3D Brief: Current State of US Market, Trends, DirectionsJuly 29, 2010Roger TowneSenior Manager, Product PlanningSamsung STA, Set-top Boxes____________________________________________________________________________________________________

Executive Summary

3D is at the bottom of the bell curve, a new technology that has some challenges but many opportunities. For consumers, it is a nice-to-have feature, not a must have. The cost is still too high and questions about the user experience still need to be solved. But there is a great future ahead:

The Consumer Electronics Association expects 2.1 million 3DTV sets to ship in the U.S. in 2010. iSuppli predicts the 3DTV market will grow to 12.9 million shipments next year and to 60.5 million by 2014.

3D has made a splash and is capturing consumer interest. But awareness is still low with only 13% of households familiar with 3D TV. The popularity of 3D cinema and games are the biggest drivers of awareness and interest.

With the success of Avatar, Hollywood is bullish on 3D. More 3D movies are on the way, as many as 24 this year. Movie theaters charge a premium price and the take is factored into the movie’s overall box office revenue. The end result is that a movie released in 3D can boost sales up to 25%.

Several recently released movies were not created organically with 3D in mind (as was Avatar). Instead, they were converted from 2D to 3D. The result is the quality of experience is affected. For moviegoers, when the price of the movie ticket is factored in, some consumers are questioning the overall value.

The cost for outfitting the digital home for 3D is considerably high. A fairly well equipped 50” model 3D TV can run $300-400 more than convention 2D version. 3D are running $150-200 each. When adding a 3D Blu-Ray player ($300-400) and HDMI 1.4 cable ($40), it can easily cost a family of four over $3,000.

The dearth of home content is also a factor. There are few 3D TV channels currently available, only a handful of 3D Blu-ray titles, and a small proportion of 3D games. Not all content is desirable to see in 3D, and the 3D experience doesn’t always translate well to all types of content.

The accessibility of technology for all electronics companies will only further help enable 3D market adoption. This will only help to drive prices down and proliferate innovation.

3D content will become more common, but 2D viewing will not go away anytime soon. 3D will not become the de-facto standard. Instead, it will be a complementary technology.

Glasses-free 3D displays are in development, but are still several years away from being cost-effective and widespread.

3D Overview

3D television utilizes 3D presentation techniques to project programming into a realistic three-dimensional field. The techniques used are autostereoscopic and multi-view capture. Autostereoscopic does not require 3D glasses, multi-view does. Autostereoscopic 3D displays are already available, but 3D programming for them are rare. Content production is expensive and complicated, requiring as many as 8-9 views of the same scene. As such, the industry is focusing on multi-view technology for now.

How 3D works - Our eyes are spaced apart from each other, which means our left and right retinas see objects at slightly different angles. In real life, the brain merges these two images into a single three-dimensional image. To recreate this depth of experience on television, a 3D TV will display two separate but overlapping images of the same scene simultaneously, and at slightly different angles as well.

Multi-view 3D requires glasses to be viewed. There are two types of 3D glasses; active and passive. Active glasses use a shutter technique to quickly block the left eye, then the right. This is done in sync with the TV which is also alternating the left and right images rapidly. The glasses help the mind merge the two images into one, creating the 3D effect. Samsung offers two forms of 3D glasses - battery-operated and rechargeable. Both fit comfortably over prescription glasses. Passive glasses use polarization to separate the left and right image. This technique is used in movie theaters.  Passive glasses do not require any power to operate.

Cinematography, motion control, and lighting are significant factors in 3D production process. Below is a brief overview of how 3D content is captured, and where things are headed.

Below is an outline of the production differences between 2D and 3D. Today, 3D is a parallel production effort and an independent program. That’s expected to change in the near future.

The value of 3DTV is typically seen in a viewers’ ability to immerse themselves into the programming, creating the illusion of being part of the story as the graphics envelope them into a three-dimensional room. To view 3D TV, three dimensional programming must be produced using special cameras and production gear. To receive 3D content in the home, more bandwidth can be required to stream the 3D content over MVPD networks. Lastly, a 3DTV is required to display the content, and 3D glasses must be worn to actually view the programming.

