Monday, June 17, 2013

3-D TV Let Down or Killed by Disney?

With Walt Disney's (NYSE: DIS  ) ESPN unit announcing that it will shut down its 3-D production unit at the end of the year because of the cost and a lack of interest from customers, does this mean the 3-D TV business has failed?

Well, the answer is complicated.

Movie theaters that offer the 3-D experience have seen revenues decline since Avatar came out in 2010. While that movie brought the technology to the forefront and got a lot of people talking, a number of big-screen directors have since opted to not shoot their films in 3-D. As my colleague Travis Hoium pointed out earlier in the week, three out of the top four films last year weren't shot in 3-D. When customers aren't being fed the experience at the box office, they don't know how good it is and therefore don't know they should have it at home.

Furthermore, most Americans have probably upgraded their TVs in the past few years, with flat-screen TVs taking off around 2005 and 2006 and HDTVs following shortly after. So getting a few additional channels or movies in 3-D probably doesn't justify the expense of upgrading again. The recession certainly didn't help, either.

While I don't think 3-D is dead, I don't believe the technology is going to take the living room by storm anytime soon, and Disney apparently agrees. With live sports as a potential selling point for a lot of people who might have been thinking about going 3-D, Disney's decision to cut the cord will probably slow the growth of 3-D TVs even more.

As for Disney, this is probably a good move. Disney's stock has performed wonderfully year to date, up more than 28%, so some investors may be wondering why ESPN is cutting the 3-D unit, or why it recently announced that it's laying off employees in an effort to cut costs. After all, the stock has outperformed the Dow Jones Industrial Average (DJINDICES: ^DJI  ) by 13.34% this year.

But Disney's management knows that for the company to continue to perform at a high level, it must always be looking for ways grow revenue, save money, and add value. In other words, Disney's recent cuts may just be an example of why the stock has performed so well -- even if it means 3-D sports won't be coming to your living room anytime soon.

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