RealD Preps for First 3D-centric IPO
July 21, 2010
Source: RealD & Television Broadcast
RealD, the stereoscopic 3D projection specialist
went public on July 15 in a bid to raise $151 million at $14
a share.
The Beverly Hills, Calif., company’s 3D technology dominates
in theaters--it’s in more than 1,100 out of the nation’s
4,500 screens. RealD’s Buddy Holly polarized glasses
are a staple at 3D-capable cinemas, but those specs represent
an uncertainty for BTIG analyst, Rich Greenfield.
“We increasingly believe domestic eyewear subsidies to
RealD will be reduced or cut entirely over the next couple
of years,” he wrote. “Unless RealD is going to give
substantial shares/options to the Hollywood studios, RealD
will not be able to sustain a 50 cents-per-attendee subsidy
from the Hollywood studios. We believe the studios have movie-to-movie
contracts with RealD and that all of them believe they are
paying unnecessarily for the glasses.”
The cost for the polarized specs is expected to shift to movie
theaters and to RealD, he said.
“Beyond the glasses, the studios are already funding
the exhibitors’ digital projectors and servers through
virtual print fees, while RealD is funding a small portion
of the glasses and a 3D projection system add-on, and the
exhibitors are paying for essentially nothing beyond buying
a ‘silver screen’ to make 3D look brighter and sharing
40 to 50 cents of the $2 they are receiving for the 3D upcharge.
“With exhibitors generating substantial cash from 3D
at virtually no cost, and RealD’s business model set
to result in a public market valuation of $800 million-plus,
we suspect the studios--who risk billions collectively every
year to produce movies--will use these facts... to drastically
reduce the level of eyewear subsidy.”
RealD’s prospectus indicates first-quarter 2010 revenues
of between $60 million and $65 million, exceeding BTIG’s
estimate of $49 million. BTIG nonetheless reduced its fiscal
2014-15 estimates for RealDbecause of its view on the glasses
subsidy and 3D cinema demand in general.
“We performed a top-down analysis of U.S. box office
and we simply believe our prior estimates assumed 3D became
too large a percentage of overall U.S. movie attendance,”
Greenfield said.
BTIG’s revised estimate is for the overall U.S. 3D box
office calendar to rise from 20 percent this year to 44 percent
in 2014. 3D cinema attendance is expected to go from 15 percent
this year to 35 percent in 2014, with RealD’s share falling
from 80 percent to 72 percent by 2015.
“We have a hard time believing that more than one out
of every three attendees of a movie in a few years will be
for a 3D film,” Greenfield said. “To that end, we
simply do not believe re-releasing old movies in upconverted
3D format will materially impact overall 3D box office.”
He said there may be one-offs like “Titanic” in
3D due in 2012, but no “meaningful re-release every month
or two.... We simply do not believe there will be enough ‘good’
3D movies over the next several years to sustain the 3D attendance
per screen levels we are currently witnessing, as those levels
are likely driven by a scarcity of screens and the 3D novelty
effect.”
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