Regal Is Ready for Its Digital Close-Up

Regal Entertainment Corp., the nation’s largest movie theater chain, plans to retrofit nearly 80% of its locations by the end of next year with digital projectors, high-speed data networking equipment and satellite links, heralding the industry’s most aggressive move yet to embrace a future without film.

Centennial, Colo.-based Regal -- which owns United Artists Theatre Co. and Edwards Theatres Inc. -- said it would spend an initial $70 million on the effort. Regal will begin by showing short digital movies and advertisements. As the company does further upgrades, it will be able to show full-length digital movies.

All the company’s theaters in California, which account for 600 of the 4,500 screens to be upgraded nationwide, are receiving the new networking technology.

“The future of exhibition is digital,” said Tom Galley, chief technology officer of Regal’s high-tech subsidiary Regal CineMedia, on Tuesday. “For us, this is a strategic, necessary move.”

Industry insiders and analysts alike long have expected exhibitors such as Regal to embrace digital projection and distribution systems.

The technology promises to rid movies of visual problems, including wear that affects celluloid prints over time, scratches and other on-screen flaws caused by mechanical projectors.

And by eliminating film, studios expect to save hundreds of millions of dollars in print production and distribution costs.

Yet the conversion costs are considerable. One of the biggest roadblocks has been determining who will pay the $150,000 cost for each digital projector, along with the more than $20,000 per screen for the computer that stores and feeds the movies.

Regal is the first major movie theater chain to make such a commitment to the digital revolution. But others are expected to follow.

“At some point in time, digital projection will become a standard for theatrical films,” said Jeffrey Logsdon, managing director of investment bank Gerard Klauer Mattison. “Until then, Regal believes that if it can put the infrastructure in now, and build a business around it with promotional or advertising customers, it’ll put the company that much farther ahead of everyone else.”

Logsdon does not own shares of Regal, and his bank has no business with the company.

Embracing technology is key to the strategy of Regal’s new owner, Colorado-based billionaire Philip F. Anschutz.

The founder and former chairman of Qwest Communications International Inc. created Regal Entertainment by merging Regal Cinemas Corp., United Artists and Edwards, all of which he acquired this year through bankruptcy reorganizations amid an industrywide slump.

Instead of using celluloid reels, the machines Regal will install are designed to allow digital files to be sent electronically to theaters through high-speed data lines, over satellite transmissions or on computer disks or digital videotape.

Regal’s electronic distribution system and digital projectors start by receiving content via satellite and then store it in a central server. High-speed data lines connect the server to each screen and automatically upload the appropriate film or preview. Some of the equipment will be supplied by Cypress-based Christie Digital Systems Inc.

As part of the system, digital plasma screens also will be installed in the lobbies of Regal theaters.

In October, Regal CineMedia inked a deal with General Electric Co.’s NBC that calls for the network to create all-digital short programs that will run before feature films. Advertising revenue will help defray the cost of the upgrade, said Cliff Marks, president of marketing for Regal CineMedia.

Regal is not springing for the high-end digital equipment that would be required to project a full-length movie -- at least not yet. But the system is designed to allow the company to upgrade its hardware once the industry settles on standards for digital equipment.

The seven major movie studios created the Digital Cinema Initiatives in March to establish technology standards and build a business model that will make it profitable to distribute digital films electronically to the more than 100,000 theaters around the world.

Consortium representatives said they expected to have a preliminary standard for end-to-end delivery by next month and planned to test the technology throughout 2003.

“Whenever film goes away forever, we’ll be ready,” Marks said. Regal’s system “is designed to allow us to unplug any piece of the hardware in the system and plug in new ones when digital cinema standards are established.”