Market Insight

Pure play 3D company launches IPO

April 21, 2010

Charlotte Jones Charlotte Jones Associate Director – Research and Analysis, Cinema, IHS Markit

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RealD, the leading provider of stereoscopic 3D equipment to commercial cinemas has filed a preliminary S-1 registration statement with the US Securities and Exchange Commission to raise up to $200m from an initial public offering (IPO).

RealD was first to market with a commercial digital 3D cinema solution in late 2005 and has since maintained a majority share ahead of its three main competitors (theatrical digital 3D equipment suppliers) namely Dolby, XpanD, MasterImage and Imax. At year end 2009, RealD accounted for 55 per cent of world digital 3D cinema installations in commercial cinemas according to Screen Digest, but a larger 83 per cent share of the North American deployed base.   

While the lion's share (over 95%) of RealD's business currently derives from the theatrical sector where 3D has already gathered significant momentum, it has also launched its stereoscopic applications in the consumer electronics and professional fields, in a bid to carve a share of potential '3D in the home' market. RealD has several long-term licensing agreements (typically five or more years) for its enabling technology with at least five consumer electronics firms, including Sony and Panasonic, to encompass its stereoscopic 3D format in 3DTVs as well as other screening devices including PCs and laptops. Other licensees are Ubisoft and Namco Bandai for specific video games titles, and also DirecTV and Cablevision Systems for subscription TV platforms.

Meanwhile, its business model for its theatrical 3D system is based on licensing revenue determined predominately by an (unspecified) fee per 3D ticket basis on RealD screens, which will increasingly include live 3D sports and music events alongside 3D movies. Other models less widely used are based on either a per film basis or an annual license fee. RealD also receives proceeds from both the direct and indirect sale of its 3D glasses, which it supplies to studios in North America and directly to exhibitors internationally. RealD's glasses provision includes both disposable passive, for its theatrical 3D system, and active glasses, where compatible with current 3DTV models.

RealD was established in 2003 and has made a number of strategic investments including 3D specialist Stereographics in 2005 and Colorlink, a tech firm focused on photonic solutions, in 2007. It received a $20m investment from a private equity grouping led by Pequot Capital in February 2008 following an initial $50m raised from venture capital firm Shamrock, founded by the late Roy Disney, in March 2007.

The scale of 3D box office revenues will depend on the continued success of 3D movies as well as the roll out of 3D-ready screens. Following a rush to equip screens for the release of Avatar in Q4 2009, the number of 3D enabled screens has again risen dramatically with RealD alone reporting a net addition of over 1,000 screens (for a total of 5,321 screens across 51 territories) in Q1 2010 or an increase of 25 per cent from its reported base at end 2009. This comes on top of a 250 per cent increase in global digital 3D screens to approximately 9,000 in the full year 2009 driven primarily by a significant drive from international exhibitors to upgrade screens to 3D.

A total of 15 titles were released in 3D in 2009 accounting for the majority of the 25 digital 3D titles (including 3D concert films) that have been distributed to cinemas since 2005. Moreover, a further 25 titles will be released in 2010, including two recently announced key live-action titles from Fox, both to be converted into 3D in the post production phase, namely Chronicles of Narnia and Gulliver's Travels, the latter one of five titles competing for space on 3D screens in December 2010 alone.

3D box office revenues amounted to 23% of the total box office in North America in the first three months of 2010, above the annual average of 11% that 3D screens produced in the full year 2009, according to Screen Digest. The surge can be directly attributed to the commercial success of four major tent pole titles during the period: the 2009 holdover Avatar released by Fox plus 2010 releases of Disney's Alice in Wonderland, DWA How to Train Your Dragon and first weekend of Warner's Clash of the Titans, which together also ranked as the top four titles of 2010 to date. RealD screens reportedly accounted for an average 75 per cent of total 3D box office to date in North America.

The continued success of 3D movies at the box office, particularly on an attendance level, as well as the financial stability of its exhibitor partners in lieu of rolling out equipment will directly impact RealD going forward, although the latter risk appears slight seeing as the company already has deals signed with 18 of the world's top 20 exhibitors. RealD reports a further 4,900 screens under contract, on top of its 5,300 base already installed. According to Screen Digest, the potential digital 3D screen base could eclipse 20,000 by 2013.

RealD plans to use proceeds of the IPO to repay its debt of $29.3m as of end 2009 (company has yet to turn a profit posting a net loss of $20.3m in 2009) as well as to invest further in research and development. It also plans to develop the RealD brand, which it hopes will become a significant force in the competitive home market among more established home entertainment brands.


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