Technicolor Says Ball in Retailers’ Court to Create Demand for 3D

Pointing to “an incredible surge in orders for Blu-ray 3D titles in the second quarter into the third quarter Q3” for 3D Blu-ray titles due in the market by year-end, Bob Michaels, Technicolor’s vice president of worldwide DVD services, told Consumer Electronics Daily that the ball is in retailers’ court to manage demand for the next-gen format. “The manufacturers have released TVs and Blu-ray players, and broadcasters have started showing 3D channels,” he said. “The next shoe that needs to drop is what’s going to happen at a retail level. How are they going to position this product?” Observing “a lot of Catch-22 going on,” he said content providers are concerned about delivering titles without a consumer base to support the rollout.

Michaels said Technicolor, which is still on target to have 15 3D Blu-ray titles on shelves by year-end, has managed to reduce the production cost for 3D to about 25-30 percent higher than that of standard Blu-ray titles. At CES, the company said the production costs for 3D discs would be double those of standard Blu-ray discs, but a reduction of processing time, from taking part in the creative process, has helped shave time. “If we understand the expectations from the creatives early on in the process, we know how to hit that target and deliver something they're expecting,” he said. And the company has integrated facilities worldwide to reduce turnaround time on compression and authoring, he said.

3D Blu-ray takes up roughly 30 percent more disc space than 2D Blu-ray, comparing “apples to apples,” Michaels said. It remains to be seen how bonus information will play out and whether information included in 2D versions will have to be left off 3D discs to accommodate additional movie content for left and right eyes. “If you give somebody a mile, they'll take as much of a mile as possible,” he said, “and with 2D development, we're maxing out that 50-gig Blu-ray disc. It’s a bit of a head scratcher when somebody wants to make a compelling 3D release version of the same thing,” he said. “It challenges us to reduce the bit rate more but maintain the high quality.” The issue hasn’t come up for Technicolor, since there hasn’t been a day-and-date release of a Blu-ray title. “Most discs have been purpose-built, so we don’t have that perspective yet,” he said. “It would be up to the content and marketing groups to suggest whether they're making decisions differently or not."

Regarding future challenges for 3D across the industry, Michael cited content as the first priority. “It’s easy for us to envision that anything going theatrical in 3D could easily go into this market, but there are a lot of key franchises in the vaults already that would be compelling in 3D,” he said. Technicolor has completed several 3D projects besides Monsters and Aliens, which is bundled with Samsung 3D TVs, and has several more finished and ready to roll out. “Those will go a long way toward our seeing 3D as a reality,” he said. Developing consumer demand, in turn, will “unlock the level of services we need to provide back to content producers.”

Meanwhile, Technicolor posted a 12.4 percent drop in revenue for the second quarter ended June 30 to $946.72 million, at the euro exchange rate on that date. First-half profit rose to $117.1 million compared with a loss of $396.5 million a year earlier, the company said. Technicolor said it achieved sustained revenue growth in all digital entertainment services activities and a slight increase in licensing revenue at constant rates. In line with market trends, the company said, volume pressure in DVD continued to ease in the second quarter and digital home products remained under pressure in Q2 but showed some signs of recovery. The company expects growth in the second half to be driven by new business in entertainment services and in Digital Delivery, a new division that combines the Connect and Digital Content Delivery Services divisions.

The company announced a three-year contract extension to supply DirecTV with SD and HD set-top boxes, which will “further develop their collaboration in new areas such as 3D.” Technicolor has supplied more than 48 million set-top boxes to DirecTV, including those that enable DirecTV’s first 3D video-on-demand service. Technicolor also announced an agreement with Verizon for FiOS broadband routers and expects to see results from the Verizon deal in the first half of 2011.

A year-over-year decline rate in overall DVD volumes eased in the first half of 2010, the company said, in line with overall market trends, and Blu-ray revenue continued to grow. Margins in the first half of 2010 were mainly affected by overall volume decline and by the ramp-up for a DVD agreement with Warner Bros. that’s expected to produce significant revenue starting this quarter.