RealD Announces Plan to Go Public

Until now, investors hungry for a chance to put their money behind the 3D boom have had nowhere to turn, as most pure-play 3D companies have been privately held. That is likely to change soon with RealD's Friday announcement that it intends to take the company public, although some details of the proposed transaction may give investors pause.

The S-1 filing with the SEC in advance of the IPO proposes a value of $200 million for the company, which licenses its 3D systems to motion picture exhibitors. There also has been speculation that the value of the offering could run as high as $1 billion. Like typical IPO filings, the document is long on warnings about the risks of investing: The possibility of a box office decline, difficulty of enforcing patents and the like. But the filing also notes that RealD has "incurred net losses in each of our last five fiscal years, and incurred a net loss of $20.3 million for the nine months ended Dec. 25, 2009." That loss comes off net revenue of $96 million for the same period.

Filing shows net losses of $29.7 million in the fiscal year ending March 31, 2008 and $16.4 million in fiscal year ending March 27, 2009. The balance sheet also shows some $29.2 million in debt, which RealD expects to repay with revenue from the IPO. Most of that debt is due in two-to-three years. Adding in preferred stock, the company had negative equity totaling $42.5 million at the end of 2009.

These losses come despite extensive -- and expensive -- branding efforts and a market share of theatrical 3D screens that far outstrips its competitors. The filing lists expenses of more than $11 million in March-December 2009 for "selling and marketing." The total number of screens at the end of 2009: 4,286, of which 2,803 were in the U.S.

The branding efforts are important, because RealD's technology isn't all under patent. Some key patents in its portfolio, both for the cinema system and for home 3D, were filed in 1988-1989 and have expired. Another, from 1996, is due to expire in 2015.

Unlike its competitors, RealD licenses its cinema system and charges a royalty on each ticket, rather than selling its equipment outright. This makes the company attractive for theater owners who are unable or unwilling to pay for a 3D add-on for their digital projectors.

The filing notes RealD derives "substantially all" its revenue from the licensing of its cinema systems and use and sale of its eyewear. Much of that eyewear has been provided free or heavily subsidized by the studios. It's not clear whether some theaters would shift to competitors offering reusable glasses if they had to pay for disposables.

The filing listed the company's admission-based fees for several 2009 3D releases: $8 million from Up, $4.9 million from Monsters vs. Aliens, $6 million from Ice Age 3 and $4.4 million from Avatar during just the last half of December.

The filing also includes cautious language about possible health risks of 3D viewing and the possibility of government regulation of 3D glasses. Those concerns made headlines when Italian authorities confiscated about 7,000 pair of reusable 3D glasses because of complaints that they were not properly sanitized.

RealD has struck alliances with a number of consumer electronics companies, including JVD, Panasonic, Samsung, Sony and Toshiba, that have adopted the company's proprietary technologies. The filing concedes, "To date, we have not generated revenue of any material significance from our arrangements with these and other consumer electronics manufacturers."

No date for the IPO has been set, and many details in the filing are incomplete pending final decisions.

By David S. Cohen, Variety