Is It Time to Invest in This 3-D Player?

Is It Time to Invest in This 3-D Player?

A rising tide lifts all boats. That scenario is not happening with RealD . When Twenty-First Century Fox released the movie Avatar in 2009, the majority of moviegoers watched that movie in 3-D. Avatar's domestic 3-D box office revenue represented 81% of total domestic box office revenue. Since then, theaters have installed more 3-D screens, so there are now more places to watch a 3-D movie than in 2009.

However, U.S. consumers' attraction toward 3-D films has declined drastically. Recently, RealD has mentioned that domestic 3-D box revenue is only around 30% of the total box office compared to 70% in 2010. As consumers' attraction toward 3-D films is declining, RealD stock price is also declining.

International expansion
As domestic consumers' craze for 3-D declines, emerging market's appetite for 3-D is on the rise. In countries like Russia and China, consumers don't mind paying a premium for 3-D movies. So in emerging markets, movie exhibitors are expanding to 3-D screens. RealD is rapidly installing 3-D screens in those countries.

In many of these markets, the company is replacing existing competitors' 3-D projectors with its own projectors. According to the company, its display has a better brightness. For example, RealD announced it would be installing 700 screens in Mexico for Cinemax. Of that 700, it is replacing 540 competitors' screens. While I can't guarantee when the next movie like Avatar will be, taking market share is a good sign for any company.

China is a big 3-D market for RealD. Some of the local movies are being made in 3-D, and one is the highest grossing movie of the year in China. This quarter, the company also announced it is entering India and installing around 500 screens. India's movie market is big, and if local 3-D movies are made successfully, the opportunity is huge.

Not everyone is blaming moviegoers
Even though domestic moviegoers are hesitant to pay a premium for 3-D, they don't seem to have that hesitation when it comes to IMAX . One reason might be some of the mega box office movies are not made in 3-D format, but they are made for IMAX. The Dark Night Rises and Skyfall are just few examples of such movies.

In recent quarters, while RealD is blaming domestic 3-D box office decline for its poor performance, IMAX is happy with its performance and hasn't mentioned the decline for 3-D movies. IMAX is rapidly expanding its theater presence in the U.S. as well as internationally. It is also upbeat about studios' willingness to make movies in for its theaters.

Current plan for turnover
Projection makers like RealD and Dolby Labs (along with moviemakers and exhibitors), need to convince consumers that a premium price is worth the 3-D experience. So, the company is trying to convince moviemakers to make more 3-D movies. However, it is easier said than done.

When the latest Transformers was released, director Michael Bay encouraged moviegoers to watch it in 3-D. RealD needs to convince moviemakers to go all out with 3-D visuals, so that consumers don't mind spending a premium for the 3-D experience. Management is also trying to enhance its marketing efforts, working with exhibitors to optimize 3-D show times based on data analytics.

RealD has a strong balance sheet, is working to control costs, and is trying to convince moviemakers to make more 3-D films. Moreover, international moviegoers are willing to pay a premium, so moviemakers shouldn't abandon 3-D film making anytime soon. Perhaps its time you took a closer look at RealD for yourself.

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Shobha Narasimha has long position in RealD. The Motley Fool recommends Dolby Laboratories and Imax. The Motley Fool owns shares of Imax. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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