What's wrong with 3D?

October 19, 2012: 7:20 AM ET

Interest in 3D remains flat even as device makers look to add juice to new devices.

By Peter Suciu, contributor

FORTUNE -- 3D was supposed to be the next big thing in the evolution of cinema and video, picking up where sound, color and the widescreen format had left off. But, aside from a small impact in movie theaters where blockbusters like Avatar drove interest, 3D hasn't exactly take off in the home. Going on three years interest 3D TVs have fallen flat, even as the prices have fallen too.

At the movie theaters 3D is still a niche, but one that is holding steady. According to market researcher IHS iSuppli, 3D generated 19% of box office revenue in 2011. And while 3D TVs remain slow to catch on, interest in 3D on other devices, including portable game systems and mobile phones, is actually expected to grow. NPD Group's Display Search predicted that 3D TVs will eventually see sales increase, and grow from just 25 million units in 2011 to around 180 million units in 2019.

Moreover, Display Search predicts that 3D will grow across several categories beyond TV including portable devices such as mobile handsets and game systems. One such device that has been seen as a hit is the Nintendo (NTDOY) 3DS handheld game system, which hit five million total sales in July. Unlike with most TVs, the game system utilizes so-called auto-stereoscopic 3D technology that does not require glasses for the users to see the effects.

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And, it has been the required glasses that have been blamed for the sluggish demand for 3D. "The active glasses are expensive," says Jennifer Colegrove, vice president of Emerging Display Technologies at NPD Display Search. "These tend to be bulky and heavy."

As every viewer in the room needs glasses to view the content -- which appears blurry without glasses -- this has been a hurdle that has proved difficult to overcome. The passive glasses are far cheaper, and some TV makers such as LG have been pushing for passive 3D. But to date, only Toshiba has introduced a set that requires no glasses at all, and those who saw it at CES in January remain skeptical about the price and the quality of the picture. "We do see this as the start of a trend to have 3D," adds Colegrove, "but without glasses, with just the naked eye."

The content will still depend on the technology, and one only needs to look as far as the Nintendo 3DS to see that it could have drawbacks. For one, the effect is more simulated than a truly immersive 3D environment. Some are even skeptical if 3D TV -- with or without glasses -- will lead to interest in 3D in portable devices. "I find it a little hard to swallow," says Billy Pidgeon, senior analyst at M2 Research. "I don't see how this will result in a trickledown effect, but I do believe that soon every TV going forward will have 3D built-in. That will increase penetration from that level."

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What other types of devices could include 3D? One possibility could be mobile phones, but so far none have arrived in America. "No one has released a 3D smartphone outside of Japan, except LG," says Ian Fogg, senior principal analyst for mobile media at IHS iSuppli. "Virtually no screens support 3D in the mobile space, and it isn't going to take off in the near future."

For the technology to succeed, say analysts, it needs to become more intuitive and apply in more cases than just watching TV or moviews. "The mobile phones with 3D have two 5-megapixel cameras that were the most straightforward use, so users could create their own content and view it back on a screen," says Fogg. "But games on phones and tablets could be a problem as many titles -- such as racing games -- use an accelerometer that requires that you tilt the device. This in turn creates a problem for user experience with glasses free watching as the image doesn't look right if you're not viewing it straight on."

In the living room, the content that should be the killer app -- namely games -- haven't been delivered as promised. "Microsoft (MSFT) has backed off it," adds Pidgeon. "Sony (SNE) has backed off it, and even Nintendo has somewhat backed off it. What this says is that there could very well be plenty of 3D TVs out there as that is what manufacturers will sell, but that doesn't mean people will be watching it. I'll believe it when I see it."

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