Stakeholders

The 3D industry encompasses the following major stakeholders:

- Content producers, such as movie studios, TV programming networks and others- Gaming industry, who make the game consoles and software content- Production gear manufacturers, who make the cameras, pre/post product equipment and other gear - Movie theater operators, who collect gate receipts to show Hollywood hit movies to audiences- Consumer electronics manufacturers, who make the 3D TVs, glasses, Blu-ray players, cameras, etc- MVPDs, such as Comcast, DirecTV and others who distribute 3D content over their networks directly to

homes

Each stakeholder clearly sees an opportunity to expand their business. Below overviews the impacts on the major stakeholders:

Content Producers

Hollywood movie studios - The success of 20th Century Fox's Avatar has Hollywood Studios bullish about 3D. Offering a movie in 3D can not only increase the box office draw, it can boost a movie's profits. A 3-D version, with ticket price of $3-7 more than a 2D version, can add as much as 25% to the bottom line, according to the Wall Street Journal. In the case of Avatar, the higher-priced 3-D and IMAX screens consistently sold out before its 2-D ones. The end result was that 75% of its revenue came from 3-D screenings. Likewise, for Clash of the Titans, while only 28% of movie theaters were able to show the feature in 3D, the 3D showsings still accounted for 52 per cent of total revenues. The fantasy adventure Alice In Wonderland, had the sixth biggest opening weekend of all time in March, grossing $116 million. Two thirds of the take came from 3D screenings. The total number of major films released in the 3D is expected to reach at least 24 by the end of the year, with several studios planning to have 3D versions of all major tentpole releases in the future.

Major media conglomerates – TV broadcasters and major networks have been enticed by market projections suggesting that a programming shot in 3D generates 20-30% more viewer interest. As such, several are now launching 3D television channels. ESPN rolled out its 3D network to coincide with the beginning of the World Cup. It’s also broadcasting its first 3D TV offering outside of the US, with coverage from the X Games 16 screening this weekend in Australia. More 3D channels are on the way from Discovery, Sony, and IMAX. Turner Sports and the PGA will offer 3D Coverage of the 92nd PGA Championship. The FIFA World Cup and other programming will be broadcast in 3D. In all, these are serious investments which at this point cannot be justified based solely on the number of 3DTVs currently in the marketplace.

Gaming Industry

3D games may help give the 3DTV industry its biggest push into the home. The PlayStation 3 has always been a powerful enough piece of hardware for 3D, and Sony is now heavily leveraging the platform for 3D. The company is bundling 3D PS3 games with some of its 3D televisions, in some cases for free. Sony, in particular, considers 3D a core strategy for its entire business, with its Blu-ray format as a big factor. At the same time, Nintendo made 3D the central selling point of its new handheld, the 3DS – which can also take 3D pictures. Unlike the rest of the industry, Nintendo opted for autostereoscopic technology. Currently, the 3DS is the second-best selling gaming device of all time (after the PlayStation 2) and a huge part of Nintendo's business. Likewise, in June, Microsoft introduced the Kinect gaming kit which allows users to play 3D games using the Xbox 360. 3D games made for the PlayStation 3, 3DS and XBox are already available, with more on the way.

Movie Theater Operators

So far only about 5,000 screens (12.5%) in the US have been converted to 3D. That means the remaining 35,000 (87.5%) are unable to show 3D movies. Theater chain companies are ordering digital 3D projectors, who’s manufacturers are currently making as fast as they can, but they cannot install fast enough. The end result is that Hollywood studios are releasing more major 3D releases than the theaters can handle. This is a serious constraint on how many films can be widely released in 3D at once. Yet Hollywood studios, eager to recreate some of Avatar's record-breaking success, aren't letting that stop them from flooding the market with 3D releases. Theater operators will continue installing 3D gear, not only to meet demand, but to pad their profits. The 3D movies cost 25-50% more for consumers to view, and they require the use of passive 3D glasses, another source of income which adds nicely to the theater operators’ margins.

Consumer Electronics Manufacturers

Consumer electronics companies are very bullish on 3D technology. New cameras, camcorders, TVs and Blu-ray players are either being planned, introduced or are already on the market. Panasonic’s HDC-SDT750 camcorder can record videos in 3D and costs $1400. Samsung is releasing a 3D smartphone. MSI's latest all-in-one touchscreen PC renders everything in 3D (even 2D content). There is already a wide range of 3DTVs available, with starting prices of less than $1000 for 720p plasma 3D TVs from Samsung up to $6000 for the top-of the line models.  More will be launched later this year, especially at the IFA consumer electronics show in Berlin, Sept. 3-8. The prices of 3DTVs have also been falling. Samsung’s launched a basic 40-inch LCD UN40C7000 model priced at $1,999 in March. That same TV is now available on Amazon.com for $1,499. Still, all manufacturers intend to cash in on the excitement and high profit margins. Sony says it expects 3D-enabled television sales to account for 30-50% of all its HDTV sales by 2012.

