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Wed Feb 24, 2010 8:38pm EST

By Sue Zeidler

LOS ANGELES, Feb 24 (Reuters) - Hollywood studios and the big U.S. theater chains are close to securing about $650 million in long-sought financing to upgrade thousands of movie screens to digital, a source familiar with the matter said on Wednesday.

Back in October 2008, the Digital Cinema Implementation Partners (DCIP) -- formed by Regal Entertainment Group (RGC.N), Cinemark Holdings Inc and AMC Entertainment Inc [MHIAE.UL], said Blackstone Group LP and JPMorgan Chase & Co would lead the financing for the conversion.

Financing for the deal, which faced hurdles due to the credit crisis, includes $445 million in debt and $215 million in equity. The financing should close as early as Friday, the source said.

Various studios are involved in the effort, including Walt Disney Co (DIS.N), Viacom Inc's (VIAb.N) Paramount Pictures, News Corp's (NWSA.O) Twentieth Century Fox, General Electric Co's (GE.N) Universal Pictures, Lions Gate Entertainment (LGF.N) and Sony Corp (6758.T)(SNE.N).

Hollywood has a lot riding on the conversion, particularly in light of hits like James Cameron's "Avatar" and with many studios like DreamWorks Animation (DWA.O) and Disney aggressively rolling out 3-D films.

The studios need enough 3-D screens in theaters to support their slates. DCIP has said the goal is to convert existing theaters of DCIP's members, AMC and Cinemark, and Regal, which operate a little over 14,000 screens in the United States and Canada.

There are about 40,000 movies screens in the United States and about 7,600 of them are digital, according to industry experts.

It costs around $70,000 to outfit a screen with digital projectors, but the conversion first faced delays from debates over who should pay for the systems and later again by the economic crisis.

DCIP first hoped for a deal by late 2007, but the talks hit snags over terms requiring studios, exhibitors and content providers to pay usage and other fees to help pay off loans provided by institutions like JPMorgan to buy and install new digital equipment.

www.reuters.com/article/idCAN2420567920100225?rpc=44

This is already been confirmed by Regal Entertainment (RGC) and Cinemark (CNK) on both of their quarterly investor conference calls. The first round of financing for DCIP will raise $660 million to bankroll the upgrade of between 60-70% of each operator's US screens.

Regal expects to start the screen upgrades in the May/June time-frame while Cinemark will start ramping their 3-D/digital screen upgrades in June. Due to the bigger release slate of 3-D films that has popped up in 2010, the initial bulk of the screen upgrades will be for both digital and 3-D. Both RGC and CNK expect to be installing ~100-200 screens a month once they get the process rolling in earnest.

The big boys involved with DCIP (Regal, AMC, Cinemark) will get their screens upgraded to digital for ~$13,500 or so per screen compared to the nominal upgrade cost of ~$70,000/screen. Carmike was able to get their entire first-run circuit upgraded earlier (2006-2007) for a bit lower, at approximately ~$6,000 in cash outlay per screen.

Anyone know if they will convert all screens at a location or will they do partial conversions and then come back later to finish the rest of the screens?

Obviously the former would be better for us smaller theaters than the latter.

DCIP is only for Regal, AMC, and Cinemark; independent exhibitors have no access to that upgrade funding.

If you are getting upgraded via NATO's Cinema Buying Group, I believe the Cinedigm rep I spoke with said that Cinedigm's target was to upgrade at least 50% of the screens at a location for digital in the initial round of installations.

BWT, I know it just for the big three. I am just trying to predict availability of film in the future.

For example: if they do partial location conversions at a rate of 100 locations per mo., that would mean 1200 or so fewer locations running film to a certain degree by June of 2011. Which mean fall of 2011 may be challenging to get movies on move-over. If they convert all screens at a location before moving on, then that would mean more locations running film.

I know many feel that film will be around for 10 more years or more. It may be around for many, but many will not have access to it.

I am beginning to think 3 years is about as long as you can wait to convert. Hopefully prices have dropped in half by then.

rufusjack wrote:
If you are a CBG member and go through Cinedigm, you can do a minimum of 50% of the complex to start, but the remaining screens must be completed within 1 year.

If you do it on your own, you can install as many screens as you want, whenever you want.

Transit,

I was asking about the big three in order to try to estimate practical life for film and how this will effect me.

CBG is irrelevant to me on this at this point in time.