Digital Projection Deal Close To Reality

A consortium of theaters are expected to announce within two weeks a $1 billion financing deal with four major studios – Universal, Paramount, Disney and Fox – that would provide digital projection systems to more than 15,000 movie screens during the next three years. 

The studios will be supported with financing from JPMorgan Securities.

Although digital cinema has been seen as an inevitable development in movie exhibition for years, implementation became stalled as studio owners and theaters haggled over the details.  

Regal Cinemas, AMC Entertainment and Cinemark established the New York-based Digital Cinema Implementation Partners (DCIP) more than a year ago. However, the consortium only recently gained consensus among its members on a so-called virtual print free (VPF) deal to fund the rollout.

Under the VPF agreement, the studios will pay most of the nearly $100,000 per system costs required to deploy the digital-cinema equipment. The move will facilitate both digital projection in converted auditoriums and potentially 3-D exhibition as well, as long as theater owners assume the added costs of the 3-D installations.

The deal calls for studios to pay an amount equal to the print costs they would have incurred had the auditoriums not been converted to digital projection.  Digital distribution is expected to ultimately save the studios millions in annual costs.  

Sony and Warner Bros. are not expected to be included with the DCIP agreement prior to its announcement, but are expected to agree to consortium VPFs shortly, according to a Reuters report quoting a source familiar with the studio discussions.

Nevertheless, DCIP is widely expected to announce the deal with the first four major studios prior to the start of the ShowEast convention of theater owners in Orlando on October 13.

One potential issue likely to create a stir at the show is the question of how funding for digital conversions will be managed for local and regional theaters. Some have warned that such exhibitors could be put out of business if they are unable to make the digital transition. 

In addition to serving as a gateway technology for 3-D exhibition, digital projection facilitates the move to TV-like advertising on movie screens.   Movie chains, such as Regal and others, are already seeing increasing revenues by implementing these ads to supplement or replace traditional advertising slide shows.

The pending DCIP deal is expected to generate upward of 3,000 digital system installations during its first year, which would likely be sprinkled among both major and midsize markets throughout the country.