BTIG Maintains Sell rating on RealD Citing Fading Consumer Interest in 3D

3D films have “notably underperformed expectations” the past few weeks, BTIG said Tuesday, leading it to maintain its sell rating for RealD. The “overwhelming majority” of 3D films introduced since Alice in Wonderland premiered in March 2010 have been disappointments, resulting in a drop in license fee revenue per screen in the U.S. from $4,300 in June 2010 to less than $3,000 in December -- a figure expected to drop this quarter below $2,000, the firm said.

3D is faring better abroad, BTIG said, noting that Gulliver’s Travels took in $42 million domestically but $170 million elsewhere, Narnia did $104 million in the U.S. and $293 million abroad and Resident Evil grossed $60 million in the U.S. and $236 million elsewhere. But BTIG analyst Richard Greenfield said that “we have a tough time believing that this overseas trend is sustainable, as early interest in 3D technology faded in the U.S.” Stopping short of calling 3D a “fad,” he said the “bubble” of consumer excitement has grown too large and “is likely to deflate.” Greenfield said there’s a limited appetite for 3D and high ticket premiums are dampening it.

Hollywood is ramping up to 35 3D feature films in 2011, a number “we believe they will struggle to grow in 2012,” he said. “We simply do not believe consumers want to see every major film in the movies in 3D.” RealD is dominant in U.S. theaters, but competition from Dolby, MasterImage and Xpand will increase around the world, he said. The sell rating also resulted from reduced expectations for profitability in 3D eyewear as consumers begin to buy their own glasses and studios reduce eyewear subsidies in the U.S. market, Greenfield said. Margins in 3D eyewear have deteriorated and are “notably worse than investors were expecting,” he said. Branding will not prove a draw for RealD at retail, Greenfield said, “nor are we convinced that a high percentage of consumers want to buy a 3D TV."

Citing eye fatigue and multitasking, Greenfield said 3D TV is “not likely to explode” until 40-60-inch autostereoscopic TVs become available at reasonable prices. Retailers we have polled reported selling 3D technology as yet another feature, but not as the sole reason for buying the TV. 3D demonstrations have piqued interest among customers, but the premium charged for the technology remains a barrier to a sale, retailers said.

"3D isn’t having the impact yet it should have, but I think the price of the glasses and non-compatibility amongst them is a factor,” said Nathan Tawil, general manager at The Source in San Antonio, Texas. “If the glasses were all compatible, it would have been much more widely accepted."

Consumers that typically might buy step-up TVs become hesitant when 3D is mentioned, said Jeff Blumenthal, president of B&B Appliance. “The glasses were a huge turn-off,” he said. “The consumer who would normally purchase the high-end set gets the feeling that 3D may detract from the performance of 2D, so even those people” are hesitant to buy a set.

Among the companies seeking to solve the 3D glasses dilemma is Monster Cable, which this month is expected to ship Monster Vision Max 3D universal glasses, sources close to the company said. The active-shutter glasses, which are expected to be sold through Best Buy and other retailers, will be packaged with an emitter ($250) and sold separately ($150), sources said. The emitter also is available separately at $69. Monster officials weren’t available for the comment. Monster originally planned to ship the glasses in August 2010 (CED June 23 p1). The 3D glasses use Zigbee-based RF transmission rather than infrared signals, enabling them to be used without line-of-sight mishaps. The glasses’ active-sync system uses Bit Cauldron’s HeartBeat technology, which allows the emitter to listen to the signal from any 3D-enabled flat-panel display and then wirelessly decode the shutter signals and transmit them to the sensor embedded in the glasses. The combination of the Zigbee RF connection, interference rejection software and sync correction enable the lenses to blink faster than the eye can see, Monster said. RealD closed Tuesday up $0.06 to $24.11