3-D Movie Plans Stall as Theaters Curtail Spending (Update1)

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By Michael White

Dec. 5 (Bloomberg) -- 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 Officer 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 Burbank, California-based 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.

‘Hannah Montana’

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 U.S. average of $6.88 in 2007, according to Media By Numbers LLC.

Studios and theater owners are trying to convert about 28,000 screens to digital from film over three or more years.

So far, more than 4,000 screens in the U.S. and Canada have been converted, and about 1,400 have the added equipment necessary for 3-D, said Michael Lewis, chief executive officer of Beverly Hills, California-based RealD, the largest 3-D equipment supplier.

Jeffrey Katzenberg, CEO 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, California-based 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.

Fewer Moviegoers

“Whenever the capital markets open up, I think this is one of the sure-thing bets out there,” Viane said. “I think the funding will come easily.”

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

Digital Cinema Implementation Partners, representing the three largest U.S. theater chains, reached an agreement with five studios in September to raise as much as $1 billion to equip as many as 20,000 screens. JPMorgan Chase & Co. is leading an effort to raise the money.

The Cinema Buying Group, representing smaller operators, is working with Goldman Sachs Group Inc. and General Electric Co. to raise $600 million to $700 million for another 8,000 screens. Cinedigm is providing software and installation to the Cinema Buying Group, and will bid for work with DCIP, Mayo said.

Representatives for JPMorgan and Goldman declined to comment on financing efforts.

Tight Credit

“Everyone feels like the credit market just has to loosen up a little bit before anyone is going to be able to fund debt at the levels we’re looking at,” Robert Copple, chief financial officer for Cinemark Holdings Inc., said on a Nov. 10 conference call. Cinemark is the third-largest U.S. theater chain behind Regal Entertainment Group and AMC Entertainment Holdings Inc.

Under both plans, money will be repaid by studios based on the number of digital films shown, said John Fithian, president of the National Association of Theater Owners.

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 a mix of 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 U.S. 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.”

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net.

Last Updated: December 5, 2008 14:05 EST