RealD (NYSE: RLD) CFO Drew Skarupa gave a speech, at the MKM Partners Investor Day Conference in September 2013, where he discussed the decline in 3D ticket sales over the past few years. In his presentation, Mr. Skarupa suggested that theatres should offer more 3D screens to stem the drop in overall attendance from 43% in 2012 to 33% in 2013.
While 3D effects certainly enhance a moviegoer's experience, theaters may have to go a bit further in bridging the gap between watching a screen and experiencing a movie. The Guitammer Company (OTC: GTMM) is an innovative micro-cap company that has developed a unique "4D" technology designed to bring the action from the screen to life.
Guitammer's ButtKicker® brand technology enables moviegoers to feel low frequency sounds instead of hearing them. For example, explosions, impacts or other on-screen events trigger tactile sensations in theater seats that make the on-screen experience more relatable to real-life sensations. Combined with 3D technology, the ButtKicker brand cinema products could be a game changer.
Survey Highlights Value Proposition
Guitammer recently conducted surveys of moviegoers between December 2013 and February 2014 to evaluate viewers' experience when watching a movie in a theater equipped with its "4D Cinema powered by ButtKicker" technology. The results showed that it would generate significantly more revenue, customers, and loyalty among moviegoers at a relatively modest expense; and these dynamics could become more pronounced as awareness grows.
Specific findings from the survey included:
- More Revenue - 83% of respondents would pay $2 to $4 more to experience a movie in 4D and 45% would spend more than $8.
- More Customers - 67% of respondents would drive 4 to 7 miles or more to go to a 4D equipped theater and 42% would drive more than 10 miles.
- More Loyalty - 80% of respondents say that 4D improves or greatly improves their opinion of the theater company.
These survey results mirror the sentiments expressed by consumers using its home entertainment and gaming products. For example, Amazon.com reviews of its ButtKicker Wireless Home Theater Kit and ButtKicker Gamer have attracted more than 100 reviews in total with ratings of four or five stars, suggesting robust support for its products.
Significant Market Potential
Dolby Laboratories Inc. (NYSE: DLB) launched Dolby Atmos™ last year to introduce powerful new listening experiences for the movies. As of September 2013, over 75 Dolby Atmos™ movie titles have been released and more than 300 Atmos-enabled screens have been installed or are committed for installment, suggesting that cinemas are willing to embrace new innovations.
In FY 2013, these cinema products accounted for about 87% of the company's total product revenue or about $70 million per year. Capturing just a fraction of the cinema market with its unique "4D" technology could unlock significant value in Guitammer's stock, given that it trades with a market capitalization of just over $13 million.
Cinemas also represent a great jumping off point for Guitammer's patented, and just now being adopted, broadcast technologies by cost-effectively increasing customer awareness. Just as Dolby derives most of its revenue and profits from licensing its technology, Guitammer has already begun to deploy its technology to broadcast television, where it is adding real-time tactile sensations to sporting events.
In July 2013, the company signed an agreement with the National Hot Rod Association to enable ESPN2 viewers to experience the actual shake felt inside race cars at its events, as captured by Guitammer and broadcast to any home with ESPN2. Management hopes to sign similar agreements with other broadcasters looking to set themselves apart.
Potential Investment Opportunity
Consumers are starting to demand a greater movie experience than 3D alone can offer as evidenced by the decline in 3D ticket sales over the past few years. After successfully debuting in major theaters, Guitammer's ButtKicker 4D technology could be just the thing to fill the void in the market. The company reported significant growth in theater installations for the third quarter last year, bringing the total number of enabled seats to more than 13,000 in more than 100 venues across 12 countries. The increased exposure could also boost its consumer and broadcast sales efforts.
Guitammer trades with a modest market capitalization, but the early success that it is seeing suggests that it could be an earlier stage version of RealD in the making. As a result, investors comfortable with taking some risk in owning a micro-cap security may want to consider building a starter position that could grow into a mid-cap company over time.
Over the long-term, the company has the potential to transition from a product to a licensing company much like Dolby. Management's progress in expanding awareness through cinemas could end up unlocking significant value in broadcast television.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: TDM Financial is a marketing and consulting firm that specializes in creating ongoing communications strategies for public and private companies. For full disclosure please visit: secfilings.com/Disclaimer.aspx