Cineworld goes fully digital

14th Jun 2010 07:01

Cinema chain Cineworld is to go fully digital across its estate in the UK and Ireland.The company has entered into an agreement with Arts Alliance Media (AAM), a leading European provider of digital cinema technology and distribution services, to complete the roll-out of digital projection facilities.Cineworld will acquire, install and operate digital projectors in 77 cinemas, with the conversion anticipated to be completed over three years. The estimated cost of conversion is about £30m, in addition to the £10m already spent in 2009 and the first half of 2010, and will be financed from Cineworld's existing financial resources and cash flow.AAM will collect a Virtual Print Fee (VPF) from the appropriate film distributor every time Cineworld shows a new film using a digital projector. AAM will then remit to Cineworld a quarterly payment reflecting the total projected VPFs earned during that quarter which is expected to refund a substantial proportion of the total conversion cost of £40m over a 7-10 year period. The VPF will be accounted for as a reduction in film rental and hence have a positive impact on earnings before interest, tax, depreciation and amortisation (EBITDA). This impact is expected to be largely balanced by increased depreciation and interest resulting in a broadly neutral earnings impact overall during the early years of roll-out, before taking into account the potential revenue benefits of wider digital deployment.AAM has existing VPF agreements in place with five of the major Hollywood distributors and contracts to cover a total of 7,500 screens in Europe. This will enable Cineworld to benefit from the economies of scale and increased negotiating power of the AAM screen coverage as well as AAM's established systems and strong track record of successfully administering VPF agreements. To date, AAM has signed up over 2,000 digital screens and its digital network currently covers 6 European countries.