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By RYAN LAWLER of GigaOm
RealD, which licenses the 3-D technology used by a majority of movie theater chains in the US, plans to go public this week, selling shares in a $13 to $15 range. And the initial public offering — the first by a company selling modern 3-D technology — could be a harbinger for the 3-D market as a whole.
RealD hopes to offer 10.75 million shares to the public, with the company offering 6 million shares and the founders and other existing shareholders offering an additional 4.75 million. As a result, it expects to raise approximately $151 million through the IPO, with the proceeds expected to pay off some debt and provide capital for future investments.
The company makes money by licensing its 3-D technology to major theater chains, including AMC, Cinemark and Regal, which use RealD digital projectors and glasses for 3-D movie showings. RealD charges a per-attendee license fee to those chains to use its technology, which is currently installed on more than 6,000 movie screens.
RealD has been riding pretty fantastic growth over the last several years: from fiscal 2008 to 2009, revenues grew 90 percent, and from fiscal 2009 to 2010, revenues jumped a full 325 percent. That increase occurred as consumers spent more on 3-D films than ever before. Box office receipts in 2009 rose 10 percent over the previous year, with 3-D movies accounting for 11 percent of total box office in 2009, compared to just 2 percent in 2008. But despite massive revenue growth, the 3-D technology firm has failed to turn a profit. In fiscal 2010, which ended in March, RealD lost $51.2 million on $189 million in sales.
There are other reasons to worry about RealD's short-term and long-term health. Its license fee to theater operators has gradually decreased as time has passed, from 75 cents per attendee to between 40 and 50 cents per attendee, according to a research note by BTIG analyst Richard Greenfield. Furthermore, there are indications that increasing competition could cut into RealD's future prospects. 3-D systems from a company called MasterImage have begun popping up in some theaters, and unlike RealD, which relies on a perpetual licensing agreement, MasterImage sells systems to theater chains, allowing them to own the 3-D technology outright.
Even so, RealD is — for now — the market leader for 3-D technology in theaters. But questions remain about the long-term viability of 3-D technology in general. RealD's fiscal 2010 growth was driven largely by consumer interest in 3-D movies, but that happened largely because of the success of James Cameron's Avatar, which by itself pulled in $2.7 billion internationally. Hollywood is investing heavily in 3-D — with 23 feature films slated for 3-D release in 2010, compared to just 13 last year — but without another notable blockbuster like Avatar on that slate, the film studios could pull back production if this year's 3-D films fail to generate significant box office revenues.
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