BusinessJournal

September 19

TECHKNOWLEDGE By Ivan Morantsky

Three-Dimensional Trouble for 3D-TV World Cup disappointment, could end competitive advantage

Analysts report that 3D-TV, the pioneer of three-dimensional television, stands to lose its competitive advantage and be overtaken by industry rivals.

3D-TV HISTORY

1995 Founded in Austin, Texas by Henry Hagland, a retired multimillionaire, with an entrepreneurial f la ir for leading-edge technology

2005 Demonstrated two 3-D holographic television prototypes at the consumer electronics expo in Las Vegas, Nevada

Went public with a successful IPO

Entered the commercial holographic broadcast ing business with the broadcast of the Tour de France

2006 Expanded to establish broadcast ing operations groups in Los Angeles, New York, London, and Paris.

Recruited Gary Oaks as CEO, Hagland assumed role of Chairman

Televised holographic broadcasts of World Cup Soccer matches

The combined effects of a shift in research and development (R&D) focus from breakthroughs to incremental improvements, a flawed service model, a limited subscription infrastructure, and tension within the leadership threaten 3D-TVs ability to sustain its competitive advantage.

SHIFT IN R&D FOCUS. 3D-TV was a pioneer in 21st century television technology. While competitors were perfecting flat-screen and plasma-screen televisions, the talented and ambitious 3D-TV R&D team was creating an entirely new television product based on holographic transmission of live action.

Following the success in 2005 of broadcasting the Tour de France pilot and the subsequent 3D-TV initial public offering (IPO), R&D became more focused on incremental improvements to the technology rather than on making new breakthroughs.

Pressure to control costs forced focus on smaller, cheaper, less research-intensive projects, such as refining imagery resolution, adding zoom-in functionality, and making remote control units easier to use. De-emphasizing technology innovation has led to predictions that 3D-TVs competitive edge will soon be lost to more aggressive players in the market. FLAWED SERVICE MODEL AND LIMITED SUBSCRIPTION INFRASTRUCTURE. 3D-TV has adopted a live theater reservation model. Reservations are required at least 24 hours in advance, and they can be made via telephone, a Web site, or mail. Subscribers are required to pay for reservations at the time they are made. This old-style service model does not match the level of innovation of the new technology.

According to analysts, had 3D-TV commissioned market research to determine customers expectations of a reservation system, it would have discovered that just-in-time subscription immediately before 3D broadcast was the way forward. 3D-TV could also have determined how to cope with the volume of subscribers for the World Cup broadcast.

However, the untested legacy reservation system was overwhelmed and could not process all the potential subscribers. Following the event, 3D-TV estimated that one-third more subscriptions and associated revenue could have been generated if the just-in-time structure had been in place. The missed opportunity was estimated at 500,000 viewers and $5 million in revenue.

Analysts suggest that 3D-TV might have focused on the rollout of the 3D-TV holographic technology and minimized the importance of the supporting infrastructure.

Edward Bizet, the companys VP for Sales & Marketing, when asked for comment, confirmed, 3D-TV is committed to developing a significantly improved service model for subscribers to use prior to a major-event broadcast. Bizet also confirmed that the company is considering leasing holographic television equipment for home viewing of all future special events and super-scaling the technology to allow arenas to broadcast holographic images of sporting events held in other parts of the world.

Research conducted by 3D-TV supports the concept of a digital content engine to implement a pay-per-use sales system. With such a system, fans could purchase highlights from their favorite events. This represents an untapped revenue source for 3D-TV.

The digital content engine would store historical sports moments, statistics, and other archival information and then repackage the material for various audiences. Users could then view prepackaged holographic broadcast recordings instantly.

Sources are not sure whether 3D-TV plans to do this, but the concept represents a much-needed revenue stream for the company. And this concept depends on developing the supporting infrastructure.

ABOUT HENRY HAGLAND

Henry Hagland made his fortune in the home and auto security business. He developed a security system that contacted residents di rect ly on break-in and that provided a real-time view of the robbery. The result was an integrated alarm and dig i ta l camera system.

An intensely private man, Hagland retired to private life after building and sel l ing his secur i ty business. He then pursued his lifelong hobby of optics, which led him to holographic photography and ultimately to the quest for holographic moving pictures.

Between 1992 and 1995, he sponsored a series of generously funded research projects at the Univers i ty of Southfork to solve the most difficult technical problems of three-dimensional holographic television. The result was two prototypes for commercial use of three-dimensional holographic television, 3D-TV.

