China emerges as the real deal for RealD

RealD Inc., the leading supplier of 3-D technology to cinemas, has significantly expanded its footprint in China.

The Beverly Hills-based company said Thursday that it had reached an agreement with Chinese conglomerate HNA Group to install the company’s 3-D technology on up to 500 cinema screens across HNA’s new theater circuit. HNA, one of China’s Fortune 500 companies, also has investments in the airline, finance and the retail industries.

The expansion is among the largest business deals to date for RealD in China, and is the latest evidence of deal-making between companies in the U.S. and the Asian nation. Hollywood is seeking to capitalize on the rapid growth opportunities in China, which surpassed Japan this year as the world’s largest foreign market for Hollywood films.

The announcement comes in the wake of the landmark deal by China’s Dalian Wanda Group to buy AMC Entertainment, the nation’s second-largest theater chain, in a deal valued at $2.6 billion.

Financial terms of the RealD agreement with HNA were not disclosed. RealD typically licenses rather than sells its 3-D projection systems. In the U.S., exhibitors pay a fee of 40 to 50 cents per ticket. In emerging markets such as China, the company charges an undisclosed fixed fee in exchange for supplying equipment.

Companies such as RealD are hoping to take advantage of the rapid growth of China’s theater industry, which is in the midst of a construction boom, and recent steps by the country to ease restrictions on the number of foreign movies it allows in the country.

China has traditionally only allowed 20 foreign movies into the country under a revenue-sharing agreement. In February, however, the Chinese government agreed to allow an additional 14 movies into the country each year, provided those films are in a 3-D or large format such as Imax. The deal, which settled a long-running trade dispute with the U.S., also increases the amount of revenue foreign studios can receive under the quota from an average of 13% to 25% of ticket sales.

By creating more of an incentive for studios to screen their movies in 3-D, the compromise is expected to be a boon both to RealD and its rival Imax, the Canadian-based big-screen technology company with a large operation in Santa Monica.

RealD’s 3-D cinema system is currently available on 650 screens in China, with an additional 1,250 screens (including ones from HNA) that are due to be installed. RealD also recently signed agreements with Chinese cinema operators Bona Film Group and Poly Film Investment Co. to add 200 RealD screens in China.

Founded in 2003, RealD has 20,200 screens worldwide in 68 countries, include 11,700 in the U.S. and Canada. While its business is concentrated in North America, RealD has been expanding rapidly overseas, including in Russia and Latin America.

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