Will 3D TV Be As Successful As the 3D Box Office?

Recently launched 3D movies like Avatar and Alice in Wonderland have been successful in attracting audiences and are increasingly contributing to box office sales. The 3D contribution to box office sales in the US and Canada increased from 2% in 2008 to about 11% in 2009 ($1.1 billion).

With the growing popularity of 3D movies, DirecTV (NASDAQ:DTV), a satellite pay-TV provider, plans to launch 3D programming in 2010. DirecTV is using 3D to distinguish itself from other competing pay-TV providers like Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC).

We believe that replication of the 3D’s success on the big screen (theaters) on the small screen (TVs) may not yield the same results, at least in the near future, owing to constraints like a) adoption of new technology, b) lack of 3D-worthy programming, c) health hazards from watching 3D on TV, and d) inconvenience due to use of glasses for 3D viewing.

Below we explain why lack of apt 3D programming coupled with health hazards in watching 3D on TV may lead to slower adoption of 3D technology for TV among consumers, and why adoption of 3D TVs may not be of significant advantage for DirecTV.

Programming Apt For 3D Technology Will Take Time To Evolve

The reason for the initial rush by viewers to watch 3D movies in theaters is a combination of technology as well as the content that accompanies it. The technology alone will not be able to retain share of consumer viewing for a long term, and 3D adoption will solely be driven by the content that comes with it.

Not all TV shows will be worthy of viewing in 3D format; rather media companies will need to produce exclusive content that will showcase the value of 3D, apart from laying emphasis on general characteristics of a successful TV show. Thus generating the right content for 3D viewing will be a challenge.

We believe that availability of 3D programming will be limited initially, and will evolve over time.

Health Concerns May Deter Consumers From Buying 3D TVs Or Watching 3D Programming

Samsung recently warned that flashing of images or lights contained in 3D TV images can possibly trigger an epileptic seizure or stroke in some people. Other possible health hazards include eyestrain, motion sickness and nausea.

Currently, 3D viewing is infrequent and is limited primarily to 3D movies for the box office. With the availability of continuous 3D programming at home, health hazards are likely to be more prominent. Such potential health concerns can slow down the adoption of 3D TVs.

3D TV Glasses are Inconvenient and Expensive

The requirement to wear 3D compatible glasses to enjoy 3D programming may prove to be inconvenient for watching a TV show or movie at home. Moreover, the glasses used for watching 3D TV are expensively priced at between $100 and $200.

DisplaySearch expects 9 million 3D TVs to be sold globally in 2012. This amounts to only 4.5% of the current TV set market and is in line with our expectation of slow 3D adoption.

We don’t expect DirecTV to significantly gain subscribers as a result of 3D offerings. However, 3D programming may help the company in increasing its average subscriber fee by charging additional amount to consumers who are willing to watch 3D programming.

You can modify the forecast above to see how DirecTV’s stock may be impacted if its fee per subscriber were to rise at a faster rate than we expect.

For additional analysis and forecasts, here is our complete model for DirecTV’s stock.