News : Theaters, studios near deal for digital projection

By Carl DiOrio

LOS ANGELES (Hollywood Reporter) - A consortium of the nation's top movie-theater chains will announce within two weeks a $1 billion-plus financing agreement with four major studios to equip more than 15,000 screens nationwide with digital-projection systems during the next three years.

Universal, Paramount, Disney and Fox -- with financing backing from JPMorgan Securities -- are expected to announce the funding of systems to be rolled out by New York-based Digital Cinema Implementation Partners. Regal Cinemas, AMC Entertainment and Cinemark formed DCIP more than a year ago, but it has taken until recently to get a majority of the major studios to sign off on so-called virtual print fee (VPF) agreements to fund the digital rollout.

Under the deal, studios will pay a majority of the roughly $100,000 per system in hardware and installation costs to install digital-cinema equipment in theaters operated by the biggest theater chains. That will facilitate not only digital projection in the converted auditoriums but potentially 3-D exhibition as well, if the theater owners take on the extra, more modest expense for 3-D installations on their own.

Through VPFs, studios agree to pay for several years' sums equal to the print costs they would have incurred had the auditoriums not been converted to digital projection. Eventually, digital distribution will save studios millions annually.

Warner Bros. and Sony aren't expected to be on board with the DCIP agreement by the time it's announced. But they likely also will agree to consortium VPFs before long, according to a source familiar with the studio discussions.

DCIP chief and exhibition vet Travis Reid was unavailable for comment. But it's broadly expected that DCIP will announce a deal with the first four major studios sometime before the October 13 start of the ShowEast convention of theater owners in Orlando, Florida.

One lingering concern sure to stimulate lots of talk at the conference is the question of how regional circuits and mom-and-pop exhibs will pay for their digital conversions. Some have suggested that smaller-fry exhibitors could be driven out of business unless they somehow manage to clamber onto the digital bandwagon.

In addition to representing a gateway technology for 3-D exhibition, digital projection facilitates the implementation of TV-like advertising on movie screens. Regal and other chains are already reaping big boosts in revenue by using such ads to supplement or replace old-fashioned advertising slide shows.

Digital cinema has been considered an inevitable development in movie exhibition for years. Haggling between the studios and theater owners has stalled a big rollout of movie-quality equipment. Regal, in the meantime, spent heavily to install more basic digital projectors to show commercials before feature presentations in its theaters.

The looming DCIP agreement is expected to result in the installation of upward of 3,000 digital systems in its first year of implementation. Those are likely to be sprinkled among major and midsize markets nationwide.

Reuters/Hollywood Reporter