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March 10, 2008

Studios and Theatres Finalize Plans for Digital Upgrade

Reuters is reporting that theatre chains representing 40% of North American screens and the major movie studios have finally agreed to a financing plan to upgrade 14,000 movie screens to digital and 3-D capable technology. The upgrade will cost about $1.1 billion or $70,000 to $75,000 per screen. Studios, theatres, and other content providers would pay fees to use the newly installed equipment with the fees being passed through to bondholders that would be financing the transaction. Obviously, the current credit markets might make completing the deal difficult but the stability inherent in the theatre business should make this a low risk transaction. Digital and 3-D upgrades are a win-win for theatre and studio owners. Studios will save on storage and distribution by downloading films to theatres. Theatres will get better quality digital images, have the capability to receive non-movie content that might fill seats during slower times, and most importantly sell 3-D tickets at a premium. The success of the Hannah Montana 3-D film earlier this year at $15 per ticket has studios and theatres drooling. Dreamworks Animation is committed to issuing all of its movies starting next year in 3-D. Ultimately, the impact is going to be marginal in an absolute dollar sense but it will be enough to improve the operating growth profile of studios and theatres. I'll take incremental growth any place I can get in mature industries.

Posted by Steve Birenberg at March 10, 2008 03:19 PM in Box Office