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Title:
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JOINT CITY COUNCIL AND REDEVELOPMENT AGENCY BOARD AGENDA ITEM: Approval of a Request from Oliver McMillan to Purchase Digital Projection Systems and Related Equipment for the Pacific Theatres.
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City of Culver City, California
Agenda Item Report
Meeting Date: 06/27/11 Item Number: JC-2
JOINT CITY COUNCIL AND REDEVELOPMENT AGENCY BOARD AGENDA ITEM:
Approval of a Request from Oliver McMillan to Purchase Digital Projection Systems
and Related Equipment for the Pacific Theatres.
Contact Person/Dept.: Elaine Warner
Phone Number: 310.253.5777
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No [X]
Public Hearing: [] Action Item: [] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (E-Mail) Agenda and Meetings – Redevelopment Agency (06/23/11)
Department Approval:
Sol Blumenfeld (06/23/11)
City Attorney Approval:
Carol Schwab (by H. Baker) (06/23/11)
Agency General Counsel Approval:
Murray Kane (06/23/11)
Chief Financial Officer Approval:
Jeff Muir (by M. Noller) (06/23/11)
City Manager/Executive Director Approval:
John M. Nachbar (06/23/11)
RECOMMENDATION
Staff recommends that the City Council and Redevelopment Agency Board (Agency
Board) approve a request from Oliver McMillan to purchase a digital projection system
for Pacific Theatres at a cost of $428,000 from the Theater’s capital reserve fund.
BACKGROUND
The Culver City Redevelopment Agency (Agency) developed the Pacific Theatres in
an effort to revitalize the downtown area. Although the construction of Pacific Theaters
was largely financed by the Agency (through a contribution of approximately $13
million dollars), the building (including the fixtures and equipment) and land are owned
by the City of Culver City (City) and leased to Oliver McMillan (OM) for use as a first-
run movie theatre.
Recently, the movie industry medium has changed format from 35 mm films to digital
films. To that end, staff and OM have discussed the eventual need to convert the
current Pacific Theaters projection system to a digital platform in order to remain
competitive in the market and continue to receive first-run films.
Further, Section 2.2 of the lease agreement between OM and Pacific Theatres states:
Owner shall utilize “commercially reasonable efforts to cause the Theatres to be City of Culver City, California
Agenda Item Report
operated (a) at a level of service and quality generally considered to be “first class”
and generally equal to or better than the level of service and quality prevailing from
time to time at the theatres in the Competitive Set.”
On June 4th, OM requested approval to utilize funds from the Culver City Theatre
Capital Expenditure Reserve to convert 11 film projectors at the Pacific Theatres to
Sony digital projectors (Attachment 2). This opportunity is structured as a capital lease
so that 11 of the projectors can be converted in the near future (one projector is
already digital). The term of the lease would be for 11 years with the option for OM to
purchase the projectors at a fair-market price at the conclusion of the lease. The lease
agreement requires Sony, at their expense, to supply new technology should the
studios require a different or updated technology. Since these projectors are now the
fourth generation of digital projectors, OM and Pacific Theatres feel that this is the
very latest, best performing technology available at the most favorable pricing.
Repayment of the Agency’s expenditure for this project is allocated from theater
revenues once operational expenses (including monthly contributions to a capital
reserve fund) and the “threshold amount” have been deducted (Attachment 1). Staff
tracks monthly repayments and revenue trends and presents the theatres’
performance levels (revenues vs. annual projection) twice a year. In addition, staff
monitors the fixed asset policy that was developed between Pacific Theatres and OM
in 2008. The policy was created to promote consistent accounting treatment of fixed
assets and ensure that the City and Agency maintain oversight on large capital
expenditures for the Pacific Theatres relative to resources and property value. Thus,
the policy requires that any fixed-asset expenditure in excess of what may be
approved administratively by the Agency’s Executive Director (an amount not to
exceed $30,000) be brought forth to the City Council and Agency Board for
consideration.
DISCUSSION:
The cost to purchase the projectors outright would be prohibitive, exhaust the entire
reserve fund, and would require additional funds. Further, as technology continues to
improve, a lease structure will enable the Pacific Theatres to remain competitive
without huge expenditure costs. Sony projectors are considered the best in the
industry, and service and maintenance on these projectors will be comparable to
existing projectors. In addition, the RealD system is also part of the proposed lease
and is compatible with the requested Sony digital projectors. This system would
enable Pacific Theatres to present 3-D movies on 3 screens. In addition, the cost
includes the purchase of the existing NEC digital projector in the 12th theater. The
Lease Agreement for that projector has expired and both Sony and Pacific Theatres
agree that the existing NEC projector is the best projector for this very large screen.
This cost is approximately $48,000.
With the summer “blockbuster” months ahead, Pacific Theatres and OM are eager to
convert the projectors as soon as possible. Conversion will be staggered over one City of Culver City, California
Agenda Item Report
week and will not affect operation or current show times. Additional marketing efforts
would be conducted by Pacific Theaters to showcase the theatres’ new digital and 3-D
projection systems.
FISCAL ANALYSIS:
The cost to convert the projection system at Pacific Theatres does not impact either
the General Fund or Redevelopment Agency funds. The funds for the conversion will
be allocated from the Culver City Theatres Capital Reserve Fund, a reserve account
funded solely by net operating income from the Culver City Pacific Theatres Stadium
12 operation. Every month, $10,000 is allocated to this fund before other repayment
obligations to OM or the Agency are funded. This reserve fund is administered by OM
and is designated only for capital improvements at the Culver City Pacific Theatre
Stadium 12 facility. The balance of the theatres reserve fund is $792,259.79. The
request to expend $428,000 represents approximately 55% of the current reserve.
With a digital projection system, however, Pacific Theatres Stadium 12 will maintain its
ability to showcase first-run movies and continue to be a popular destination and
economic driver in downtown Culver City.
ATTACHMENTS:
1. Pacific Theatres Repayment Hierarchy
2. Letter from Oliver McMillan
MOTIONS:
That the City Council and Agency Board:
Approve a request from Oliver McMillan to purchase a digital projection system for
Pacific Theatres at a cost of $428,000 from the Theater’s capital reserve fund.
MEETING DATE: 06.27.11
AGENDA ITEM: Consideration of Digital Projection System Conversion
for Pacific Theatres.
ATTACHMENTS
Pages
1. Pacific Theatres Repayment Hierarchy 1
2. Letter from Oliver McMillan 2-3