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Sunday, July 13, 2008

D Cinema Finger-Pointing

What's this all about?

Warner Bros. is accusing theater owners of dragging their feet in the deployment of digital cinema equipment. (True - the biggest chains, including Regal and AMC, have yet to get serious about installing digital projectors.)

And the National Association of Theater Owners is accusing Warner Bros. of being slow to commit to the financial terms that will support future digital cinema roll-outs. (Probably also true... studios are notoriously stingy about how much they will pay for a film print, or how much their will pay as a "virtual print fee," which is essentially a toll for sending a digital movie to a digital projector, which helps pay for the cost of the equipment.)

Earlier this year, Jeffrey Katzenberg had also accused theaters of being slow in their shift to digital. DreamWorks, of course, is getting ready to introduce its first 3-D movie in 2009, 'Monsters vs. Aliens.' (Warner Bros. is the distributor for this month's 'Journey to the Center of the Earth.')

The studios, I suspect, are now feeling the complexity of releasing movies in both film and digital formats -- and probably won't start seeing real cost savings until digital distribution hits a certain volume level. That's why they're negotiating so hard on what they'll pay as a virtual print fee for this second wave of d cinema installations.

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  • This is a pivotal moment in Digital Cinema. The first wave of DC conversions were completed in a highly subsidized manner in terms of using the public equity/debt markets to help bridge the economics. I think the first wave of conversions were under terms that are not economically sustainable going forward.

    From what I've read, studios want to pay lower VPF costs. This will leave more of the expense in the hands of the exhibitors.

    However, the equity/debt markets are frozen right now. So the financing through 3rd parties is very difficult.

    Exhibitors will have to decide whether "alternative content" (e.g. operas, concerts, sporting events) is really going to provide some additional economic support or not, to offset the higher VPF costs.

    I'm still not sure "who needs whom more", although my sense is that the theaters (particularly the smaller chains/indies) are the ones under pressure. The last 3 times I went to the theater, there were no more than a handful of people. I don't think alternative content is a viable separate source of revenue, mainly because of the marketing/promotional costs would offset the short-run engagements in all but the largest events (e.g. Hannah Montana).

    By Blogger Chris Dodge, at 10:49 AM  

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