Theater Chains Finally Secure 3-D Financing

Movie theaters are finally about to secure the financing they need to convert enough screens to 3-D to drive the next leg of box office growth.

I've confirmed that a joint venture owned by AMC, Regal and Cinemark, is about to announce that it's secured $660 million in financing to convert 14,000 movie screens to digital by the end of 2013, tripling the number of digital screens in the U.S. The joint venture, Digital Cinema Implementation Partners, expects to finalize the financing before the weekend. J.P. Morgan Chase is putting together the $445 million in debt and $215 million in equity.

This financing for digital conversion is the long-awaited lynchpin to enable theaters to roll out 3-D projectors. This news comes at a crucial time: there aren't enough 3-D theaters to sustain the number of 3-D movies coming out this spring. Disney's "Alice in Wonderland" opens just three weeks before DreamWorks Animation's "How to Train your Dragon," raising concerns that these 3-D movies and the slew of others that will follow are likely to cannibalize each others' business.

Financing will be put to use immediately converting theaters — with nearly two dozen 3-D movies this year, studios and theaters risk leaving hundreds of millions of dollars of 3-D ticket sales on the table. More 3-D theaters are a win-win — theaters charge on average $3 more per ticket for a 3-D screening. The studios also benefit from 3-D movies' higher ticket prices and the fact that the screenings are generally far more packed than a typical 2-D screening: the average 3-D movie brings in 25 percent more at the box office than the 2-D alternative.

The major movie studios are also part of the 3-D financing deal — they agree to pay a fee to DCIP for every film booking. The studios will end up saving a hefty chunk of change, as the traditional model involved shipping heavy canisters around the country to each theater, paying as much as $1,500 per film print, and replacing it if it wears out before the end of the film's run. To help finance the transition to digital, the studios will pay about $850 per film to DCIP.

This financing is a long time in coming: DCIP was founded back in 2007, but the financial crisis put the breaks on plans to secure credit in 2008. The problem is that production of 3-D films didn't slow down in the meantime.

A note — the financing doesn't convert theaters directly to 3-D. Once theaters have digital systems in place, which can cost $50,000 to $70,000 per screen, the theater chains will work directly with 3-D companies like RealD, with whom they already have deals to rent or lease 3-D projectors.

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