Saving 2009

As exhibitors bask, at least temporarily, in the financial glow of The Dark Knight,
there is now reason to be cautiously optimistic about the box office
outlook for 2009. It was widely announced in recent days that Twentieth
Century Fox has reached an agreement with the Digital Cinema
Implementation Partners.

The news was first released during a July 24th earnings call to analysts
during which Don De Laria vice president of investor relations for the
Regal Entertainment Group said this:

"Now briefly turning to the digital cinema initiative, a DCIP update, last
quarter we indicated that digital cinema implementation partners, or
DCIP, the joint venture between Regal, AMC, and Cinemark, was finalized
in agreements with the various studios to provide for the upgrade to
digital cinema. I'm pleased to report that last week we achieved
definitive progress toward this goal as DCIP signed the first digital
deployment agreement with a major studio. We believe that this first
signing is a major milestone and we are optimistic that DCIP will sign
additional studios in the near-term.

"As we indicated last quarter, J.P. Morgan and the anticipated financing
sources continue to be involved in the process and we expect to begin
the financing process once we have finalized the agreements with the
majority of the studios. At this time, we would expect the digital
conversion still to commence during the latter half of the fourth
quarter."

At least three other studios are close to signing as well, and all the
agreements would also likely include deals with AccessIT and the Cinema
Buyers Group, in addition to DCIP. Not surprisingly, all three studios
have major 3D movies scheduled for release next year.

One insider with knowledge of the talks told me, off the record, "As you
know, moving forward on VPF deals is challenging. I expect the
financing entities to have higher standards for accepting a deal. The
‘3D' studios are the likely candidates to sign first. Fox, Disney,
Paramount. The rest have less incentive to be timely, as the first
installs will be for 3D, and there's a full year of 3D releases coming
up in 2009. Fox tends to be the most aggressive in signing deals. They
were first with Arts Alliance a year ago, if you recall. Hopefully,
things will continue to move forward in a timely manner, and we'll see
several deals done by ShowEast. But getting more to sign than the three
3D studios could be challenging."

Another person still closer to the talks said Warner Bros is also close to
reaching an agreement with exhibitors and would be expected to followed
shortly thereafter by Sony and Universal.

Assuming nothing stalls negotiations from this point and the deals are in place
by ShowEast in October, the winter months will be about deploying the
thousands of screens in North America that would be covered under the
agreements. "Regal's got fifty to sixty contractors trained and ready
to go," said the insider. He added that the other companies are
similarly prepared.

"The studios that have 3D movies coming out in early 2009 will probably have
more 3D screens than are out there now but not as many as they might
want," he said. "The studios that release 3D movies in December 2009
should probably have as many as they want."