3D Driving ‘Fundamental Shift’ in Consumer Habits, Newly Public RealD Says

Just as how color changed movies and TV, 3D “is driving a fundamental shift in how consumers want to experience cinema and eventually all visual display devices,” RealD CEO Michael Lewis said Monday on his firm’s first earnings call as a public company. “The bottom line,” he said, is that “any visual display is a business opportunity for RealD."

RealD thinks there will be a “spillover effect” when consumers shop retail for 3D products for the home bearing the RealD brand logo, Lewis said. “By ensuring that RealD is synonymous with a premium experience in the cinema market, we're convinced that the consumer will seek out RealD when they make consumer electronics purchases, whether a television, a computer monitor or any other visual display."

RealD’s Q1 through June 25 was the first in which the company recorded revenue through the licensing of its “active eyewear” to CE companies, Chief Financial Officer Andrew Skarupa said. The revenue was “not material,” so RealD decided not to disclose the amount, but may do so in future quarters, he said. RealD’s CE licensees include Panasonic, Samsung and Sony. JVC also has signed a license agreement with RealD, but unlike the other licensees, hasn’t introduced a 3D TV for the U.S. consumer market. RealD in CE products is in its “very, very early days,” Lewis said. “What we're focusing on is really laying the groundwork, much as we did in cinema, to capture what we think is going to be a very, very interesting market as the years progress."

Drafting industry 3D standards “is an ongoing process,” RealD President Josh Greer said in Q-and-A. “Particularly as we enter the home,” standards will come “in multiple areas,” he said. “We don’t believe there'll be one universal standard from one body. It will actually be bifurcated among probably at least a half a dozen different committees around the world, such as SMPTE, CEA, HDMI group and others. So we continue to publish and put our own input in and as the market grows and as we see how it works out, we hope to be an important part of that.”

RealD’s theatrical eyewear business is not yet profitable, but could reach breakeven in about two years through a stepped-up effort at recycling the glasses, Skarupa said. In the U.S., RealD gives theater owners the glasses for free to hand out to moviegoers, and studios pay RealD an undisclosed subsidy for each pair that’s used, the company said. Overseas, RealD sells the glasses to theater owners at a “slight profit,” Skarupa said. “It’s important to note that our 3D eyewear generates tremendous value in terms of building and marketing the RealD brand,” he said. “Today, more than 200 million consumers have worn our 3D eyewear."

RealD spent $3 million in Q1 in “expedited shipping costs” to air-freight 3D glasses to theaters, Skarupa said. Asked in Q-and-A whether RealD didn’t see that cost as excessive, Skarupa said the $3 million was far less than the $8 million it spent on expedited shipping in Q4. For Q2 through Sept. 26, RealD expects to pay only $500,000 to $2 million for expedited shipping, he said.

There were about 7,500 RealD-capable screens installed globally at the June 25 close of Q1, compared with 2,600 in the same quarter a year earlier, Lewis said. About 59 percent of the screens installed this year’s Q1 were in the U.S., compared with 77 percent a year earlier, RealD said in its 10-Q report filed Tuesday at the SEC. The company has contracts signed for the deployment of 4,000 more screens globally that haven’t been installed, Lewis said on the call. The company expects 1,800-2,200 more screens to be installed in Q2 ending Sept. 26, just over half of them in the U.S., Skarupa said. About 2,200 were installed Q1, Lewis said.

For Q1, RealD had a $9.9 million profit versus a $7 million net loss a year earlier on a 152 percent jump in revenue to $64.5 million. Licensing revenue alone jumped 332 percent in the quarter to $25.7 million. Theater owners pay RealD a royalty fee on each paid admission, the company said. Such “admission-based” revenue in the quarter came mainly from the movies How to Train Your Dragon, Alice in Wonderland, Shrek Forever After, Clash of the Titans and Toy Story 3, the company said. In Q1 a year earlier, only Monsters vs. Aliens and Up comprised the bulk of the $6 million in RealD licensing revenue, it said.