SoCs - The set-makers use SoC and other components, most of which are commodity items and widely accessible to all, in order to make 3DTVs and other CE goods. For TVs, Chipmakers provide the SoCs and the software, then 3DTV manufacturers make the display panels out of conventional LCD panels. The key takeaway here is that the accessibility of technology for all electronics companies will only further help 3D adoption, drive prices down and proliferate innovation.

MVPDs

Competitive differentiation – There is an increasingly competitive environment between cable, satellite and telco pay-TV operators, and 3D is a point for differentiation. The FIFA World Cup featured on the ESPN 3D channel created a competitive focal point. Comcast, AT&T's U-verse and DirecTV all secured carriage agreements with the network (even though it doesn’t air programming when no live events are taking place) and carried the event. In July, the YES Network, FSN Northwest and DirecTV produced a New York Yankees-Seattle Mariners baseball game in 3D. Yet while DirecTV has attempted to use 3DTV as a competitive advantage over cable rivals with the launch of a trio of a 3D channels, its impact is limited since most cable MSOs can compete in the 3D space with on-demand movies and events.

Business impact – Aside from AT&T, who requires U-verse subscribers to pay a $10 monthly premium for 3D, most MVPDs have yet to charge subscribers a fee for 3D services. But operators will undoubtedly boost revenue by introducing new 3DTV premium tiers, charging monthly subscription fees, and asking higher prices for 3DTV movies on-demand and special events (concerts, sporting events, etc). There may also be instances where MVPDs charge more for the new set-top box which may be required to view the 3D content. But until the 3D market matures, technical standards are adopted, more content is available, and the consumer proposition is proven, many MVPDs will choose to invest their capital expenditures (CAPEX) on more lucrative and immediate needs.

Technical challenges - Cable operators, telcos, and satellite TV providers face technical challenges in rolling out 3DTV. Currently, most cable operators currently use a frame-compatible 3D format, which uses the same amount of bandwidth as an HDTV signal. The downside is this approach delivers 3D content in half-resolution images. For cable operators to offer full resolution 3DTV programming, either more bandwidth is required or new video formats must be adopted which require new set-top boxes. Neither is a friendly proposition. Still, over the long-term, 3DTV may provides additional justification for cable operators to embrace MPEG4. This would not only provide greater compression efficiency and thus more network capacity, but it would enable more 3D content going forward.

Current Trends

There is no doubt that 3D has made a splash and is beginning to capture consumer interest. But awareness is still low. Currently, 3D cinema and games are the biggest drivers of 3D popularity. With the success of Avatar, Hollywood has been very bullish about 3D. Hollywood is generating more 3D movies, as many as 24 this year. The availability of more gaming and TV sports content in 3D is also creating awareness. Subsequently, this has led to increased interest in 3DTVs, games and other 3D electronics like cameras and camcorders. In turn, new products are being introduced and shipments are on the rise.

Facts & Figures:

When Avatar was released last December, 71 per cent of Americans who went to see it on opening weekend opted for a cinema showing the 3D version

China banned 2D showings of Avatar when it was released in the country At least 24 Hollywood films are expected to be released this year in 3D 3D versions of movies can boost the box office take by 25% Moviegoers are paying 25-50% more to view 3D movies Only about 5,000 (12.5%) of the 35,000 movie screens in the US have been retrofitted for 3D DisplaySearch predicts 3DTV sales could reach 3.4 million worldwide in 2010, a sharp increase from

the 214,000 units that shipped last year. The company believes 42.9 million units will ship in 2014 According to Parks Associates, 13% of households are familiar with 3D TV, up from about 10% from the

previous quarter. Moreover, 48% of these households might be willing to pay for some 3DTV content The Consumer Electronics Association now expects 2.1 million 3DTV sets to ship in the U.S. in 2010,

double its forecast from earlier this year, with revenue in the segment expected to exceed $2.7 billion iSuppli predicts the 3DTV market will grow to 12.9 million shipments next year and to 60.5 million by

2014 Ubisoft, a French game maker, estimates that around 50% of all games sold in the US will be in the 3D

format by 2012. 12% of all people have issues with their “binocular vision”, making viewing of 3D images extremely

difficult, if not impossible.

Challenges

The 3D industry is facing many challenges, some more vexing than others.

Cost – As with most new technologies, cost is high when it’s introduced. This alone acts as a barrier to entry for consumers. The cost of a 50” 3D display with the latest features runs $300-400 more than a current LCD TV. 3D glasses are an additional $150-200 apiece. A 3D Blu-ray player is about $300-400, plus another $40 for the HDMI 1.4 cable. All told, for a family of four, the cost can be well over $3,000. In addition is the cost of content, which can include higher priced 3D Blu-ray titles and premium fees for MVPD programming.

