RealD Inc., the world's leading supplier of 3-D technology to cinemas, has significantly expanded its footprint in China.
The Beverly Hills company said Thursday that it had reached an agreement with Chinese conglomerate HNA Group to install the company's 3-D technology on as many as 500 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 between major companies in the U.S. and the Asian nation. Hollywood is seeking to capitalize on growth opportunities in China, which surpassed Japan this year as the world's largest foreign market for Hollywood films.
The RealD announcement comes after the landmark deal by China's Dalian Wanda Group to buy AMC Entertainment Inc., the second-largest theater chain in the U.S., in a deal valued at $2.6 billion.
Financial terms of the RealD agreement 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 allowed only 20 foreign movies into the country under a revenue-sharing agreement. In February, however, the government agreed to allow an additional 14 movies each year, provided those films are in a 3-D or large format such as Imax. The accord, which settled a long-running trade dispute with the U.S., also increases the amount of revenue foreign studios can receive under the quota to an average of 25% of ticket sales from 13%.
By creating more of an incentive for studios to screen their movies in 3-D, the compromise is expected to be a boon to RealD and its rival, Imax, the Canadian big-screen technology company with a large operation in Santa Monica.
RealD's 3-D cinema system is 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.
"HNA's entry into the cinema market is an exciting development for China and one RealD is honored to be part of," said Edman Chan, RealD's general manager for cinema in China, Southeast Asia and South Korea.
Founded in 2003, RealD has 20,200 screens in 68 countries, including 11,700 in the U.S. and Canada. Although its business is concentrated in North America, RealD has been expanding rapidly overseas, including in Russia and Latin America.
RealD announced its latest deal in China in a conference call with investors after the markets closed. The company also reported net income of $36.9 million, or 65 cents a share, for its fiscal year ended March 23, contrasted with a loss of $12.3 million, or 29 cents a share, for fiscal 2011. Revenue for the year was $246.6 million, virtually flat compared with the previous year.
For its fiscal fourth quarter, the company reported earnings of $5.5 million, or 10 cents a share, up from $4.5 million, or 8 cents a share, during the same quarter a year earlier. Revenue dropped 14% to $50 million, reflecting a decline in international license sales.