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Digital Cinema story

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By Jack Egan
Saying you’re going to see “a film” may become ananachronism in the not-so-distant future. The reason: digitallyprojected images are fast replacing the tried-and-true, reel-to-reelfilm projectors that, while improved mechanically, haven’t changedfundamentally since they were developed nearly a century ago whencinema was being born.
The long-heralded shift to digitaldistribution and exhibition of movies has gone well beyond the talkingstage. The switchover picked up speed in 2006 and has markedlyaccelerated this year. The current expectation is that in 2008 and 2009the transition to digital cinema will continue to gain momentum.
Atpresent, there are approximately 4,000 digitally equipped screens inthe United States. That’s over 10 percent of the total of 37,000 andcompares with 1,000 digital cinema screens abroad out of about 65,000.
Anumber of developments — ranging from the clearance of technicalhurdles and the setting of standards, the emergence of a financingtemplate, increased enthusiasm on the part of exhibitors to go digitaland a gradual lowering of equipments costs — have all combined to speedthe pace of conversion.
There’s also a growing sense of urgency.”Our tests have shown digital makes us competitive,” said Drew Kaza, VPfor digital development for the Odeon-UK exhibition chain, at ShoWest.”But we’ve got to be real about this,” he added. “If it’s going to takea decade to complete the rollout, I believe there will not be a cinemabusiness here anymore.”
Based on this year’s events, bestestimates are that it should take four or five for the major cinemachains, accounting for about 90 percent of North American screens, tobe all-digital. For the studios, a reason to hasten the switchover isthat they will have to maintain dual distribution systems for both filmand digital cinema until its largely complete. “We’re still in theearly- to mid-pioneer stage,” says David Hancock, who follows digitalcinema for Screen Digest, a London-based research firm. But next yearhe thinks could be a tipping point.
The studios have been thedriving force behind the changeover for economic reasons. Instead ofmaking thousands of 35mm prints of a film and then having them luggedin big film cans to theaters, going to digital distribution saves bigbucks. By some estimates, total savings for the major studios could bein the range of $1 billion a year in the future.
The benefit forexhibitors — who have had to be sold because of the big upfront outlayrequired for new digital projectors and servers — is that they will beable to show movies in pristine presentations, which will be anincentive for moviegoers. There will be no more scratched and drab filmprints. In addition, they can move movies between their screens with afew computer keystrokes.
With digital capacity, exhibitors canexpand what they show beyond just movies to alternatives such as liveconcerts and sports events. Some games in the 2006 World Cup could beviewed in real-time in a small number of movie theaters. And theMetropolitan Opera’s experiment last season in selling tickets to liveperformances in some digitally equipped cineplexes was such a financialand artistic success that it will be expanded in the coming season.
“Becauseyou’re no longer handling a cumbersome manual physical medium, it ismuch easier to produce and distribute entertainment in digital form,”says Chuck Goldwater, president of the media services group forAccessIT, a leader in the digital cinema rollout.” That enables a muchbroader menu of content from a much greater variety of contentproviders.”
Right now, the biggest inducement for exhibitors to godigital sooner rather than later is the latest iteration of 3D, whichis being touted as the new killer app. Based on a trickle of 3Dreleases that have been successful so far, such as Disney’s SwissFamily Robinson earlier this year and more than a dozen potentialblockbusters in the pipeline, 3D is being touted as a way formultiplexes to attract audiences with a premium offering that can’t beduplicated — at least for now — on cable or home entertainment systems.The release of Beowulf in 3D in November at digitally-equipped theatersincluding IMAX cinemas, will be closely scrutinized.
Not everyoneis convinced. “3D is a novelty,” says Wayne Anderson, managing memberof the Cinema Buyers Group, an alliance of independent exhibitors,while leading a panel on digital cinema at the National Association ofBroadcasters convention in April. “It’s been here before and then it’sgone.” The panel was organized by the Entertainment Technology Centerat USC.
So far, AccessIT, has been way out in front, accounting fornearly 90 percent of the U.S. digital cinema rollout so far. Themoderate-sized company based in Morristown, N.J., has largely flownunder Tinseltown’s recognition radar and is by no means a householdword. Nevertheless, it has demonstrated that the transition to digitalexhibition is viable on a large scale. In August, Access IT announcedan important milestone — it had converted 3,000 screens. That put itahead of schedule in implementing its near-term goal of 4,000. Thecompany is hooking up about 400 screens a month.
Access IT isleading the move forward by having gotten up to speed early indeveloping a comprehensive package of services and by successfullytapping early adopters. Two cineplex chains, Carmike Cinemas and RaveMotion Pictures, have opted to go all digital, and have been driversfor most of the conversions to date.
Access IT functions as anintegrator of end-to-end services, and is the first to strike a virtualprint fee deal with the studios as a way to get compensated based on aformula of what studios save in distribution per movie. What’s giventhe company heft is its partnership with Christie DLP Cinema, whichsupplies the projectors. Christie/AIX, the name of the alliance, hasmade it easier to obtain outside financing — primarily from GE Capital.The challenge for AccessIT is to find equally sizeable exhibitionchains to sign up.