Content availability – As previously noted, there is scant 3D programming. In some cases, as with ESPN 3D, the network goes dark when there are no events. The selection of 3D Blu-ray titles is not much better, a quick look at Amazon.com shows less than 10-12 3D Blu-ray discs available. There is only a small proportion of 3D games available. In all, though 3D content availability is increasing, programming is still extremely limited at this point.

Quality of Content - The quality of the 3D experience is not equal across 3D movies. That’s partly due to the fact that Hollywood studios have hurriedly converted 2D films over to 3D in hopes of cashing in on the sudden popularity created by Avatar. But when films are converted from 2D to 3D conversion, often it doesn’t work very well and the result can be murky pictures. After seeing director M.Night Shyamalan's summer blockbuster The Last Airbender, the influential US film critic Roger Ebert said it "looked like it was filmed with a dirty sheet over the lens". Clash of the Titans, which was also converted and released in April, was the butt of similar criticism and was accused of actually turning audiences off to 3D. Hollywood mogul Jeffrey Katzenberg, who was not involved with the film, called it a "cheeseball conversion" and suggested it was helping to "kill that goose that is delivering us golden eggs". Others have questioned Toy Story 3 in 3D, where the 3D benefits were barely visible, calling the experience forgettable.

"The thing with 3D is that everything gets dim," Abrams said, taking the more cautious approach. "It all feels a little grey and muted. I want to see the vibrant [colors], I want to see the movie. I get into it I adjust to it, but for me it always feels like those first five minutes feels less than the IMAX experience, which is my favorite kind of immersive experience. The 3D thing, I'm not totally on board with yet." - Joss Whedon, arguably one of the most influential creative forces in the industry today with such credits as Firefly, Buffy, LOST, and Star Trek

Maximizing the technology - Of all the 3D movies released to date, Disney’s Up! and James Cameron’s Avatar have been the best at maximizing 3D technology. Avatar was specifically designed and filmed with 3D in mind from the ground up. Up! had experienced film makers at the helm looking to make the best of 3D. But at this early stage of the market, Hollywood studios have been more interested in maximizing profits rather than the quality of experience. The result has been moviegoers less “wowed” by the experience and thus less inclined to pay additional ticket prices to view 3D movies. Over time, as movie studios become more intimate with the knowledge and techniques of developing and releasing 3D films, more will organically integrate 3D in order to make the viewing experience richly successful.

User Experience – Presently, a few factors about current 3D technology can detract from the viewing experience. One is the viewing angle. The best viewing angle is centered in front of the programming. If the seating is off to the side, the quality of experience can degrade. In a movie theater, if seating which is way off to the side or directly under the movie screen, viewing can be dramatically affected. The second factor is the 3D glasses. They can be large, cumbersome and awkward, especially if the user already has prescription glasses. Peripheral vision and natural user interaction can both be affected. In some cases, the glasses can cause dizziness or nausea. Lastly, approximately 12% of all people have issues with their “binocular vision” making viewing of 3D images extremely difficult, if not impossible.

Value –For tentpole movies released in theaters, consumers have been willing to pay 25-50% extra to enjoy a 3D experience. But if the experience leaves them wanting, let alone disappointed, the value proposition will degrade and they will be disinclined to pay the premium price again. Evidence exists that audiences have already experienced declining value as the proportion of moviegoers who see new films in 3D versions has fallen steadily over recent months. Instead, more are opting instead to watch them in the traditional and cheaper 2D format. Likewise, 3D game reviews show that enthusiasm for 3D games may also be cooling down. The common theme here is that the perceived added-value which 3D provides is not worth the extra cost to consumers. When it comes to outfitting the digital home for 3D, for mass adoption, consumers must feel the technology is both cost effective and beneficial. They also must have ample 3D content available at a reasonable price. Currently, costs are exceedingly high for equipment and content as almost nonexistent.

Future Looking

Clearly, costs will come down, content availability will increase, quality on all levels will improve, and viewing experiences will get better. “The holy grail for 3DTV is to get rid of the damn glasses,” Heavy Reading analyst Craig Leddy writes in the report "Cable Operators Weigh Tech Options for Delivering 3DTV".

Efforts are under way to build glasses-free, auto-stereoscopic displays, which many believe is the future of 3D technology, but they will come with a high price tag. Chinese manufacturer TCL is already shipping its 42-inch TD-42F in China, but the cost is about $20,000.

