London -- Arts Alliance Media (AAM), Europe's leading digital cinema company, today announced two significant milestones on the road to converting Europe's cinemas to digital. The company has signed a deal with Cineworld Group plc (Cineworld), the second largest cinema chain in Europe, which will enable Cineworld to convert 100% of its 790-screen circuit to digital over the next three years. Cineworld will finance the deal from its existing financial resources and cash flow.
AAM also announced the closing of a €50m financing deal with Sankaty Advisors, LLC, a leading fixed income and credit investor, to fund the conversion of over 1,000 screens from AAM's existing pipeline of exhibitor deals.
The estimated cost of the rollout for Cineworld is approximately £30m, in addition to the £10m already spent on digitising a third of the chain's screens during 2009 and the first half of 2010. The majority of the total £40m cost to Cineworld will be refunded by distributors who use the digital projection systems through AAM's ‘VPF' (Virtual Print Fee) contracts.
Already the UK's leading exhibitor pioneer in digital cinema conversion, Cineworld is the first major UK exhibitor to commit to a timetable for complete digitisation of its circuit. The full digital rollout will allow Cineworld to continue to show the latest 3D films on more 3D screens; offer customers an increased range of alternative entertainment, including live sport, live opera, theatre, comedy and gaming; as well as capitalise on other venue uses, such as training and conferences.
Under the deal, AAM will maintain the equipment and administer the VPF agreements with distributors. AAM will also provide its theatre and library management systems to all 77 sites, as well as satellite capability in conjunction with its partner Arqiva Satellite & Media. This will allow showing of live events and satellite delivery of digital features, trailers and advertising. All the Cineworld screens will be equipped with DCI-compliant systems (digital projector, central library server and networked equipment in each cinema).
CEO of Cineworld, Steve Wiener, said, "We're pleased to be able to extend Cineworld's digital estate through this deal with Arts Alliance Media. We chose to work with AAM because of their market leading position in Europe and know they have the technical and operational experience to deliver our digital vision. We have already seen the benefits of digital in our cinemas - better quality, 3D, and alternative content such as opera, concerts and 3D rugby, and are looking forward to bringing these benefits to all Cineworld customers with AAM's support."
Arts Alliance Media's CEO Howard Kiedaisch added, "Cineworld is a true leader in exhibition and we're thrilled to be in partnership with them. To be able to move forward with Cineworld while simultaneously closing the deal with Sankaty demonstrates very clearly that digital cinema rollout is running at full speed after the global financial issues of the past couple of years. These two deals mark the inflection point for digital cinema in Europe. With the financing now in place from Sankaty, we have substantial funds to offer cinemas the choice of whether to fund the equipment themselves (‘exhibitor financing') or for AAM to provide the financing."
During the process of agreeing these deals, a solid but expandable financial structure was created that allows AAM to significantly scale up their capital raise over time.
David Ross, Executive Vice President at Sankaty Advisors, said, "It's clear that the transition to digital cinema has reached a tipping point and that AAM are at the forefront of this transition. We believe it is the best placed company to work with in order to harness this growth."
Sankaty Advisors recently raised a new $900 million Middle Market Opportunities Fund to capitalise on such middle market investment opportunities in Europe and North America.
Patrick Foley, Chief Financial Officer of AAM, added "Sankaty has a great team of forward thinking investors, and the flexible model they have created allows us to offer a wide variety of deals to our exhibitor partners. They are very knowledgeable of the industry and we look forward to working with them over the coming years."
Arts Alliance Media has existing VPF-based digital cinema deployment agreements in place with five of the major Hollywood studios (Disney, Fox, Paramount, Sony and Universal) and contracts covering a total of 7,500 screens in Europe.
Julian Levin, Twentieth Century Fox's EVP Digital Exhibition and Non-Theatrical Sales and Distribution commented, "Fox has a long standing relationship with Arts Alliance and we have been working with our colleagues at Arts Alliance to transition the industry from 35mm to a digital platform. The security, digital image quality and 3D revenue opportunities offer a tremendous boost to the cinema industry and most importantly provide an enhanced experience for the movie goer. AAM's deals with Sankaty and Cineworld represent two major steps forward in the digital transition in Europe."