Category Archives: 3D

RealD’s 3D Promise and Peril

I should have an opinion on RealD’s IPO today. Fortunately, I do have one, and I will share it with you now.

If 3D goes big, RealD will scale right along with it. The company is the leading purveyor of 3D projection systems for digital cinemas. By its own estimates, it owns more than half of that market, holding off competitors such as Dolby, Laboratories, Inc., IMAX Corporation, MasterImage 3D, and X6D Limited.

It’s interesting to see Dolby among RealD’s primary competitors. In many respects, RealD is emulating the approach Dolby used to dominate the stereoscopic sound market in cinemas worldwide. RealD has read Dolby’s playbook, and heretofore it’s done better applying it to 3D cinema than Dolby has done.

You can peruse RealD’s prospectus yourself, but here’s an excerpt to whet your appetite:

As of December 25, 2009, there were approximately 16,000 theater screens using digital cinema projectors out of approximately 149,000 total theater screens worldwide, of which 4,286 were RealD-enabled (increasing to 5,966 RealD-enabled screens as of June 1, 2010). In 2009, motion picture exhibitors installed approximately 7,500 digital cinema projectors, an approximately 86% growth rate from 2008, and in 2008, motion picture exhibitors installed approximately 2,300 digital cinema projectors, an approximately 36% growth rate from 2007. Digital Cinema Implementation Partners, or DCIP, recently completed its financing that is providing funding for the digital conversion of up to approximately 14,000 additional domestic theater screens operated by our licensees AMC, Cinemark and Regal. We believe the increasing number of theater screens to be financed by DCIP provides us with a significant opportunity to deploy additional RealD Cinema Systems and further our penetration of the domestic market.

The salient point is that the addressable market is large, the overall penetration rate for 3D projection systems is relatively low, and the market stage is nascent. Moreover, this is worldwide opportunity, not one restricted to the North American marketplace.

That’s a good thing, too, though RealD — like everyone else with valuable intellectual property — is concerned about the fate that might befall it in China. Among noted risk factors in the company’s prospectus, we find the following:

Our business is dependent upon our patents, trademarks, trade secrets, copyrights and other intellectual property rights. Effective intellectual property rights protection, however, may not be available under the laws of every country in which we and our licensees operate, such as China.

Even though that’s a legitimate concern, it isn’t RealD’s biggest worry. The real worries in my view are industry dynamics (namely, 3D’s spread from cinemas to consumer electronics such as televisions, PCs, cell phones, and game consoles), the quantity and qualify of 3D entertainment fare (also known as content), and the ability of the industry ecosystem and consumers to foot the 3D bill.

3D has proven marketable in cinemas, but now it is trying to expand its empire into consumer electronics. That’s an opportunity and a threat for RealD, which obviously wants to extend its hegemony beyond the three-dimensional silver screen.

RealD will have to rejig its business model and its technologies to capture consumer-electronics markets. It will have to enter into new relationships, build or buy new products and capabilities, and market and sells its wares differently. And that’s presuming that 3D makes a successful commercial leap into living rooms, mobile devices, and other display-bearing devices. Much remains to be done on that front.

Then we come to the content issue. You might have noticed that not all 3D films have the box-office wallop of Avatar. Movie exhibitors like the premium they charge consumers for watching 3D movies (though they are less enamored of the added cost of 3D projection systems), but the willingness of the masses to pay more per view is contingent on cinemas offering them experiences they deem worthy of the 3D surcharge.

I’ve scanned the lineup of 3D films slated to hit theaters over the several months. I am noticing — how shall I say? — the pungent whiff of ripe schlock arresting my olfactory senses, even though, incredibly, RealD has not entered the “Smell-O-Rama” business yet.

Sadly, a lot of cheesy horror movies are queued up for the 3D treatment. That’s not good. I’m of the aesthetic view that ostentatious protrusive effects, used to goose the shock value of severed heads and buzzing saws, aren’t the best utilization of 3D technology. I like the immersive depth 3D can bring to quality entertainment and live sports, but I’m not sold on the viability of cheap gimmicks, or of 3D as ornamental gossamer for bad content. Look, a crap movie is crap movie. A 3D turd is still a turd.

And a proliferation of 3D turds will not do the 3D industry any good. Does anybody in Hollywood remember the 1950s . . . or perhaps read history?

Anyway, presuming that 3D is used naturally, that it is applied to good movies rather than as a decorative wrapper for bad ones, RealD still will have to contend with the nasty array of macroecoomic uncertainties that beset all us all.

There’s considerable risk in RealD as an investment vehicle, and there’s also a commensurate measure of promise. Today, on their first day of trading, RealD shares were snapped up eagerly by investors who see more promise than peril. The stock was up sharply from the open, and the company was able to price its offering well above expectations.

That’s an important consideration, by the way. Earlier in this post, I mentioned that RealD intends to take its 3D technology to consumer electronics. As part of that foray, the company is also looking at developing autostereoscopic (3D without glasses) technologies to eventually supersede its stereoscopic (3D with glasses) technology.

