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Hollywood Hopefuls

It wasn’t that long ago when some in the entertainment industry were predicting the downfall of the movie-going experience because of the advent of in-home technology.

They were wrong, at least for now.

And while Hollywood honors the best of 2006 at the 79th annual Academy Awards Sunday, the real excitement is about the big year ahead.

Moviegoers are expected to be back in full force this summer, following a modest rebound in 2006, as the latest installations of Hollywood’s most successful blockbuster franchises hit the big screen. The “triple threat” poised to dominate the box office in May – “Spider-Man 3,” “Pirates of the Caribbean: At World’s End” and "Shrek the Third” – will break box office records and revive the movie theater business, analysts say.

“This is extraordinary,” says Jeff Bock, analyst for box-office tracking firm Exhibitor Relations. “This is good for theaters and will definitely help them have a packed audience.”

And companies tied to film exhibiting are hoping this will bring investors back to them.

“This is a turning point in the theatrical exhibition segment,” says Terrence Davison, director in the Entertainment, Media and Communications Advisory Practice for PricewaterhouseCoopers. “The industry is going away from analog and going to digital technology. Big investment needs to be made, so exhibitors are looking to raise money.”

One example is the recent successful IPO of in-theater advertising firm National CineMedia, a joint venture of the three biggest theater chains Regal Entertainment Group, AMC Entertainment and Cinemark. Billionaire and Quest founder Philip Anschutz is one of National CineMedia's owners.

Publicly-traded Regal, the largest player in the market with about 18% of all indoor screens in the U.S. and a $3.28 billion market cap, expects to net $445 million from the IPO. Regal says it will use the proceeds for strategic acquisitions, a dividend, stock repurchases and other corporate uses.

No. 2 player AMC is preparing an IPO to sell up to $750 million in common stock, under the name Marquee Holdings. The company owns more than 400 theaters, including the AMC and Loews Entertainment brand names. Marquee's investors include private equity firms Apollo Capital Management, Bain Capital and The Carlyle Group.

The third-largest chain Cinemark is once again planning an IPO. The company tried to go public in 2002 but scrapped the plan and was later acquired by private equity firm Madison Dearborn Partners for $1.5 billion. Now Cinemark is looking to offer up to $400 million in common stock.

Investors may be interested in its Latin America strategy. Unlike Regal and AMC, which rely mainly on the U.S. market, Cinemark operates nearly one-third of its theaters in Latin America. The region is considered one of the fastest growing markets in the world, with a box office revenue growth rate of about 12%, compared to a rate of less than 1% in the United States, according to the Motion Picture Association of America.

Smaller rival Carmike Cinemas, which is already publicly traded, has had a rough year, but analysts say it too will benefit from this year’s blockbuster releases.

The new investment, Davison says, will help theaters upgrade their facilities to transition into digital technology and satellite delivery. They are also working with studios to share these costs – long a bone of contention between the two parties – since studios will save money on film printing costs in the long term.

After years of being in a slump, the U.S. box office rebounded slightly in 2006, by 2% from $8.99 billion to $9.15 billion, according to Exhibitor Relations. And it seems the big studios are listening to critics that blamed them for poor film choices, opting to go with proven formulas for success.

“Building on a franchise is a safer bet,” Davison said. “Franchises like Superman, Harry Potter… the public have come out to say they love it. For studios, they’ve got something bankable, the thing that gives them the bread and butter. Then they can take risks on other films, on something that isn’t as bankable.”

Increased theater traffic also means a bigger audience for lesser-known films – another huge plus for studios, says Bock of Exhibitor Relations.

“If you can’t get a ticket to ‘Spider-Man 3,’ you may go see ‘Georgia Rule,’” Bock explained. “Overflow always helps these smaller films. The blockbusters also bring in people who normally wouldn’t go to the movies.”

And moviegoers will not have a shortage of blockbusters to see. Among the offerings: the fifth "Harry Potter" film, a fourth "Die Hard" movie, "Rush Hour 3," a movie version of "The Simpsons," a "Fantastic Four" sequel and "Ocean's 13." And don’t forget about "Transformers" and "Ratatouille,” a new animated film from Disney’s Pixar.

“This is an exciting time for cinemas,” Davison said. “Digital technology will give it new life and longevity. After all, the theater is still the key marketing front of any picture.”

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