July 7 (Bloomberg) -- Regal Entertainment Group, AMC Entertainment Inc. and Cinemark USA Inc. may borrow $1 billion to transform 13,000 U.S. theater screens to digital film from reel- to-reel, according to people involved in raising the money.

National CineMedia LLC, a joint venture of the theater chains, hired JPMorgan Chase & Co. to seek financing from hedge funds and private-equity firms, said the people, who asked not to be named because the talks are confidential. The chains, the three largest in the U.S., plan to repay the debt over about seven years using fees charged to Hollywood studios for showcasing the films, the people said.

The financing would fund the expansion of digital technology to one-third of all U.S. screens. Theater owners plan to spend about $75,000 per screen to rip out film projectors and replace them with digital systems that promise higher-quality pictures and lower costs, and faster delivery of films over cable or satellite connections.

``Both the theater owners and the studios are interested in digital cinema becoming the standard but it's always been a matter of cost and financing,'' said Brian Mulligan, former co- chairman of Universal Pictures who now runs media-investment firm Brooknol Advisors LLC. ``If the financing comes to fruition, it's a big step in the right direction.''

JPMorgan spokesman Adam Castellani and National CineMedia spokeswoman Lauren Leff declined to comment.

National CineMedia, based in Centennial, Colorado, hasn't yet raised any money, the people said. Another obstacle is agreement with the studios on a formula to share capital costs.

Digital Transition

Shares of Knoxville, Tennessee-based Regal Entertainment advanced 46 cents to $20.32 at 4:02 p.m. in New York Stock Exchange composite trading. They have risen 6.8 percent this year.

Cinemark, based in Plano, Texas, is closely held. Kansas City, Missouri-based AMC was formed in January when AMC bought Loews Cineplex Entertainment Corp. JPMorgan Partners LLC, Apollo Management LP, Bain Capital, Carlyle Group and Spectrum Equity Investors are shareholders of AMC.

AMC Entertainment spokeswoman Melanie Bell, Regal spokesman Russ Nunley and Cinemark Chief Financial Officer Robert Copple declined to comment.

The theaters and studios such as Time Warner Inc. and Walt Disney Co., the two biggest U.S. media companies, are moving closer to adopting the technology. Making the transition will save money on film print-making, reduce theft and illicit copying and improve picture quality, Mulligan said.

``If the theater owners can get the financing in place, it would be very significant because digital cinema is the next step in the evolution of the theater experience,'' he said. ``There are benefits to both parties and the consumer is the ultimate winner.''

Standards Agreement

Carmike Cinemas Inc. of Columbus, Georgia, last year said it would take almost two years beginning in January to install 2,300 digital projection systems in the U.S.

Digital Cinema Initiatives LLC, a group of Hollywood studios that includes New York-based Time Warner's Warner Bros., News Corp.'s 20th Century Fox and Disney, agreed last year on standards that make it easier for theaters to show movies from digital media.

Time Warner shares have declined 3.4 percent this year, Disney rose 24 percent and News Corp.'s Class A shares have gained 22 percent.

In September, Burbank, California-based Disney agreed to release films using a digital format compatible with Access Integrated Technologies Inc.'s projection systems for theaters.

That agreement was followed by deals between Morristown, New Jersey-based Access Integrated and Fox, General Electric Co.'s Universal Pictures and Sony Corp.'s Sony Pictures Entertainment.

To contact the reporters on this story: Alex Armitage in Los Angeles at aarmitage@bloomberg.net

Last Updated: July 7, 2006 16:16 EDT