Pact With Regal Group Will Expand Digital Theater Technology

By Roger Harris, The Knoxville News Sentinel, Tenn.

Jul. 25–Knoxville-based Regal Entertainment Group said Thursday a major Hollywood studio has signed a deployment agreement with Digital Cinema Implementation Partners, a joint venture of Regal, Cinemark and AMC Entertainment formed to roll out cinema digital technology to theaters nationwide.

CEO Mike Campbell declined to identify the studio because sensitive negotiations continue with other major film studios. He expects agreements with other studios to be signed later this year.

The signing of the first studio represents a significant step in DCIP’s effort to expand digital theater technology, Campbell said.

“We’ve always considered that a milestone. Nobody wants to be first, and now we’ve gotten past that milestone,” Campbell said.

The agreement essentially calls for the studio to help subsidize the cost of installing digital technology. Conversion to digital projection costs about $75,000 per screen, Campbell said.

Regal is spending millions of dollars to update its theaters with digital, 3-D and IMAX equipment to compete for consumers’ entertainment spending. About 200 of Regal’s more than 1,500 screens have been converted to digital technology.

Also Thursday, Regal, the largest theater operator in the country, released its second quarter financial report. Profit declined about 74 percent to $13.8 million, or 9 cents per share, for the quarter ended June 30, from $52.7 million, or 33 cents per share, in the second quarter of 2007.

Sales also slipped to $675.8 million from $683.4 million in the quarter just completed.

The decline in profit reflects an $11.1 million loss on debt retirement, and the fact that the company benefited in the second quarter last year from a one-time $17 million gain on the sale of its interest in ticket distribution company Fandango.

Focusing only on the profit decline clouds the company’s actual performance, Campbell said. Overall, Regal “had a pretty good quarter and slightly exceeded expectations on EBITDA (earnings before interest, taxes, depreciation and amortization) and allayed the fears in the investment community that we are somehow going to be impacted by the recession,” Campbell said.

Despite a difficult “macro economic environment,” consumers are still buying movie tickets, Campbell said.

Last weekend’s opening of “The Dark Knight” set box office records, he noted.

As further evidence that consumers are willing to spend money on the movies even though gasoline and food costs are soaring, Regal’s premium priced IMAX and 3D screens generated strong revenue in the second quarter, Campbell said in a conference call with analysts.

The action movie “Journey to the Center of the Earth” generated four times the revenue on 3D screens as it did on 2D screens during the recently completed quarter.

And in the current quarter, “The Dark Knight” has generated 4.5 times the revenue on Regal’s IMAX locations as it has on non-IMAX screens, Campbell said.

“People are going to theaters more. It’s pretty cheap out of home entertainment,” he said.

Also in the second quarter, Regal completed the $210 million purchase of Consolidated Theatres, which included 28 theaters in Georgia, Maryland, North Carolina and South Carolina, Virginia and Tennessee with 400 screens.

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