Samsung and Sony are among the companies on the forefront of this research. During the Emerging Technologies portion of SIGGRAPH 2010, Sony showcased the 360-degree autostereoscopic display prototype called RayModeler. The device is a compact version of a 3D display enclosed in a cylinder. One can view the display from all directions and see a bright, color 3D image. According to Sony, the system is the first display of its kind, featuring special LED light sources that show 360 unique, 24-bit color images in all directions.

Veteran media analyst Larry Gerbrandt has predicted that adoption of 3DTV will first be accelerated via video games and 3D camcorders, then by natural consumption of content. He noted that studios are increasingly shooting their tentpole movie releases in 3D. Likewise, TV producers are shooting in 3D even if their shows aren't shown on 3D yet. “As equipment costs come down and behind-the-camera expertise goes up, it is likely more TV shows will be at least mastered in 3D to enhance syndication longevity and value," Gerbrandt wrote.

In the end, 3D is at the bottom of the bell curve, a new technology that has some challenges but many opportunities. 3D content will become more common, but 2D viewing will not go away anytime soon. 3D will not become the de-facto standard. Instead, it will be a complementary technology.

Sources

Audiences Are Revolting Against 3D And The Format May Already Be Dead by Josh Tyler www.cinemablend.com July 27, 2010

The Trouble With 3D: Why Hollywood's Savior Could Be Bad For Movies by www.cinemablend.com January 31, 2010

3D TV: Too Little To Survive, Too Much To Die by Kurt Bakke www.conceivablytech.com July 28, 2010

Joss Whedon and J. J. Abrams Sound Off on 3D by Greg Tito www.escapistmagazine.com July 24, 2010

Flip-a-Switch 2D to 3D by Arlen Schweiger www.electronichouse.com July 27, 2010

Hollywood Fears the 3D Bubble Has Already Burst by Nick Allen www.telegraph.co.uk July 24, 2010

3D Movies Are Still Killing It by Nick Saint www.businessinsider.com July 22, 2010

Your Primer On The Industry's Massive Investment In 3D by Nick Saint www.businessinsider.com June 23, 2010

3-D Movie Trailer Smackdown: Blockbusters Fighting To Be In Your Face In 2010 by Gillian Reagan www.businessinsider.com February 16, 2010

Publishers Scout Another Dimension -- 3D by Bridget Carey www.miamiherald.com July 20, 2010

Blu-ray 3D, More TV Models Boosting 3D TV Shipments by Agam Shah www.pcworld.idg.com.au July 28, 2010

BSkyB Confirms Consumer 3D TV Channel Launch by Jessica Hodgson online.wsj.com July 28, 2010

Warner, LG Bow First 3DTV/Blu-ray Disc Bundles by Erik Gruenwedel www.homemediamagazine.com July 27, 2010

ESPN Launching 3D Offering Outside US by Rose Major www.rapidtvnews.com July 28, 2010

Turner Sports and The PGA to Offer 3D Coverage of the 92nd PGA Championship Through PGA.com and TNT’s Television Distributors by Robert Seidman tvbythenumbers.com July 28, 2010

Panasonic Unveils 3D Camcorder by Dawn Kawamoto www.dailyfinance.com July 28, 2010

3D Camcorders Could Boost 3D TV Adoption by Keith Shaw www.networkworld.com July 28, 2010

Parks: 3D TV Awareness Gradually Increasing by Dan O'Shea connectedplanetonline.com July 28, 2010

80% of TVs sold in US will be 3D-ready by 2014 by www.iptv-news.com July 28, 2010

Report: 3DTV Not Ready for Prime Time by Steve Donohue www.lightreading.com July 28, 2010

Cable Operators Move Forward on 3D Despite Reservations by Robert Seidman finance.yahoo.com July 22, 2010

3D TV home: Success inevitable claims film experts by Luke Johnson www.t3.com July 28, 2010

So When Will 3D Come Of Age? by www.imdb.com July 28, 2010

CEA Ups 3DTV Forecast To 2.1 Million Units For 2010 by Todd Spangler www.multichannel.com July 22, 2010

Ten Percent of the Population Can't See 3D Movies or Television by www.wbir.com July 27, 2010

Samsung Unveils A 3D TV For Under $1000! by Mark Raby www.i4u.com July 21, 2010

Internet TV Growth Outpacing 3D TV by Doug Olenick www.twice.com July 28, 2010

3D Motivates Comcast To Think MPEG-4 by Linda Hardesty www.cable360.net June 17, 2010

3D TV hype builds by Asavin Wattanajantra www.theinquirer.net June 16, 2010

3D TV showing of World Cup ss nifty, if not without issues by Edward C. Baig www.usatoday.com June 17, 2010