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Credit crisis may delay plans for 3-D in theaters

Bloomberg News / December 7, 2008
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The credit crisis is stalling plans to convert thousands of theaters 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 Corp., a supplier of software to run digital theaters, had planned to convert as many as 1,500 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 in an interview.

Cinedigm is supplying software and services to one of two theater groups seeking to raise as much as $1.7 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 Co. and News Corp.

They may have to wait six months to a year for funding, said Neil Begley, an analyst at Moody's Corp. 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 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 $70.6 million in sales, according to Box Office Mojo LLC, a film researcher. Theaters charged as much as $15 a ticket, more than double the US average of $6.88 in 2007, according to Media By Numbers LLC.

The two groups seeking to raise as much as $1.7 billion are Digital Cinema Implementation Partners, representing the three largest US theater chains, and Cinema Buying Group, representing smaller operators. They are trying to convert about 28,000 screens to digital from film over three or more years.

The money raised by both groups would be repaid by fees collected from studios based on the number of digital films shown, said John Fithian, president of the National Association of Theater Owners.

Movie tickets sold in the United States and Canada have declined in four of the past five years, dropping to 1.41 billion in 2007, according to Media By Numbers. Through Nov. 30, admissions are down 4 percent this year.

More than 4,000 screens in the United States and Canada have been converted, and about 1,400 have the necessary equipment, said Michael Lewis, chief executive officer of RealD, the largest 3-D equipment supplier.

Jeffrey Katzenberg, chief executive of DreamWorks Animation, said in October it was still possible as many as 2,500 screens would be 3-D ready when "Monsters vs. Aliens" comes out on March 27. The Glendale, Calif., company plans to make all future films available for 3-D.

3-D will be installed at more than 1,000 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 in an interview. "Whenever the capital markets open up, I think this is one of the sure-thing bets out there," Viane said.

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 both formats at its debut Jan. 16, Steve Rothenberg, president of theatrical distribution, said in an interview.

"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."

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