Movie Theaters and Studios Have Digital 3-D Plan

by: Julia Boorstin

Wall Street may be dominating the headlines, but it's a momentous day for the adoption of digital cinema. Far more than behind-the-scenes technology, this will make the movie at your local cineplex much crisper, and it'll make digital 3-D commonplace nation-wide.

This is good news for the movie studios and theater chains; allowing them to charge more for 3-D movies, while cutting down on the distribution costs of getting movies to cineplexes (instead of shipping reels via truck, the films will be distributed digitally).

Digital Cinema Implementation Partners, a studio consortium, announced funding pacts with Fox (NASDAQ:NWS), Disney (NYSE:DIS), Paramount (NYSE:VIA), Universal (NYSE:GE), and Lions Gate (LGF). These studios have agreements to cover the majority of costs to implement 14,000 digital systems in Regal Cinemas (NYSE:RGC), AMC (AC-OLD), and Cinemark (NYSE:CNK), in North America over three years starting early  2009. At least 4,000 screens are expected to be installed by the end of 2009.

The studios are paying because the digital systems will allow them to save the significant cost of physical production and distribution of film reels. So they're putting that money, and the equivalent of what they would have paid for the next few years, towards the new systems.  Digital systems are the prerequisite for digital 3-D screens, so this deal should jumpstart movie theaters implementing 3-D systems, with those costs covered by the theaters who will charge more for 3-D films.

Sony (NYSE:SNE) and Warner Bros. (NYSE:TWX) are notably absent from the consortium, though they're in advanced talks with the three major theater chains to pay the equivalent of their print costs for several years to help pay for the digital hardware. And even in this environment Wall Street is involved: JP Morgan (NYSE:JPM) and Blackstone are providing the financial backing of the rollout.

Digital cinema, and digital 3-D in particular, are incredibly important in helping the movie industry--studios and theaters--compete. With increasingly sophisticated home theaters, movie theaters need to really distinguish their offerings to get people into seats. With piracy always posing a threat the movie studios are eager for the likes of 3-D, which can't be pirated or recreated at home.

And both the theater chains and the studios like that they can charge more for 3-D, and moviegoers happily comply. Now all eyes will be on theater and movie studio companies to see if they can live up to their reputation of being counter-cyclical, booming during this economic downturn.