EUROPE EYES DIGITAL

by Bill Mead

June 25th, 2007

FJI Digital Cinema Editor Nowhere else in the world is the digital-cinema rollout more complex than in Europe. Compared to the U.S., where similar virtual print fee (VPF) arrangements have prompted an initial first wave of installations from exhibitors, Europe has more difficulty finding the common ground among the exhibitors, distributors, and digital-cinema providers on which equitable financial sharing arrangements can be built. In Europe, as elsewhere, the question of "who will pay" has evolved into a series of follow-up questions about how to develop equitable cost-benefit sharing deals that are fair today and are sustainable in the future. Europe is a diverse market. Not only are there cultural factors but business and economic factors contributing to rollout complexity. There are more than 800 distributors operating in Europe and the mix of Hollywood studio and locally produced content varies by country, typically averaging around 70% imported titles. 35mm prints tend to be crossed-over between theatres more than in the U.S., so any print savings have to be spread across multiple theatres. There are also more theatres which are either part-time or with a relatively low annual number of admissions. Overall lower screen counts result in lower economy of scale from creating digital copies. The business in each country also varies greatly depending upon the amount of governmental participation in the cinema industry. Europeans tend to look upon their cinema industry as extensions of their culture and therefore are willing to provide varying degrees of public support for technology upgrades. In Norway, for instance, the government has publicly committed to digitizing all cinemas and promises to pay at least 40% of the conversion cost. "We are not pushing digitization to get a plaque saying 'First Country in the World to Go Digital.' We are doing it because we believe there are clear benefits of a speedy digital adoption for Norwegian cinemas," says Dave Spilde, CTO of Unique Digital and the NORDIC project. In the U.K., the majority of funding for the U.K. Film Council digital initiative was provided by the government. There are also differences between the exhibition organizations that require consideration in matching the exhibitor's needs with the offerings and capabilities of the various digital-cinema providers. Exhibition organizations range from large multinational companies down to small single-screen operations. Larger exhibitors usually have their own in-house technical support, while smaller exhibitors are more dependent on their digital-cinema provider supplying the day-to-day know-how. The common ground among all digital exhibition stakeholders (exhibitors, regional distributors, studios, or the filmmakers) is the understanding that the industry must get on with the conversion one way or another. Today's market is focused largely on the costs for digital. While digital exhibition's long-term benefits are now widely acknowledged, the benefits are much harder to quantify in the short term and therefore more difficult to build into today's costs-vs.-benefits business negotiations. In spite of the complexity, European exhibitors who have converted are seeing the benefits. In addition to the general advantages of digital exhibition, such as improved image quality and flexibility of programming, European cinemas have been leading the world in presenting new and exciting forms of alternative content such as rock concerts, opera and Formula I racing. For example, City Screen Cinemas in the U.K. screened opera performances live from the Met in New York, which saw sold-out shows and healthy bar/concession revenue--an experience not possible without digital cinema. European exhibitors are also seeing success with digital 3D shows. According to Disney, 3D screenings of Meet the Robinsons grossed 2.6 times more than traditional or non-3D engagements. As well as higher grosses, more titles are being released in 3D. DreamWorks has said that all its releases will be in 3D by 2009. 3D is a justification for cinemas to convert to digital, not only because of increased revenue potential but as a way to differentiate the cinema experience from home viewing--now more important than ever. European industry associations such as the European Digital Cinema Forum (EDCF) have been active in getting exhibitors, distributors and various digital providers to the negotiating table. Dave Monk, chief executive officer of the EDCF, comments, "EDCF supports the notion of a fair share plan where all those who will benefit by using digital should contribute to the funding process. Through the EDCF's Distribution Support Group, we are encouraging distributors and exhibitors to get together in their individual territories to develop plans that are right for that territory." The major U.S. distributors have also been active in encouraging European exhibitors to get on with the conversion. Julian Levin of 20th Century Fox says, "Fox is fully committed to the European digital rollout, as it is for the rest of the world, and is currently in the advanced stages of discussion with a number of European providers for cost-sharing arrangements." Levin points out that equipping for DCI-specified digital projection is the essential first step in getting ready for the 3D titles that Fox and other distributors have in the production pipeline. Taking the early lead in the European rollout is Belgian-based XDC, which currently has approximately 260 d-cinema grade systems and 50 e-cinema grade systems under its management. Bernard Collard, general manager of XDC International, says, "XDC is clearly leading digital cinema in Europe and is committed to be a deploying entity aiming at a large-scale digital-cinema rollout. Hence, the pan-European rollout target for XDC is 8,000 digital screens within the next five years." XDC, an offshoot of EVS Broadcast, was an early pioneer involved in the European deployment since 2002. XDC