RealD CEO Michael Lewis

Peden + Munk

Defending his company against a Wall Street 'overreaction' that sank its stock 21 percent in a day, he explains why concerns about 3D movies are overblown.

The 3D movie business overseas is driving massive growth, but in the U.S., there are fears that audiences are tiring of the cost and experience. Nonsense, says Michael Lewis, 48, who, as CEO of RealD -- an 8-year-old company headquartered in Beverly Hills that creates and licenses 3D technology for movies and TV sets -- is in a position to assess the situation. After all, Lewis, a co-founder who has been CEO since the firm's inception, points out that six of the most recent movies to cross $1 billion in global box office were released in 3D. Despite his optimism, his $700 million company, which employs 125 people worldwide, recently lost 21 percent of its value on one day in July as Wall Street decided -- en masse, apparently -- that 3D movies might not be all they're cracked up to be after RealD reported quarterly financials that disappointed analysts. Still, Lewis has a positive outlook, revealing that the Olympics might soon play in 3D in movie theaters and that he would like to see Singin' in the Rain converted.

Did you watch 3D as a kid?

The usual -- Jaws 3D and those types of films in the '80s. How I got involved in the industry was I produced a couple of 3D films in large format in the '90s. One was T-Rex, which was an Imax film that did over $100 million. I love film. The reason I wanted to be in this business was because I saw Star Wars as a teenager in a small theater in central Florida.

Which is better, RealD or Imax?

It's a different business. We're in almost 18,000 screens worldwide in 65 countries, and 85 percent of all 3D movies in the U.S. roll on a RealD platform. Imax has a very small footprint. It's more a niche business.

What was the first RealD movie?

Chicken Little, November 2005. We were on 100 screens.

How much did Disney pay to convert that, and why would it pay for only 100 screens?

Normally, it's in the $5 million to $10 million range. Like us, Disney thought it was really important to bring some whiz-bang to the cinema. They set a foundation for a transformative event, and it has allowed the business to be what it is today, which is 40 films this year in 3D.

What did Avatar do for the business?

It legitimized it. It was the Citizen Kane of our medium. After Avatar, I finally didn't have to go into a meeting and explain why this was going to be important for our industry. The numbers spoke for themselves.

Is there a big difference between shooting in 3D and conversion?

All those lines are blurring, much like the early days of visual effects. Now you can't tell a visual effect from live-action shooting, and that's what's happening in 3D.

Which 3D movie are you most excited about?

I'm excited about talented filmmakers that haven't used 3D before. Martin Scorsese has Hugo this year, and next year Ridley Scott has Prometheus.

How do you make most of your money?

We license our technology to exhibitors. We get, on average, 50 cents per ticket.

Is 3D TV pie in the sky, or do people really want to wear 3D glasses while watching TV?

Our view is that every visual display -- a cinema screen, iPad, phone, computer monitor -- is enhanced by 3D technology. It just makes the image more lifelike, and there are a lot of those devices sold each year.

What do you watch in 3D at home?

Sports are fantastic in 3D. Sports is usually the driver of new technology. It's the reason people wanted HDTV and even color, initially.

When will every NFL game be broadcast in 3D?

Much like 3D cinema has taken five to seven years to become a significant percentage of the market, it will be another five years for TV to get to those numbers, too.

Will we see the next Olympics in 3D?

We expect parts of it will be. Yes.

Are there conversations about showing the Olympics in 3D at movie theaters?

Yes.

Action and family movies work in 3D. What about Westerns and other genres?

Absolutely Westerns. And Jackass 3D was a comedy, obviously, but we haven't seen a lot of that. Comedy is about exaggeration, so it's really interesting in 3D. There was talk of the Farrelly brothers doing The Three Stooges in 3D, which would be great. 3D also makes dramas and romance more real and more personal.

Is RealD technology used in porn?

Not to our knowledge. But if I had a nickel for every time that question was asked, we'd be doing very well.

Do surcharges need to come down?

It's a choice. You can see it in 2D or RealD and pay a premium. Take the latest Potter film: The media said it was disappointing [that only 50 percent of tickets sold were 3D]. The film made $500 million in a weekend, and half of that was 3D. That's pretty good.

So you're happy with 50 percent?

We'll see it vary. And right now we're screen-constrained. In most weeks this summer, we had five or six films in the Top 10 that were RealD, so each of those films will do less on a percentage basis.

Wall Street reacted poorly to your latest quarterly report. What made investors nervous?

Clearly, it was an overreaction. We had record earnings. We're a relatively new company, and as time goes on we'll prove the model. It doesn't really matter if a film does 40 percent or 50 percent; we just believe this is a transformative event like the Internet and the personal computer. All visual displays are going to get better, and we're really well positioned. Over time, Wall Street will figure that out.

Do audiences abroad like 3D more than in the U.S.?

The numbers on a percentage basis have been higher. Then again, the international market is much stronger than 10 years ago, whether it's 2D or 3D. There's an insatiable appetite for American content. Two-thirds of film revenue is overseas; the same is true for RealD.

Jeffrey Katzenberg says 3D is in its "terrible twos."

Like all things that are new, you go through a period where there's over-exuberance, then you have a period where you say, "OK, let's figure out how we really maximize this."

Which 2D movies would you like to see in 3D?

We did some tests with Singin' in the Rain. It was in the early days of conversion technologies, but you could just see that it was really good. I'd like to see that as well as classics like The Wizard of Oz and Lawrence of Arabia. And if I go back to my childhood, I'd say Bedknobs and Broomsticks and The Love Bug.           

 

INNOVATION IN 3D EYEWEAR: Part of the 3D experience requires comfort, so the industry naturally has ditched the low-cost paper "glasses" that rarely sat squarely on one's face. Today's are high-tech plastic jobs that are circularly polarized, so you can tilt your head without losing the 3D image. The industry, meanwhile, keeps innovating:

  • In Europe, moviegoers buy 3D glasses for about $1 at the concession stand, whereas those provided free to moviegoers in the U.S. are sent to processing centers for cleaning. RealD, which absorbs the cost, puts them in a high-temperature wash with specialized soap and an ultraviolet sanitizing process.
  • RealD works with a dozen manufacturers, including Marchon, Gunnar Optiks and Polaroid Eyewear, which sell premium glasses that look nicer, feel better and can improve your 3D vision. The glasses run from $20 to $200 a pair.
  • Marchon will soon introduce vending machines in San Diego and Huntington Beach, Calif., for selling premium 3D glasses for $22 to $30 apiece.
  • Studios are embracing 3D glasses with a theme. For the opening of Harry Potter and the Deathly Hallows Part 2, some moviegoers were treated to collectible eyewear that looked like the glasses Harry wears, and Hasbro has made 3D glasses that were Transformers masks.
  • Coming soon: prescription 3D glasses.          

REALD BY THE NUMBERS

  • 85%: Approx. market share of domestic 3D box office
  • 10,300: Domestic screens across 2,500 locations
  • 7,200: International screens across 2,300 locations
  • $246.1 million (up 64 %): Fiscal-year 2011 revenue
  • $67.7 million (up 633 %): Fiscal-year 2011 gross profit
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