminars held this month in Palm Springs, California. RealD’s first visible fruit from its R&D investment was its low-gain wide-viewing-angle polarization-preserving Precision White screen technology, first licensed to screen manufacturer MDI. This technology, however, was not at the HPA event. Precision White screens are silver-flake-based and expensive, which has largely limited sales to post production screening rooms. MDI, the first licensee of Precision White, with R&D of its own invested to make it work, says it’ll need more sales to achieve an ROI on its bet. Not letting profits get in the way, competitor Harkness stepped in recently to also license the technology, but has yet to demonstrate a screen.
Apparently without notice to its Precision White licensees, RealD chose to demonstrate a newer screen technology at HPA called Ultimate®. This newer technology is not particle-based, and can be crudely described as a sheet of microscopically articulated metal on a firm substrate. At the event, RealD talked about selling the screens directly, which did not make its licensees happy. [2015-03-13 correction: RealD says it will ONLY license its Ultimate technology, and has no intent to become a screen manufacturer.] One screen manufacturer, upon seeing the metal fold lines that did not stretch out, and the glued attachment points, simply shook its head. To RealD’s credit, the Ultimate screen does perform as claimed in terms of presenting uniform illumination and mitigating speckle from a laser-illuminated projector when a simple vibrator is applied. (The stiffness of the screen’s substrate nicely conducts the vibrations.) In fact, the image produced is quite beautiful. But it’s not a product. Even if it could become a product, it’s not going to make RealD’s investors happy, who would like to know how this company is going to maintain (and possibly improve) its $650M market cap.
RealD also had on display its TrueImage® software, famously used by Peter Jackson in the digital cinema release of The Hobbit: The Desolation of Smaug. TrueImage identifies noise buried in the image based on temporal analysis of multiple image frames. It then uses the temporal information to recreate the picture in the noisy spots. It’s a multi-pass process, requiring considerable crunch time to develop the database of temporal information. The company says it has been successful at speeding up the process, which could make it practical for wide use. TrueImage has the feel of a product, with companies such as Autodesk as a possible suitor. But deals such as this are valued in the $10’s of millions, not hundreds of millions. This, too, is not going to soften the outlook of investors, who are looking hard to find the fruits of that $20M annual R&D budget.
Two options remain for RealD. It could go private, harkening to Starboard’s unsolicited offer last year to buy the company. Rather than negotiate the offer, RealD flatly rejected Starboard, in a manner that prompted a recently launched shareholder lawsuit. RealD could also buy its way into new revenue through a synergistic acquisition. But synergy for RealD these days is screen technology, image enhancement software, and 3D light modulators. It’ll take more than an acquisition to put RealD on solid ground: it’ll require leadership. Unfortunately, for RealD, this is a commodity in short supply, given the $20M annual R&D budget that has so little to show for itself. A step in the right direction is the announced departure of Gary Sharp, its Chief Technology Officer and Chief Innovation Officer, end of next month.