All things considered, I don’t think the glasses are going to cut it for casual television viewing in living rooms; nor do I think anybody but the geekiest of geeks will want to be wearing 3D glasses for extended periods while using a mobile device or playing a game console. The company that does autostereoscopic 3D right stands to reap massive rewards. RealD wants to be that company, but it’s not alone — Sony, Samsung, Dolby, 3M, Nintendo, and many others are in the mix, and their advances are closely monitored by HP, Dell, Apple, IBM, Cisco, and other major players.

RealD needs a warchest to fight that battle. Today’s IPO delivers it, as the company makes clear:

We will continue to develop proprietary 3D technologies to enhance the 3D viewing experience and create additional revenue opportunities. Our patented technologies enable 3D viewing in theaters, the home and elsewhere, including technologies that can allow 3D content to be viewed without eyewear. We will also selectively pursue technology acquisitions to expand and enhance our intellectual property portfolio in areas that complement our existing and new market opportunities and to supplement our internal research and development efforts.

Today’s IPO will help RealD pursue its strategic plan. Numerous external factors, however, are beyond its direct control.

ESPN to Go 3D

I wrote yesterday about the marketing push behind 3D television. Understandably, consumers, even in the best of times (which these are not), will be reluctant to part with their hard-earned cash for a 3D television set unless they have a reasonable expectation of being able to use it for the enjoyment of 3D content.

For that to happen, consumers would have to make investments in 3D Blu-ray players, and they’d want 3D movie titles, delivered by DVD or over the Internet, from the film industry. They’ll also want to see support for 3D content coming from television channels and networks, as well as from their cable and satellite providers. Presuming that’s made available, consumers also might have to purchase new 3D set-top boxes.

Essentially, for 3D to become an attractive proposition in the living room, all the vendors in the ecosystem must work together to provide a compelling, seamless experience to the consumer — from hardware and content availability to content distribution and delivery.

Then, of course, they’ll have to hope the consumer is willing to tolerate the inconvenience of having to wear 3D glasses to partake of the in-home spectacle. That’s the last hurdle, and perhaps the biggest one. Even so, I wouldn’t want to underestimate any of the other challenges. If 3D is destined to become a cash cow for all the industry players in the food chain, everything must come together in perfect synchrony. Anything less will result in failure.

Fortunately for the nascent industry, ESPN is jumping aboard the bandwagon. 3D movies have obvious appeal to a mass audience, but sports entertainment is a huge business in its own right. What’s more, most major sports events — football, soccer, basketball, hockey, baseball — could arguably benefit from the 3D treatment. Having accurate depth perception, much less protrusive visual effects, would enhance viewing enjoyment of, let’s say, the World Cup soccer tournament.

ESPN obviously agrees. It is one of the organizations, to which I alluded in yesterday’s post, that has done extensive research into consumer acceptance of 3D television. It now has decided to launch ESPN 3D, which will provide at least 85 live 3D events in a one-year span, starting on June 11 with the broadcast of a World Cup soccer match between South Africa and Mexico.

Other soccer games likely to be part of the broadcast mix, as will Summer X Games (extreme sports), NBA games, college basketball, and college football. ESPN will not provide reruns of sporting events. When there are no live events to show in 3D, the channel will remain dark.

Will 85 (or slightly more) live events be enough to make the channel a commercial success? Will they be sufficient to motivate consumers to take the plunge on 3D home entertainment?

One wonders about how the channel will be priced for subscribers, and about how many cable and satellite providers will pick it up and on what terms. Consumers will be sensitive about paying a subscription charge for a channel that’s available on a part-time basis, as well as one that carries only some content in which they might have strong interest. After all, it’s a rare bird who’s interested in World Cup soccer, X Games, the NBA, and college sports.

According to a USA Today news item, ESPN expects deals with distributors will be in place prior to the channel’s launch. It’s not only availability that will matter, though, but also the terms of that availability. It will be interesting to see how ESPN shares risk with, and potentially defrays costs for, its distribution partners, who might be reluctant to pick up the channel without a reasonable expectation of success.

As the USA Today article mentions, 3D broadcasts cost more than high-definition productions. You need two cameras (or specialized 3D cameras) rather that one, for instance, and you have think about whether camera placement should be different for a 3D production than for conventional sports coverage. The USA Today article notes that broadcasters might require a separate set of announcers for 3D productions, but I’m not sure I agree. It should be possible to use a single set of announcers in the broadcast booth, presuming there’s enough space for the additional camera equipment.

One interesting aspect to this story is that ESPN is committing to the 3D network only through June 2011. At the end of one full year of operation, ESPN will decide whether and how to extend the service.

Will ESPN keep the service going? It all depends on how it’s received in its first year. If I were forced to make a wager on the outcome, I’d say ESPN 3D doesn’t get renewed.

I’m not sure 3D home entertainment is ready for prime time, and I’m not confident that cash-strapped American consumers have the disposal income to upgrade from the HD gear they’re just now beginning to enjoy on a regular basis.