Credit crunch stalls d-cinema rollout - 3-D film slate waiting for conversion

http://www.variety.com/article/VR1118001760.html

By DAVID S. COHEN

With "Monsters vs. Aliens" bowing in some 1,550 3-D locations over the March 27 weekend, the long-heralded second coming of the format may finally be here.

Too bad the same can't be said for the much-heralded rollout of digital cinema.

And with a bevy of 3-D films lined up waiting for the conversion, time is of the essence.

Up until late last year, 2009 was talked up as the breakthrough year for both formats, with the projected digital boom enabling a huge growth in 3-D.

Digital, it was promised, would revolutionize distribution, eliminating the expensive shipping of film cans, scratches on celluloid prints, etc., etc.

It was promised to be the wave of the future. But, it turns out, the future will have to wait.

After delays due to a number of factors -- a lack of technical standards, bitter haggling over virtual print fees -- the fiscal proved even more decisive.

Despite booming box office overall -- and especially for digital 3-D -- money for d-cinema is scarce.

Cinedigm -- one of the integrators coordinating the d-cinema rollout among studios, hardware makers and exhibitors -- was installing 500 screens a month in phase one of its rollout and preparing for a bigger phase two.

But then ...

"The credit markets have virtually collapsed," says Cinedigm CEO Bud Mayo. "As a result, the momentum that was built in phase one has slowed."

Not all d-cinema screens are 3-D, but to give some perspective, DreamWorks Animation topper Jeffrey Katzenberg said a year ago that he hoped 3,000- 5,000 3-D screens would be available for the bow of "Monsters."

Today, thanks to haggling over virtual print fees and the credit crunch, there are roughly 2,000 3-D screens in North America and 3,400 worldwide.

Cinedigm's phase two now calls for 10,000 screens to be converted to digital within four years. That's less than 200 screens a month.

Another d-cinema integrator, Digital Cinema Implementation Partners, a joint venture of AMC, Cinemark and Regal, aims to convert close to 20,000 screens to digital. JPMorgan is the senior lender in the deal.

JPMorgan and Blackstone Group announced in October that they aimed to raise $1 billion for d-cinema conversion; JPMorgan would be the senior lender for some $525 million. But the loan must be syndicated in chunks to other banks.

"Banks generally don't commit a half-billion dollars of their own balance sheet to a deal in this market," says David Shaheen, managing director of JPMorgan's entertainment industries group.

Several banks that had been major lenders in the entertainment space -- notably Deutsche Bank, Societe Generale and Dresdner Bank -- have fled entertainment finance altogether. GE's finance arm was the senior lender for Cinedigm's phase one, but GE's lending arm has troubles of its own these days.

Some in the arena expect interest rates to come down again within two years, but with a parade of 3-D tentpoles scheduled for release in 2009, both the studios and exhibs want 3-D screens installed sooner. That's left exhibs pitching Wall Street to step up and finance d-cinema.

Some smaller deployment deals are being struck with third parties, hardware vendors or exhibitors themselves. And Mayo says some of the financing for Cinedigm's phase-two rollout is coming directly from exhibs that can self-finance 50-100 screens.

Arts Alliance Media recently struck a $58.7 million financing deal to deploy 68 d-cinema systems for the Amsterdam Booking Co. in the Netherlands.

"We're not saying it's easy, but success can be achieved," says CEO Howard Kiedaisch of AAM.

For now, however, the march to digital is more of a crawl.