AccessIT Is Starring in the Analog-to-Digital Cinema Revolution

The so-called digital cinema revolution – the inevitable total electronic transition of movie production, distribution, and exhibition from analog celluloid film to digital files -- is being led by Morristown, N.J.-based Access Integrated Technologies, Inc., or AccessIT (AIXD). Some industry insiders have called the digital revolution the most important development in filmdom since the introduction of the “talkies” in the late 1920s. AccessIT's share price is currently hovering around $10, between a low of $3.25 in January, 2005 and a high of $14.73 on May 8, 2006.

AccessIT was among the first to develop and successfully test the required software for the 2K digital transition as well as devise a workable funding plan, which was highlighted by a $217 million line of credit it received from GE Capital. The proprietary software of AccessIT provides the digital link via satellite between studios and movie theaters around the country and also manages the entire digital process in the projection booth.

AccessIT recently announced it has completed more than 1,000 digital cinema system installations at some 121 multiplexes in 24 states around the country. The company now has contracts and arrangements with all the major studios and one of the largest exhibition chains (Carmike Cinemas), plus many small and mid-sized circuits. It expects to convert 4,000 screens over the next year and has set a goal of 10,000 by 2009.

The transition of the global motion picture industry (37,000 screens in the U.S. and Canada; more than 107,000 worldwide) to digital will save the major studios at least $1 billion annually in the U.S. alone while providing them with a powerful new tool to fight piracy, now estimated to cost the industry $6 billion annually. At the same time, it will provide exhibitors with ultra-high-definition, eye-popping, big-screen image quality (including easy 3-D capability) to meet the increasing competition from “home theater” (DVD, movies-on-demand, Internet downloads, etc.).

Equally important, it will open up a major new revenue stream for exhibitors from alternative content that can be beamed digitally onto their screens. Exhibitors envision attractions like the just-announced Metropolitan Opera performances, live concerts, major sporting events (SuperBowl, World Cup, Olympics, World Series, NASCAR, and the like), religious gatherings, children’s shows, corporate events -- in short, spectacles of all kinds. As it stands now, an estimated 85% of movie theater seats remain empty in any given week except for weekends and holidays.

Meanwhile, potential major competitors are either announcing big plans or marking time. Technicolor, the leading provider of analog celluloid film duplication and distribution, is still beta-testing its technology. It recently announced a deal with National Amusements, another large chain, for a pilot 150-screen deployment.

National CineMedia (the digital cinema consortium of Regal, AMC, and Cinemark) has not yet announced a specific funding or 2K technology strategy or made any installations of DCI-compliant 2K projectors. The industry is also awaiting some kind of detailed word from Kodak and Deluxe. Both are major players in the analog world who could be big losers in the transition to digital, as will be Ballantyne, a leading producer of analog projectors.

Overseas, there has been considerable activity. AccessIT is talking to exhibition chains in Latin America, Europe, and Asia. It’s also noteworthy that with such a pronounced lead in technology, installations, and funding, AccessIT might be a logical buyout route through which some of the lagging big boys mentioned above can quickly get into the game.

As noted, the company already has arrangements with all the major studios for them to pay about $1,000 per film delivery per screen to amortize the cost of the equipment, for which the exhibitors will not pay. The exhibitors will, however, pick up installation and maintenance charges. The studios have also agreed to release all major features going forward in digital format for 2K exhibition.

Richard Shonfeld does not hold a position in AIXD.

Comments

[David Collins_:]

"…Both are major players in the analog world who could be big losers in the transition to digital, as will be Ballantyne, a leading producer of analog projectors."

I just wanted to remind Mr. Shonfeld and readers of his blog entry that Ballantyne (AMEX: BTN), a company I represent in its IR effort, is in fact well positioned to participate in the "Analog-to-Digital Cinema Revolution" via its master reseller agreement with NEC for NEC's digital cinema projectors. Further, Ballantyne has launched a digital cinema services business - Strong Technical Services - via an acquisition it completed in June '06, that will enable the company to offer maintenance and service to digital projector owners. Currently, Ballantyne’s existing analog projector business is profitable and cash flow positive at current sales levels; and management is committed to actively managing that business segment – and its cost structure - through the adoption curve of digital cinema.

Given Ballantyne's deep customer relationships and the breadth of its installed base of traditional projection equipment across North America (well in excess of 50% of N.A. screens are outfitted with BTN analog projection equipment), we believe BTN has an excellent platform from which to pursue this new growth opportunity. And there appears to be plenty of opportunity for projector providers and service providers to coexist in harmony as the digital revolution takes hold.

Importantly, Ballantyne has no long term debt and had over $20 million in cash/equivalents and 14 million diluted shares outstanding at 9/30/06.

Please consult Ballantyne’s website www.ballantyne-omaha.c... and the company’s SEC filings to learn more about Ballantyne, its recent results and developments and to also review the risks and uncertainties inherent in its business, which could impact the companies ability to successfully pursue the digital cinema marketplace and achieve the forward looking comments made above.

Delayed quote and other background: finance.yahoo.com/q?s=...

David Collins
[e-mail]

2006 Nov 27 01:18 PM