14 Jun 2010 07:00
14 June 2010
Cineworld and Arts Alliance Media announce partnership to rollout digital projection facilities across Cineworld's estate
Cineworld Group plc ("Cineworld"), the UK's only quoted cinema chain, and Arts Alliance Media ("AAM"), a leading European provider of digital cinema technology and distribution services, are pleased to announce they have entered into an agreement which will enable Cineworld to complete the rollout of digital projection facilities across the remainder of its estate in the UK and Ireland.
Under the terms of the agreement, Cineworld will acquire, install and operate digital projectors across the remainder of its entire estate of 77 cinemas, with the conversion anticipated to be completed over three years. The estimated cost of conversion is approximately £30 million, in addition to the £10 million already spent in 2009 and H1 2010, and will be financed from Cineworld's existing financial resources and cash flow.
Pursuant to the agreement, AAM will collect a Virtual Print Fee ("VPF") from the appropriate film distributor every time Cineworld shows a new film using a digital projector, rather than traditional 35mm film. 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 £40 million 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 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 rollout, before taking into account the potential revenue benefits of wider digital deployment.
AAM will be responsible for administering the VPF agreements with distributors. AAM will also be responsible for maintaining the digital equipment in conjunction with Cineworld. Cineworld retains full control over the exploitation and associated financial benefits of its enlarged digital estate.
AAM has existing VPF agreements in place with 5 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.
Commenting on the deal, Steve Wiener, CEO said: "Digital is a core part of our strategy and we are pleased to be partnering with Arts Alliance Media to continue our rapid roll out of digital projection facilities to encompass our entire estate.
"Going to the cinema will no longer be just about going to see movies. Alternative content in 3D such as live sport, plays, opera and concerts will now become more readily available at all Cineworld cinemas across the UK. We are delighted to be at the forefront of the UK cinema industry in offering our customers the very best in entertainment in every Cineworld location."
Arts Alliance Media's CEO, Howard Kiedaisch commented: "Cineworld is a great example of a business which has embraced digital technology and we're thrilled to be working with them in rolling out digital projection facilities across their estate. Bringing digital technology to cinemas across the UK and Ireland means cinema owners, film distributors and consumers can benefit from the advantages digital cinema has to offer."
-Ends-
A conference call will be held at 11.30am today for investors and analysts. Please contact Abigail Forbes (forbes@mcomgroup.com) at M:Communications for dial-in details.
For further information:
Cineworld 020 8987 5000
Steve Wiener / Richard Jones
M:Communications 020 7920 2330
Georgina Briscoe
Arts Alliance Media 020 7751 7512
Kate Pidgeon
Notes to Editors:
About Cineworld Group
Cineworld is one of the leading cinema groups in the UK and Ireland. It was founded in 1995 by Steve Wiener, the current Chief Executive, and today operates 77 cinemas with 790 screens of which 33% are digital with 3D capability. It is a market leader in showing a wide variety of content such as Bollywood and Live events; including Opera, Ballet and Rugby in 3D. Cineworld participates in the Tesco Clubcard programme and operates the only cinema subscription service in the UK, the Unlimited Card. Cineworld has been listed on the London Stock Exchange since May 2007. More information can be found at www.cineworldplc.com
About Arts Alliance Media
Arts Alliance Media, based in London, Paris and Amsterdam, provides digital technology and distribution services and is committed to building the largest digital cinema delivery network in Europe. AAM supplies digital content - film and alternative, and remains at the forefront in the provision of end-to-end digital cinema solutions. To date AAM has deployed over 700 digital screens and has successfully negotiated agreements with five of the major distributors for the UK region as well as other territories across Europe. AAM was founded in 2003 by Thomas Høegh who serves as Chairman of the board. More information can be found at www.artsalliancemedia.com
The Virtual Print Fee (VPF) Model:
The VPF business model is a means of helping to finance the conversion to digital cinema, where both distributor and exhibitor contribute over time towards the total cost of the digital projection and server equipment. The mechanism by which distributors contribute to the cost is by way of a Virtual Print Fee (VPF). The exhibitor earns a VPF from the distributor for each digital print that is shown on its digital projector.The period for this arrangement is typically 10 years during which the earned VPF's will payback the cost of the digital projector. Separate agreements are required with each of the major film distributors and the terms may vary across each distributor and country. The distributor agreements contain conditions for the exhibitor, which include technical compliance of digital equipment (DCI standard), equipment maintenance, projector performance levels and timescales for equipment deployment.