Friday, September 11, 2009

Digital Cinema Funding Comes Out Of A Coma

This week's big news on the business side of the film industry has to be JP Morgan's announcement of its return to the digital cinema funding business. The Wall Street survivor announced a $525M fund that is targeted to roll out about 500 new digital screens per month, almost doubling the North American penetration by the end of 2010 to as many as 13,000 screens. The fund will ultimately underwrite up to 15,000 conversions, and will also support 3D equipment in many of the new locations.

If you have followed this story for the past few years, you know that there was over a billion dollars of funding headed for the digital and 3D theater markets when the economy collapsed last year. A lot of studios had already launched their 3D plans in anticipation of the new screens, but then the funding evaporated (with the rest of the lending market). This slowed the D-Cinema roll out to a crawl and left the studios fighting for domestic screens on which to release the 3D projects they already had in production.

This announcement by JP Morgan is good news on many levels. First, it means that the theaters will not be hamstrung in their quest to offer the ultimate 3D experience in a theatrical environment. With Sony and other consumer electronics makers rushing the development of 3D home theaters, it is critical for theater chains to go as fast as possible to capitalize on that market before it gets diluted.

Second, this means that studios will be able to keep their 3D films in theaters longer, thus making more money. That means that development of additional 3D productions should pick up.

Third, the development of more digital screens means that the ultimate cost of theatrical distribution should trend downward. (With the payment of virtual print fees, this won't be immediately apparent, but it will still happen.) That means that more films will theoretically have the financial strength to reach big screens. Of course, a lot of other factors have an impact on small film distribution, but independent distributors (such as the new venture from Rich Wolff and Richard Ross) should benefit.

Finally, participants in the 3D business such as In-Three and, most obviously, Real D, will enjoy the benefits of a market that will expand much faster than it has to date.

This is good news all the way around. And perhaps most important, for the entertainment industry, this is a strong sign that the economic climate is indeed moving in a more positive direction.

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