Blackstone, JPMorgan in $1bn cinema deal

Blackstone, JPMorgan in $1bn cinema deal

By Matthew Garrahan in Los Angeles

Published: October 1 2008 06:54 | Last updated: October 1 2008 06:54

Blackstone and JPMorgan will brave shrinking credit markets by attempting to raise more than $1bn to fund the conversion of up to 20,000 US cinema screens to digital projection systems, in a deal due to be announced on Wednesday.

Blackstone and JP Morgan are arranging the financing for a consortium made up of the three largest US cinema chains, which has done a deal with five Hollywood studios, according to a person familiar with the situation.

Lionsgate has joined Walt Disney, Paramount Pictures, Twentieth Century Fox and Universal Pictures in signing up to the consortium’s plan.

The Digital Cinema Implementation Partners (DCIP) consortium is made up of AMC Entertainment, Cinemark and Regal Entertainment. The consortium, which could not be reached for comment, has been in talks with the studios for several months over how to structure the costly conversion to digital cinema.

Digital projection systems allow cinemas to screen 3-D movies, which tend to generate more money per screen than normal films. Digital projection will also save Hollywood money in the long term because the studios will not have to produce or distribute expensive celluloid prints, which can become damaged over time.

The studios have all made big bets on 3-D taking off and are preparing to unleash a wave of ambitious films in the format over the next two years. Disney has 3-D versions of A Christmas Carol and Alice in Wonderland due to hit theatres in 2009 and 2010. Bolt, its next 3-D release, comes out in November.

Twentieth Century Fox will release Ice Age 3 in 3-D next summer while Avatar, which will be directed by James Cameron, comes out at the end of 2009. All new DreamWorks Animation films, which are distributed by Paramount, will be in 3-D starting with Monsters vs Aliens, which is due to be released in March.

The conversion of 20,000 screens to digital represents a significant opportunity for the US entertainment industry. There are about 40,000 cinema screens in the US, but only a few hundred can currently show films in 3-D.

The studios can charge a premium for 3-D movies, which can earn as much as five times more per screen than films shown in 2-D. The studios are desperate to repeat the success of Walt Disney’s recent Hannah Montana film, which generated more than $65m in the US from only 700 3D-capable screens.

Digital projection will also allow the cinema owners to screen more than movies in their auditoriums, such as sports events and concerts.

The conversion will be funded by the studios agreeing to pay a “virtual print fee”. Under this plan they will continue to pay the fees they have always paid to use traditional projection systems. This income stream will be securitised, allowing DCIP to raise the money needed to finance the installation of digital systems.

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