offers its customers a range of flexible, custom-fitted lease or rental plans using DCI-compatible equipment, training, installation and technical support. Currently XDC is continuing to build out its content production and distribution with key alliances. XDC Deutschland and CinePostproduction will cooperate to offer to filmmakers, producers and distributors one large-scale digital-cinema rollout. Hence, the pan-European rollout target for XDC is "One-Stop Shopping" digital-cinema services in Germany. This cooperation will facilitate and optimize the digital workflow: production, post-production and processing of the digital copies. XDC Digital Content Lab has also extended its facilities in order to create DCI-compliant copies that are playable on all current DCI-capable servers. The new mastering equipment accepts more available source material, is easier and faster to operate, and simplifies the process of creating and distributing security keys. Arts Alliance Media (AAM), the integrator behind the 240-screen U.K. Film Council deployment, is also actively expanding its role as a digital-cinema provider. Based in the U.K., AAM is expanding its operations to include system financing and is working with major studios to secure VPF offsets to help reduce exhibitor costs. AAM has secured financing and is teaming up with various post-production facilities to be able to offer exhibitors an end-to-end solution for the digital conversion. "This is an exciting time for digital cinema in Europe, and for Arts Alliance Media," declares Howard Kiedaisch, chief executive officer of AAM. "We hope to be making announcements shortly regarding both a commercial business model for pan-European digital-cinema rollout and the future growth of our operations. These milestones will strengthen our leadership position in European digital cinema and enable us to continue to build and expand our network." The UKFC Digital Screen Network rollout was completed on April 30 and will run for four years. More than 200 cinemas in the U.K. can now benefit from digital cinema, with all 240 screens having DCI-compliant 2K projectors. Since February this year, AAM has been operating and maintaining all nine screens at the Odeon Surrey Quays (which became the U.K.'s first all-digital multiplex) as part of Odeon's commercial digital-cinema trial in the U.K., and it will also operate 10 screens in Norway. This June, the Norwegian cinema association, Film & Kino, will consider extending the trial in terms of the number of screens and time period. AAM's in-house digital-cinema lab has prepared over 120 titles and shipped over 1,600 digital prints, including content from BVI, Warner, UIP, Momentum, Lionsgate, Pathé and Optimum. AAM has also trained over 500 projectionists in the U.K. in digital-cinema technology. Technicolor Digital Cinema (TDC), a division of Thomson, whose U.S. rollout began early this spring with initial deployments with National Amusements, is concentrating on developing the support infrastructure and relationships to extend its U.S. position into Europe. TDC already has film support facilities in London and Rome with ties to post-production facilities throughout Europe. TDC began its European digital initiative with a 130-screen arrangement reached in summer 2006 with the Kinepolis Group of Belgium. Kinepolis is using TDC expertise in system integration, along with its Theatre Management System, DCI-compliant servers from Dolby Laboratories, and projectors from Barco, with the goal of converting the entire circuit to digital by the end of 2008. Currently, TDC is investigating the opportunity to run pilot tests with other leading European exhibitors, whereby they can familiarize themselves with the workings of the system in the interim period before long-term studio agreements are in place. Tom Cotton, TDC's European VP of business development, comments, "The recent addition of digital-cinema mastering services in London strengthens Technicolor's position in the European digital-cinema marketplace and demonstrates our commitment to digital exhibition globally. Alongside our distribution services, our rollout operations in Europe are developing well. I believe the appetite exists within the exhibition community to go digital, and upcoming agreements with the U.S. studios will kick-start the transition, making 2008 an exciting year." Following their success in the U.S. market with over 3,000 screens installed, AccessIT is also actively pursing opportunities and building relationships in Europe. Chuck Goldwater, president of AccessIT's Media Services Group, comments: "AccessIT is the only company that has actually done a large-scale digital-cinema deployment. AccessIT understands the complexities and issues involved in meeting the real-world requirements of both the exhibitors and distributors." Goldwater points out that it takes an exhibitor having typically at least 50% of its screens converted before a distributor can effectively book digital content into that circuit. Exhibitors need enough screens equipped so they can keep a particular title in digital throughout its run, eliminating the cost of providing an additional 35mm print. As such, AccessIT is focused on those exhibitors who are prepared to make circuit-wide commitments to convert. According to Goldwater, AccessIT is actively in discussions with a number of European exhibitors and will be announcing its alliances and partnerships when there is clear benefit to all the parties involved. In addition to the large pan-European d-cinema initiatives, there are many other country-specific d-cinema plans in markets such as Italy, France, Germany and Norway. Overall, Europe is moving forward with its digital conversion with activity across all territories and, to everyone's benefit, with business negotiations converging on universally acceptable solutions. Bill Mead recently joined FJI as digital cinema editor and is also the publisher of DCinemaToday.com.

http://www.dcinematoday.com/dc/extURLs.aspx?ID=283