What may be the key development so far this yearwas the formation of Digital Cinema Implementation Partners, consistingof the country’s three biggest exhibitor chains, Regal EntertainmentGroup, AMC Entertainment and Cinemark plus two big studios, WarnerBros. and Universal. The three chains account for nearly 15,000screens, or nearly 40 percent of the U.S. total. Travis Reid, thepresident and chief executive of the group, said, “We should haveeverything in place for the rollout to start toward the beginning of2008.”
TCIP, despite its name, is not charged with actuallyimplementing the conversion. It is trying to come up with the bestbusiness model for the group. Recently it has been evaluating equipmentvendors and distribution alternatives. Reid, however, could be toooptimistic. There are a number of significant hurdles yet to beovercome for the rollout to start in a few months. First, is the matterof deciding on a financing arrangement. Investment bank J.P. Morgan hasbeen enlisted to find a way to fund the effort, probably through somekind of debt offering. And perhaps the most important piece of thecomplex jigsaw puzzle is still missing. The requires reaching anagreement between the studios and the exhibitors on virtual print fees.The studios, say sources, have been driving a hard bargain.
Meanwhile,a number of leading Hollywood firms with sophisticated digitalexpertise are positioning themselves to get in on the action. Theyinclude Technicolor, DTS, Dolby, Kodak and SmartJog, among others, anda host of postproduction houses that are part of the evolvingend-to-end digital workflow that’s essential in preparing movies fordigital distribution to cinemas.
Technicolor Digital Cinema isvying to be a total systems integrator, complementing Technicolor’ssignificant presence
in the full range of digital postproduction, suchas the creation of digital intermediates. TDC is presently involved ina test project that aims to convert 250 screens. A major customer isNational Amusements, the fourth-largest U.S. exhibitor in terms ofgrosses. While slower out of the gate than Access IT, TDC’s long-termgoal is more ambitious — 15,000 screens over the next 10 years. “Therollout business of actually installing digital cinema systems isdifferent than the distribution business, which is different than themastering business — they’re not tied together,” says Curt Behlmer, thechief operating officer of Technicolor Digital Cinema and executive VPof its theatrical services business. Technicolor, he points out has apresence in all three areas.
DTS, known for its technologystandard for theater sound systems, is focusing on management within amultiplex of digital content. The idea is to make it easy to switchbetween screens at a multiplex. Providing storage and player managementsystems would be part of the overall package. DTS’ centerpiece is itsrecently launched FilmStore Content Management System, which nowsupports JPEG2000 compression — the new technical standard. FilmStoreDirector is an advanced software suite that lets exhibitors view ormanage any player in the venue with a few computer keystrokes.
Dolby,whose name is synonymous with digital surround sound, has beendeveloping its own 3D technology which it claims is cheaper than thatused by Real D, by far the dominant player in this arena. What makesits system less expensive, says the company, is that there’s no need toinstall a new silvered screen in each venue in a multiplex, saving upto $15,000 each over Real D’s version. Paramount Pictures has agreed tomake Beowulf available to select exhibitors who have installed Dolby’s3D Cinema technology, providing the company with a chance todemonstrate and showcase its system. Some 50 screens will be involved.Obviously Real D, with 1,000 3D screens, will also be showing thelong-awaited feature from director Robert Zemekis.
Other companiesare targeting narrow niches. Two are focusing on satellite transmissionof movies. While studios so far have found it adequate to use FedEx toship digitized movies on hard drives for about $70 each — compared toan estimated distribution cost of $2,400 per film print. The case ismade a that all-digital systems will would take advantage of satellitesto maximize efficiencies. (AccessIT already provides multiplexes withreceiving dishes.)
SmartJog, based in Paris and Los Angeles, hasdeveloped a worldwide distribution and file-transfer network, usingsatellites and terrestrial fiber optic lines to securely deliverterabyte size files. SmartJog is trying to leverage its capabilities,now used by postproduction houses, into a D-cinema transmissionbusiness. In a demonstration, SmartJog used a satellite to transmit aFrench movie, Paris je t’aime, in a 4K format mastered by Eclair, to anindustry lab theater on Hollywood Boulevard.
MicrospaceCommunications Corp., based in Raleigh, N.C., has long been in thebusiness of transmitting huge amounts of data for financialorganizations, video and television companies, and other clients. Ithas recently been demonstrating its capabilities to Hollywood, hopingto provide its satellite service to studios for digital cinemadistribution to exhibitors. It used the Los Angeles premiere ofTransformers in August as a showcase, directly transmitting directorMichael Bay’s blockbuster to four theaters in Westwood and to the LosAngeles Film Festival.
Kodak, which has long dominated the filmprint business in Hollywood, earning an estimated $500 million a year,may end up with far less clout in the digital changeover, much as itshuge market share in film for personal cameras hasn’t translated todigital camera sales where competitors have outdistanced it. Globally,it has installed only 80 digital systems. And a Wall Street Journalstory on the company’s predicament in early September was headlined,”Kodak’s Reign In Hollywood Threatened By Digital Cinema.” But thecompany shouldn’t be counted out. It has a deep well of technology andexpertise, a strong presence in digital intermediates through its LaserPacific unit, and staying power.
Predicting the outcome in thedigital cinema conversion isn’t easy. Michael Karagosian, president ofMKPE Consulting, who provides analysis to the National Association ofTheater Owners, says: “Companies that were initially leaders inbringing out new technologies for the motion picture business sometimesdisappeared while competitors who held back eventually ended up as bigwinners.”

Written by Jack Egan

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