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The credit crisis is stalling plans to convert thousands of US theatres to digital projection, threatening profits on more than a dozen 3-D films Hollywood will release next year, including DreamWorks Animation SKG's Monsters vs Aliens.
Cinedigm Digital Cinema, a supplier of software to run digital theatres, had planned to convert as many as 1500 screens by March 2009. Now, with funds on hold, the company expects 100 to 200, chief executive Bud Mayo said.
"Here we are in the December quarter and we're just getting going," Mayo said.
Cinedigm is supplying software and services to one of two theatre groups seeking to raise as much as US$1.7 billion ($3.13 billion) for the conversions. That would allow owners to install extra 3-D equipment and charge premium ticket prices for 14 films scheduled for release next year by studios including Walt Disney and News Corp.
They may have to wait six months to a year for funding, said Neil Begley, an analyst at Moody's in New York. Borrowing money now would mean double-digit interest rates, he said in an interview.
Next year's 3-D releases include a version of the original Toy Story from Burbank, California-based Disney and James Cameron's Avatar from News Corp, the director's first feature film since Titanic in 1997.
Disney plans five 3-D films, the most of any studio.
In February, NBC Universal will release Coraline, based on the book by Neil Gaiman. Monsters vs Aliens is set for March, DreamWorks Animation's only movie of the year.
The appeal of 3-D was demonstrated in February by Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour, which had US$70.6 million in sales, according to Box Office Mojo, a film researcher.
Theatres charged as much as US$15 a ticket, more than double the US average of US$6.88 in 2007, according to Media By Numbers.
Studios and theatre owners are trying to convert about 28,000 screens to digital from film over three or more years.
So far, more than 4000 screens in the US and Canada have been converted, and about 1400 have the added equipment necessary for 3-D, said Michael Lewis, chief executive officer of Beverly Hills, California-based RealD, the largest 3-D equipment supplier.
Jeffrey Katzenberg, CEO of DreamWorks Animation, said in October it was still possible as many as 2500 screens would be 3-D ready when Monsters vs Aliens comes out on March 27.
The Glendale, California-based company plans to make all future films available for 3-D.
It will be installed at more than 1000 locations by the time Disney's next release in the format, a Jonas Brothers concert film, opens in February, Chuck Viane, president of distribution for Walt Disney Studios, said.
"Whenever the capital markets open up, I think this is one of the sure-thing bets out there," Viane said. "I think the funding will come easily."
Movie-ticket sales in the US and Canada have declined in four of the past five years, dropping to 1.41 billion in 2007, according to Media By Numbers. So far this year admissions are down 4 per cent as of November 30.
Digital Cinema Implementation Partners, representing the three largest US theatre chains, reached an agreement with five studios in September to raise as much as US$1 billion to equip as many as 20,000 screens. JPMorgan Chase is leading an effort to raise the money.
The Cinema Buying Group, representing smaller operators, is working with Goldman Sachs Group and General Electric to raise U$600 million to US$700 million for a further 8000 screens.
Cinedigm is providing software and installation to the Cinema Buying Group and will bid for work with DCIP, Mayo said.
Representatives for JPMorgan and Goldman declined to comment on financing efforts.
"Everyone feels like the credit market just has to loosen up a little bit before anyone is going to be able to fund debt at the levels we're looking at," Robert Copple, chief financial officer for Cinemark Holdings, said on a November 10 conference call.
Cinemark is the third-largest US theatre chain behind Regal Entertainment Group and AMC Entertainment Holdings Inc.
Under both plans, money will be repaid by studios based on the number of digital films shown, said John Fithian, president of the National Association of Theatre Owners.
Some owners are moving ahead on their own, borrowing to convert a few screens before studios begin releasing movies next year, Mayo said. The 100 to 200 that Cinedigm plans to complete by the end of March are being financed that way, Mayo said.
Until more 3-D screens become available, most studios plan to release movies in both 3-D and conventional formats.
The first 3-D film of 2009, Lions Gate Entertainment Corp's My Bloody Valentine, will be distributed in a mix of both formats at its debut January 16, said Steve Rothenberg, president of theatrical distribution.
"There's enough of a critical mass of 3-D locations in the US and Canada that you can open up with a tremendous box office gross," Rothenberg said.
"Would we want there to be more 3-D locations? Of course."
- BLOOMBERG
