Los Angeles Business Journal

Exhibition Firm Keeps 3-D Focus

FILM: RealD projects success for format despite waning draw. By Jonathan Polakoff Monday, September 30, 2013
RealD’s Michael Lewis at the company’s headquarters in Beverly Hills.

RealD’s Michael Lewis at the company’s headquarters in Beverly Hills. Photo by Ringo Chiu.

The summer was a flop for RealD Inc.

After announcing disappointing ticket sales for 3-D films during the important moviegoing season, company shares plummeted to an all-time low this month. One analyst even suggests it’s time for a takeover.

But executives at the Beverly Hills entertainment technology firm hope their fortunes will improve as soon as this week, with the 3-D release of “Gravity” on Friday.

RealD, which installs equipment in movie theaters that allows films to be shown in 3-D, gets its revenue by taking a cut of ticket sales. The lackluster summer in the 3-D world is cause for concern for analysts who see a downward trend developing. Some believe the format just isn’t living up to the hype created four years ago after the release of “Avatar.”

“There’s a place for 3-D. It’s just not as big as the analyst community originally thought it was,” said Brett Harriss, an analyst who follows RealD at Gabelli & Co. in New York.

One problem: Moviegoers are proving to be picky when it comes to paying an extra $3 or more to see a movie in 3-D.

That presents a challenge to the RealD business model because it’s box office dependent. The company gets a fee of about 50 cents for each 3-D ticket sold. That money backfills RealD’s installation costs of the 3-D systems, which usually run $7,000 to $10,000 per screen.

Early optimism for the format continued after “Avatar.” The next big studio 3-D movie to open in the United States, “Alice in Wonderland,” generated about 70 percent of its domestic box-office revenue from 3-D ticket sales.

But in RealD’s most recent quarter ended June 30, the company disclosed that U.S. moviegoers overwhelmingly chose the 2-D version of films such as “World War Z.” Just 35 percent of U.S. box-office revenue for films released in 3-D versions came from 3-D ticket sales. (International results were better. About half of ticket sales for 3-D releases came from 3-D tickets.) RealD lost $1.5 million for the quarter (-3 cents a share) on $59 million in revenue.

The format hit bottom with the July release of “Despicable Me 2,” which generated just 27 percent of its opening-weekend box-office revenue in the United States from 3-D ticket sales. RealD also disclosed disappointing 3-D ticket sales for August, which sent shares down to an all-time low of $6.58 on Sept. 13. Shares rallied a bit thereafter, closing at $7.22 for the week ended Sept. 25. (See page 48.)

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