Studios Back Plan to Finance Rollout of Digital Cinema Equipment
A consortium of movie exhibitors is expected to announce Wednesday that it has obtained the backing of a total of five Hollywood studios for a plan to help finance the rollout of digital cinema equipment in U.S. theaters, according to people familiar with the matter, giving it the critical mass it needs to make products like 3-D cinema widely available.
Though the transformation to digital projectors in theaters has been discussed for a decade, only in the past few months have a number of Hollywood's biggest studios signed onto the project. On Wednesday, the consortium is expected to announce that Lion's Gate Entertainment Corp. has joined the four studios which had previously supported the plan: Viacom Inc.'s Paramount Pictures, News Corp.'s Twentieth Century Fox, General Electric Co.'s Universal Pictures and the Walt Disney Co. News Corp. also owns Dow Jones Co., Inc., publisher of The Wall Street Journal.
The consortium of theater owners, which is called the Digital Cinema Implementation Partners and includes Regal Entertainment Group, Cinemark Holdings Inc. and AMC Entertainment Holdings Inc., has been eager to add the technology but hasn't wanted to bear the cost alone. Under the agreement, the studios will help defray the $1 billion it will cost to install the expensive digital projection equipment.
Under the DCIP plan, the three big chains will be able to outfit several thousand of their combined 15,000 screens next year with the technology, with a goal of converting almost all in three to four years. It costs around $70,000 to outfit a screen with digital projectors.
DCIP officials did not immediately return calls seeking comment.
Digital projection would cut millions of dollars in annual costs for the studios by eliminating the need for film prints. It would give theater owners more flexibility to move films on and off the screens they operate. Digital projectors are also crucial to the rollout of equipment needed for 3-D movies, which Hollywood is increasingly planning to produce.
Under the DCIP plan, the three big chains will be able to outfit several thousand of their combined 15,000 screens next year with the technology, with a goal of converting almost all in three to four years. It costs around $70,000 to outfit a screen with digital projectors.
The financing package, totaling $1 billion, will be led by J.P. Morgan Chase & Co., and paid for over eight to 10 years. Private equity firm Blackstone is also involved in the financing, according to people familiar with the details of Wednesday's announcement.
Earlier this month, Universal Pictures and Disney agreed to throw their backing behind DCIP, though Time Warner Inc.'s Warner Bros. studio and Sony Corp.'s Sony Pictures will not be involved in DCIP at this time. Warner Bros. couldn't be reached for comment.
The studios will pay their share by contributing the money they would have spent on movie prints -- about $800 to $1,000 per film -- in the form of a so-called virtual print fee. The participating studios are promising to provide a digital print of their movies for each screen that converts to digital. The studios' total annual contribution would vary depending on how many movies each company releases per year.
The Hollywood studios' payoff comes later. Once the equipment is rolled out and their financing obligations are done, digital distribution of movies will cost just pennies per digital "print." The rollout of digital cinema has also been complicated by competing technologies.
Sony Corp.'s electronics unit is trying to get theaters to adopt its own digital technology. It is expected to announce on Thursday that it has entered into its own agreement with Sony Pictures, Twentieth Century Fox and Paramount, to provide exhibitors with Sony's own digital projector system, according to people familiar with the matter.
That group plans to roll out Sony "4K SXRD" projectors in theaters in North America, Asia and Europe, according these people. Sony's projectors have more than 4000 pixels per horizontal line. Most digital projectors on the market are 2K, meaning they have more than 2000 pixels per horizontal line. Specific details of the rollout and financing have not been disclosed. A Sony spokesman, Tom Di Nome, said that Sony is "working to finalize digital cinema agreements with Sony Pictures Entertainment, Fox and Paramount for a planned announcement."
While the long-term cost savings have been an incentive to participate, the move toward digital cinema has finally picked up steam recently, thanks to interest in a new generation of high-tech 3-D movies that has been billed by some as a key to keeping the theatrical film business healthy. Several movies, such as "Journey to the Center of the Earth," have taken in considerably more revenue on 3-D than expected, getting both studios and theater owners more interested in converting screens to digital, the first step in most 3-D set-ups.
By Peter Sanders, The Wall Street Journal
