Media Morning: Funds start to flow for digital cinema expansion, Imax

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Now that the Oscars are over, Hollywood's less glamorous -- but still important -- partners in the movie theater business are stepping into the spotlight prior to the industry's annual ShoWest convention next week. 

Exhibitors on Wednesday heard the announcement that they've desperately wanted for more than two years: The three biggest chains -- AMC Entertainment, Cinemark, and Regal Entertainment --  have a $660 million funding deal to accelerate the rollout of digital projectors to 14,000 screens in North America.

That would be a big jump, although there's no time table yet. Only 7,736 theaters in North America had digital projectors at the end of 2009, the Motion Picture Association of America reported yesterday. Nearly 46% of those can also show 3D films.

Despite all the talk about the wonders of digital and 3D cinema, the funding deal has bedeviled the movie industry since 2007. Exhibitors and studios initially squabbled over who should pay the bulk of the cost to go digital -- up to $100,000 per screen with another $40,000 for 3D. Theater chains didn't have that much free cash, and observed that studios benefit most from digital, saving up to $1 billion a year by distributing films on small hard drives instead of large reels of celluloid.

They finally worked out an arrangement in which lenders would front the funds for the projectors and be reimbursed over time by fees from the studios. AMC, Cinemark, and Regal formed a partnership called the Digital Cinema Implementation Partners that would raise the cash, and own the projectors.

But that effort stalled when the credit market collapsed. Rumors that a funding deal for DCIP was at hand became as common and suspect as UFO sightings in New Mexico.

Now it's official: J.P. Morgan and Blackstone Advisory Partners have secured bank loans, and the theaters are kicking in $80 million in equity.

Fox, Sony, Disney, Paramount, Universal, and Lionsgate have signed long-term deals to offer digital versions of their films that will work on the DCIP projectors. There's also a short-term agreement in place with Warner Bros.

Imax earnings add another dimention to 3D

The talk about digital and 3D films continues today as Imax reports strong Avatar-fueled earnings for its fourth quarter. The company said this morning that it had $4 million in net earnings -- up from a $9 million loss in the same period last year -- on revenues of $54.2 million, up 97.8%.

Coincidently, ticket buyers paid the same amount -- $54.2 million -- to see Avatar on Imax screens in the quarter. Total sales for the movie on the super-sized screens are up to $218 million, and much of that is split with theater owners and studios.

The results cap a spectacular run for Imax stock. It's up 285% over the last 12 months, to $16.02 on Wednesday, and rose nearly 25% over the last five trading days.

But now the company will have to talk about its next act.

Analyst Eric Wold of Merriman Curhan Ford warns that Imax may face new competition from AMC, which has opened its own large-screen, 3D theater at the Walt Disney World Resort. Imax also may be asked about its involvement with Sony and Discovery Communications to jointly launch a 3D cable network.

By David Lieberman