Holllywood studios will pony up to go digital

Hollywood studios including Walt Disney Co. and three theater companies will invest $525 million to equip cinemas to show digital movies, according to a person with knowledge of the agreement.

Regal Entertainment Group, AMC Entertainment Holdings Inc. and Cinemark Holdings Inc. plan to install projection systems that don't require film in almost 20,000 theaters in the U.S. and Canada, the companies said Wednesday, without disclosing financial details. Additional investment in coming years will bring the total to more than $1 billion, said the person, who declined to be identified.

Digital Cinema Implementation Partners, the theater owners' negotiating entity, said it intends to reach more deals with studios and independent distribution companies. The new projection systems will lower studio costs and enable theaters to charge 40 percent to 70 percent more for tickets to see 3-D titles, according to manufacturer RealD.

"At first studios and the theater owners were motivated by the cost savings and higher quality of digital," said Michael Lewis, chairman of RealD, the largest maker of 3-D projection equipment. He spoke before the announcement. "Increasingly, that focus has shifted to 3-D."

Other studios involved in the agreement include Viacom Inc.'s Paramount Pictures, General Electric Co.'s Universal Pictures, News Corp.'s Twentieth Century Fox and Lions Gate Entertainment Corp.

JPMorgan Chase & Co. will arrange funding, and loans will be repaid with the money studios would typically spend to buy and ship reels of film to thousands of theaters in the U.S. and Canada every week for new releases. Blackstone Group LP will also participate in arranging financing.

A theater can be converted to digital projection for $50,000 to $75,000, a cost that will be covered by the loans, Lewis said.

Additional equipment, including an add-on for the projector and a new screen, that is needed to show 3-D movies, must be paid for separately by theater owners, Lewis said.

The cost runs $5,000 to $10,000 per theater, plus an annual licensing fee paid to RealD, said Lewis, whose company has equipped about 1,500 theaters so far and has orders for another 5,000 to be funded though the loans.