Studios and theaters seen announcing digital deal soon

LOS ANGELES (Reuters) - Walt Disney, Paramount, Twentieth Century Fox and Universal are soon expected to announce a long-sought $1.1 billion digital cinema deal that Hollywood hopes will boost attendance, cut costs and enable more 3-D viewing, sources close to the deal said on Thursday.

A Disney employee heads to work at the entrance to the Walt Disney Co. and Walt Disney Studios in Burbank, California July 19, 2006. REUTERS/Fred Prouser

The studios declined to comment, but sources with knowledge of the talks said the deal to help co-finance the upgrade for a group of movie chains was virtually complete, with an announcement expected within days or weeks.

Long delayed by debate over who should pay for the system, digital cinema offers a potential solution to declining movie attendance at a lower ongoing cost.

Fox, a unit of News Corp was the first to sign the deal this summer, but its participation was contingent on other studios agreeing. Early this month, sources said General Electric Co’s Universal and Walt Disney Co had come on board and that Viacom Inc’s, Cinemark Holdings Inc and AMC Entertainment Inc, who operate 14,000 screens -- to reach a deal to help finance the theater upgrades.

DCIP would not comment.

“Things are progressing well,” said Dick Westerling, a spokesman for Regal, the nation’s largest theater exhibitor, when asked if a deal had been reached.

“Technological change is very important and we’re certain this will move the needle.”

DCIP was formed over a year ago and first hoped for a deal by late 2007, but talks hit snags over terms requiring studios, exhibitors and content providers to pay usage and other fees to help pay off loans provided by institutions such as JPMorgan Chase & Co to buy and install new digital equipment.

The credit crunch and issues involving standards, equipment procurement and performance criteria also delayed the talks.

The upgrades will enable studios to send movies digitally to theaters, saving them billions of dollars in print and delivery costs. Once outfitted with digital projectors, theaters can add 3-D capabilities.

Hollywood has a lot riding on the conversion. Studios such as DreamWorks Animation SKG Inc and Disney plan to roll out 3-D films and need enough 3-D screens to support their slates.

“There’s a lot on the line. There are 13 movies coming out industrywide in 3-D soon, so everyone’s incentivized to move this along,” said Michael Lewis, chief executive of RealD, a provider of 3-D systems for the cinema market.

“3-D is not just a passing trend, it is being embraced by the world’s finest filmmakers,” Dick Cook, chairman of the Walt Disney Studios, said at a press event this week.

He said Disney will release five movies in 3-D next year, which he added is more than any other studio.

Hollywood and theater chains believe 3-D will not only boost attendance, but also command higher ticket prices.

“Our plans are to continue to charge a premium for 3-D,” said Westerling at Regal, when asked if recent market turmoil would cause any change in those plans.

About 5,000 of the 37,000 cinema screens in the United States are digitally equipped and the ultimate aim is to transform all 125,000 screens worldwide.

There are around 1,300 3-D screens in the United States, primarily provided by RealD, said Lewis, who has commitments for 5,000, many of which are dependent on clinching the DCIP deal.

Assuming the deal goes through soon and the roll-out begins in earnest by December, there should be about 2,500 3-D screens in the United States by March, when DreamWorks’s 3-D feature, “Monsters vs. Aliens” is released.

Editing by Andre Grenon