One of the more interesting public companies in the 3D space is Arius3D, a firm that is committed to stockpiling 3D images and selling the right to display them to other people. They operate not that differently from the AP or Reuters, really. Even iStockPhoto (which actually sells videos, flash files, and audio as well): You want to display a 3D image, you pay a fee, they deliver the ability to display such an image. The question is, does anyone actually want to do that?
Basically, that remains to be seen. Which is probably why Arius3D took the step this week of acquiring Masterfile, a Canadian firm that Arius3D calls “one of the world’s largest providers of premium still images.” They paid a little more than $21 million Canadian for the company.
“Now, wait a second,” you might be thinking, “how is it that Arius3D, a company that pulled in under $2 million for the year ended March 31, 2011, and reported almost $4 million in losses, go about buying another company for $21 million?”
Good question. Any finance guys in the audience? This is what the release says:
The Company intends to raise the funds necessary to satisfy the cash portion of the purchase price through an agreement with an arm’s length entity (“Financing Partner”). The Company is currently negotiating an agreement with Financing Partner pursuant to which (i) Financing Partner will acquire Masterfile’s contractual rights to the pictures and images currently (and to be) licensed by Masterfile (the “Masterfile Library”) for $20 million in cash, (ii) Masterfile will provide distribution services to Financing Partner and (iii) Masterfile and/or Arius3D will receive a participation interest in the net profits (after the payment of applicable royalties to the respective artists/licensors) to be obtained from Financing Partner in connection with the Masterfile Library. Arius3D has also entered into an agency agreement with Loewen Ondaatje McCutcheon Limited (“LOM”) pursuant to which LOM has agreed to complete an equity financing on a best efforts basis. It is expected that this equity financing will close on the Closing Date and will raise sufficient funds to repay the Masterfile Loans (as referred to below) and to fund the working capital requirements of Arius3D following the Closing Date. The pricing and other terms and conditions of this equity financing have not yet been finalized.
“It is expected.” That’s one of my favorite financial reporting phrases.
But Arius3D doesn’t appear to be some fly-by-night operation. First, they also run a company called A3DL Ltd., which is located in Europe and has “committed 190 million pounds sterling towards creating content using the Arius3D technologies around the world.” That’s a fair amount of cash, though notably will not be used for this Masterfile transaction.
Plus, they’ve got guys like Perry Monych, who used to be president of Tech Data’s U.S. operations, on the board. I don’t know Perry from Adam, but I’ve covered Tech Data in the past and you don’t get that kind of gig with a $9 billion company without being at least a little competent.
They’ve also got a new CEO, John Wood, who has held a bunch of hedge fund/investment bank type gigs, and those guys generally don’t often get involved in lost causes that are going to hemorrhage money forever. Plus, the guy won an Olympic medal in canoeing. You don’t win Olympic medals by being unmotivated to succeed. (I admit that I had no idea canoeing was an Olympic sport – however, I’m a fairly competent canoeist, myself, having recently taken my children into Turtle Cove on Clearwater Pond and pointed out at least three painted turtles and one great blue heron).
So, what do these guys see here? There’s no question that the world is becoming more image-centric. Words are consistently being replaced by video and images and slide shows. Where once maybe one photo would run with a story in a newspaper, now there might be 10 online. I see that trend. And, as everyone need a website, and everyone considers themselves a publisher, there’s more and more demand for stock image repositories, since most of these ad hoc publishers wouldn’t know a professional photographer if they bumped into her on the street, and they’ve got to get pretty images somewhere.
But does the world have a desire to purchase 3D images? When a newspaper’s web site does a report on some museum opening, would they pay extra to show a rotating 3D image of one of the collection items? Instead of running an image of the new car released by Ford, would a site see value in running a manipulable 3D scan of the car’s body? Would schools license the use of these 3D objects for educational purposes?
Right now, I’d say no. Where’s the demand? Sure, those spinning 3D objects are cool, but are they so cool they’re going to drive significantly more traffic to a site? Are people going to pay to see and play with them?
Sure, I can see non-profits like the Royal Ontario Museum finding grant funding to put their collections online in this way, but is that a multi-million-dollar business long-term?
The only way I see this taking off is if 3D viewing truly comes to mobile and tablet devices in a way that doesn’t strain the eyes and is relatively affordable, or if 3D home displays become very popular and people really do buy into piping the internet into their televisions (which I do think will happen, actually).
There’s an undeniable cool factor to playing with these kinds of 3D objects in a 3D viewer. Spinning them around on a 2D viewer? It has a novelty, but I think it wears off quickly, and the resolution just isn’t as good as a nice crisp photo.
If that comes to pass, Arius3D, and other companies that will inevitably spring up like them, will be vital to driving the 3D data capture market. They will create the demand to digitally capture as much of the world as possible, and that has to be a good thing for scanner owners and operators.
So, you should probably be rooting for them. It might be akin to rooting for an underdog, but, hey, we’re used to that here in the States.
