By Jack EganPieces are falling into place to solve the digital cinema puzzle of how and when movies will be distributed and projected in a digital format on a large scale and how the transition will be paid for. “A big digital cinema rollout could begin as early as next year,” John Fithian, the president of the National Association of Theatre Owners told Below the Line. “It depends on how quickly financing proposals get worked out.”Major hurdles remain. But the motion picture companies and exhibitors finally seem ready to speed up putting into place a critical mass for a single interoperable high-quality system. Recently, countries like China and India have been heading off in different directions on digital cinema technology that threaten a repeat of past incompatibility disputes like the VHS vs. Beta battle that marred the launch of videocassette technology.In a key development, the Digital Cinema Initiative, backed by seven major Hollywood studios, announced in early September that it had all but finished drawing up a set of technical specifications to enable movies to be transmitted and exhibited in an all-digital format.At the same time DCI’s term, due to end September 30, was extended for another year, but in a much slimmed-down version. Its operations will be limited to refining the Version 5.0 specs and working on a few issues still on its agenda, like tightening security against piracy.Meanwhile, there have been some recent experiments in digital distribution that indicate exhibitors are eager to proceed. Evergreen, an independent film, was transmitted via satellite to 115 AMC screens in 27 markets. This was the first feature to use AMC’s Digital Theater Distribution System which sends a movie as a digital file to theaters by satellite. And in August, the farewell performance by cult band Phish was carried to some 50 theaters by Regal Entertainment Group’s own digital network.Buried in DCI’s recent status statement were hints that significant progress has also taken place on the so-far knotty problem of who pays for installing new digital projectors and servers in 34,000 theaters in this country. Costs are estimated at between $100,000 and $150,000 per screen.In announcing that Chuck Goldwater, who has been the chief exec of the consortium since it began in March 2002, will be departing at the end of September, DCI’s board praised him for developing “potential scenarios for the financing and deployment of digital cinema.” The statement added that, “the studios have received a number of promising rollout and financing proposals… we look ahead to continue our respective individual studio efforts to move toward the rollout of digital cinema.”The import of the carefully worded statement: the studios, due to antitrust concerns, will start negotiating individually with exhibitors and equipment suppliers now that some specific ways of paying the upfront costs for a digital rollout have been outlined.The seven participants in the DCI joint venture have been Disney, Fox, MGM, Paramount, Sony Pictures, Universal and Warner Bros. (If and when Sony’s recent $5 billion deal to buy MGM gets completed, the number going forward will be six.)“We don’t expect the conversion to digital cinema to take place overnight,” said Walt Ordway, DCI’s chief technology officer who will be in charge of the initiative over the next year along with Steve Tsai, executive director for administration and business development. “But we have been working on ways for studios to provide financial incentives to exhibitors who convert to digital that will speed the changeover,” Ordway added.“On the business side, we believe that DCI has made some very significant progress in discussions with financial institutions,” said NATO’s Fithian. “A few financial issues still have to be negotiated, but that will have to be done by the individual studios. They’ve gone as far as they can acting as a consortium.”On the other hand, he felt that DCI had overstated what they had accomplished on drawing up technical standards, with more than a few loose ends that still need to be tied up, mainly on security issues. One involves how easy it is for exhibitors to move a digitally transmitted film from one screen to another within a single cineplex.But Fithian said the studios have indicated they are ready to subsidize the costs to exhibitors by sharing a chunk of the money they expect to save from moving to digital distribution. The annual distribution tab involved in delivering and picking up film cans under the current system is around $1 billion. Borrowing by studios to pay for the upfront costs of conversion may be done by Wall Street investment firms turning the debt into securities which will be sold to investors.Whatever formulas finally emerge, the signal for moving to digital cinema is suddenly blinking green.
Written by Jack Egan