Now that five studios have agreed to help defray the cost of converting to digital cinema, the country’s top three theater circuits face the daunting task of raising up to $1 billion in financing at a time when credit wells are dry.
AMC Entertainment, Cinemark and Regal Entertainment, working through a consortium called the Digital Cinema Implementation Group, needed the majority of studios aboard before securing the financing, which they will use to pay for installing digital screens.
After months of tough negotiations 20th Century Fox, Disney, Lionsgate, Paramount and Universal had all agreed as of Wednesday to pay a “virtual” print fee.
Deals mark a milestone for the digital 3-D movement. As of now, there aren’t enough digital screens to support the number of 3-D movies being made by studios. Next year, there are a dozen 3-D releases.
“This is a big step, and a big day,” DCIP chief exec Travis Reid said.
Sony is said to be in the final stages of joining the DCIP pact. Warner Bros., too, is in talks.
Regal, AMC and Cinemark have all held back on going digital, saying studios should bear some of the cost.
Once they go digital, theaters can also offer alternative programming, such as sports, plays or operas, at higher ticket prices, as with 3-D.
DCIP has retained JPMorgan and Blackstone to raise the financing.
Studios stand to save many hundreds of millions of dollars once the digital rollout is complete, since they will no longer have to make prints. For all intents and purposes, the virtual print fee will be used to defray the cost of converting a conventional screen to digital, which is about $70,000. Once the equipment is paid off, which could take as long as seven or eight years, the studios will cease paying a fee.
There are still more immediate savings for the studios: As the number of digital screens grows, the virtual print fees will be less than conventional print fees.
Studios have long argued that smaller circuits won’t begin transitioning to digital until Regal, AMC and Cinemark do.
All together, the top three circuits operate between 14,000 and 15,000 screens in North America out of a total screen count of roughly 37,000. As of now, there are only about 5,000 digital screens.
Deal between DCIP and the five studios covers 20,000 screens, since an additional circuit is expected to come aboard. Also, there will be new screens.
DCIP announced in March that it intended to raise the $1 billion in financing, predicated on securing studio deals.
Plan calls for the conversion to take more than three years, with several thousand screens expected to be converting by the end of 2009.
The National Assn. of Theater Owners, long frustrated by the delay in converting screens to digital, welcomed the news.
“With a deal in place for the largest U.S. theater chains, it is time to conclude a similar digital cinema agreement for the hundreds of independent cinemas and thousands of screens not covered by this agreement. It is imperative for the health of the industry and for the millions of moviegoers in small towns and cities that the benefits of digital cinema be spread as widely as possible,” NATO said in a statement.
Separate from the DCIP deal, Paramount also announced that it has become the first studio to ink a deal with Kodak, under which it will pay virtual print fees to theater owners using Kodak equipment.