Digital 3D looks set to be a key revenue earner for businesses from cinema chains to software developers as companies bank on the fast-improving format ushering in a new age of entertainment. The medium is already fuelling an increase in cinema receipts world-wide and, should it take off, analysts see the potential for substantial revenue growth going into 2010.
Companies such as Cineworld, BSkyB, Pace and DDD Group are likely to benefit as Hollywood studios and punters alike plough their money into 3D products. "Movies released in 3D generate two to three times the revenue of the same titles in 2D - and in some cases, as much as six times," said Kimberly Maki, executive director of the Society of Motion Picture and Television Engineers.
Industry figures show the 3D remake of the 80s slasher B-movie 'My Bloody Valentine' was responsible for 71 percent of its total box office. A new record for 3D, the 3D screens outperformed 2D screens six to one in the film's opening week.
REBOOT The journey for 3D began over 100 years ago when the technique was first pioneered, while the first projected 3D movies were shown at the Astor Theater in New York City in 1915. Technological advances and nausea-inducing red and blue glasses saw short-lived 3D booms in the 1950s and 1980s.
With the digital age and new-generation specs for the 21st century, the medium is now getting what looks likely to be a longer-lasting reboot. Around 30 3D theatrical releases are planned globally in 2009 and 13 in the UK, including Avatar, the most expensive 3D film to date - a $200 million sci-fi epic by James Cameron, the director of box-office smash Titanic.
This year has already seen two major releases; Dreamworks' animated 'Monsters vs Aliens', and 'My Bloody Valentine', which cost $15 million to make but raked in more than $50 million at the box office world-wide. Cineworld is the only one of the three major UK cinema chains that has heavily backed the format, installing 144 3D projectors in its cinemas to account for 60 percent of the market.
"(3D) should provide it with a further opportunity to increase revenue in 2009," said Greg Feehley, analyst at Altium, which has Cineworld on a PE ratio of 9.1 times. "The shares are not expensive and have a significant yield," he added, The group recently reported a 19.1 percent rise in box office takings this year, helped by 3D, which also generates higher admission fees.
HOME ENTERTAINMENT Evidence of a change in attitude towards 3D from commercial gimmick to immersive, story-telling tool, came in May when Disney/Pixar's 'Up' became the first animated 3D film ever to open the Cannes film festival. The knock-on effect for the home entertainment industry could be huge, as current blockbusters, classics such as George Lucas's Star Wars saga and video games are released for use within the home.
"3D in the home represents an important secondary revenue stream for studios," said Maki. Industry giants Apple, Sony and BSkyB have already thrown their weight behind the technology. Apple has bought a 3D backlog and screen patent, while Sony and BSkyB have current hardware - respectively Playstation 3/Blu-Ray and the Sky plus Hi-Def (HD) Box - that can support the format. "We have the technology and ability to create a wide range of top quality 3D entertainment for home audiences," said Gerry O'Sullivan, director of strategic product development at BSkyB.
The firm slashed the retail price of the HD Box by two thirds in late January, since when the installation backlog has reached up to three months. BSkyB's share price rocketed 30 percent on the back of the price cut, and Numis analysts say the stock is still undervalued on a PE ratio of 17.7 times 2009 estimates.
That compares to struggling ITV on 13.8 times. Pace, which makes BSkyB's set-top boxes, has seen its share price almost quadruple in value since the announcement. Investec UK Smaller Companies Fund manager Philip Rodrigs said Pace was benefiting from strong demand for high-definition television and the digital switchover Industry analysts expect 3D to have a similar impact.
Martin Lister of Edison Investments, estimates DDD Group, a developer of 3D technology for TVs, mobile phones and personal computers, could multiply revenues sixfold by 2010 and sees significant upside potential for the share price if the 3D consumer market takes off in 2010. Richard Jones, Cineworld's chief financial officer, agrees. "The only way you'll be able to avoid 3D is if you live down a well," he said.
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