LEADERSHIP TENSION. Henry Hagland, the founder of 3D-TV, had been its manager and leader until the IPO. His passion for the business and uncompromising commitment to developing new holographic technology resulted in a closely managed business that required his input for every decision.

The IPO included a new organizational structure that formalized the various business support functions, and new executives were appointed. Hagland assumed the role of chairman and Gary Oaks, highly respected on Wall Street, was named CEO. Tension between Hagland and Oaks developed because Hagland could not stop day-to-day management. Although the two have reportedly overcome their differences, some tension still exists. According to staff, Oaks is popular with his employees and is strongly committed to the future success of 3D-TV.

The opening of new offices in Los Angeles, New York, London, and Paris to launch the broadcasting operations has compounded tensions. The staffs in local offices have struggled to maintain a strong link with company headquarters in Austin, Texas and to determine leadership direction. Oaks has worked hard to maintain staff morale and a consistent strategic focus across all offices. However, Haglands reluctance to acknowledge the global nature of the 3D-TV business has meant an on-going struggle for Oaks to share resources globally.

MARKET TRENDS. In launching its broadcast business, 3D-TV joined one of the fastest-growing global industries, Media and Entertainment (M&E). Based on current projections, the M&E industry is worth over $740 billion. During the last two decades, the M&E industry has undergone tremendous change, and the pace of that change does not appear to be lessening. The M&E industry is shaped by these major trends:

integrated media CONSUMER ELECTRONICS MARKET LEADERS

North America Whirlpool General Electric Kodak

Europe Thomson Philips

Asia Pacific Sony Sharp Toshiba Matsushita Canon Samsung

mergers and acquisitions deregulation new technology convergence digital revolution globalization

The industry is in a state of unprecedented transition. Rapid growth and change has increased consolidation as companies acquire other companies to enlarge their customer base, move into new markets, and acquire new technologies and services. This merging of various businesses across traditional market boundaries has resulted in fewer players that have a broader scope of operation. With one focus on the design of holographic television sets and another focus on the holographic broadcasting business, 3D-TV typifies this convergence trend.

3D-TV also remains part of the highly competitive consumer electronics industry with its wildly innovative television product based on holographic transmission of live action. 3D-TV shares customers with companies that manufacture audiovisual equipment, home appliances, and game and hobby equipment. Competitors in this market include such leading players as General Electric, Thomson, and Sony. Some of the challenges facing this industry include managing complex supply channels (including suppliers, manufacturers, distributors, and retailers), direct consumer channels, distribution, transportation, and brand management.

Consumers are constantly seeking unlimited choice, instant gratification, and convenience, plus fast delivery of high-quality, low-cost products. This results in high volumes, low profit margins, seasonal demand, and changing buying patterns, which are all constant challenges for companies such as 3D-TV.

To add to this complexity, the consumer electronics industry is currently facing a dramatic evolution: After several years of flat growth, the market is now moving again, largely because of digital technologies. Further, the consumer electronics industry is gaining ground in emerging countries like Vietnam, where labor costs are significantly lower. As a result, seasoned industry players experience intense competition.

The consumer electronics segment includes these challenges and opportunities:

A shift in strategy from point solutions to life cycle management. For example, some manufacturers are developing remote diagnostics capability to support products after they are installed.

A focus on continuous cost reductions. This industry is based on large volumes and low margins, so significant business process reengineering efforts are engaged to improve the fabrication and assembly processes, particularly to optimize the supply chain.

Growth in high added-value multimedia applications with Internet access and related services. Examples include pay TV, program navigators, Internet applications, and satellite TV.

Significant investment in research and development and technological and industrial alliances. One example is Thomson Multimedia, which is developing the next generation of interactive Internet TV though alliances with Microsoft, NEC (ASIC and flat panels), Direct TV (satellites), and Alcatel (TEM).

CONCLUSION. The potentially attractive entertainment applications of holographic live action TV for consumers seem endlessvideo games, news reports, educational programming, reality shows, dramas, comedies and sporting events to name a few. 3D-TV needs a solid recovery from the World Cup broadcast problems and needs to focus on specific customer service requirements to restore customer satisfaction and to increase sales of 3D-TV products and services. But, if 3D-TV cannot produce R&D breakthroughs, create a service model that exceeds customer demands, increase its infrastructure capacity and flexibility, and unify its leadership, it risks losing its market leadership position in the 3- D niche.