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Hollywood studios, theater owners and others have spent more than eight years working to bring digital cinema
projectors to the big screen.
The plan: Replace all traditional 35-millimeter film projectors with high-definition projectors that can store and play
movies digitally.
The effort comes at a high price. Digital cinema projectors cost upward of $80,000. Only about 4,500 of the 37,000
screens in the U.S. have made the transition thus far.
Another issue has been settling on industry standards. The major Hollywood studios have largely achieved this
through a consortium known as Digital Cinema Initiative, or DCI.
Among those pushing the digital transition is the Technicolor Services division of Thomson (TMS), the French
electronics manufacturer and media firm. Technicolor, based in Burbank, Calif., sells a variety of digital cinema
technology and services.
Christopher Carey, chief marketing and technology officer of Thomson Services, spoke with IBD about the state of
the industry.
IBD: How much work is left to be done with digital cinema development?
Carey: The technologies are all pretty well-known and the innovations and specifications all work. It's not perfect,
but it's largely done. Most of what's needed now is getting critical mass with digital cinema in the minds of the
consuming public.
IBD: How do you generate greater consumer awareness of digital cinema?
Carey: You have to get enough systems out there for the mass public to experience it and demand digital cinema.
You and I look for digital screens because we know about them. But generally, it's not yet gotten to a critical mass
with consumers. When it does, I'm fairly certain, like most consumer technology formats, that everybody will say "I
don't want to go to a film screen. It's got to be digital." So, it's the quantity of screens and it's also differentiating
with things like 3-D movies.
IBD: Who is paying for the projectors?
Carey: There are several business models. But there still is, frankly, industry posturing going on between exhibitors,
the studios and the deployment financiers who are all still jockeying to finally get that one consensus model. And I
don't think there will be just one financing model. I think a couple will get recognized. There are a lot of moving
parts related to financing. The exhibitors don't want to pay any more than they have to. That's also true for the
studios and the deployment entities like us and others in this space. It's a big capital outlay.
IBD: So who saves the most or makes the most between exhibitors and studios?
Carey: It's a combination of both. The exhibitors originally took a position of saying they won't pay a dime for the
projectors, and the studios were saying, "Hang on, you'll see some of the benefit." The studios save money
because it's much cheaper to get a digital print to the screen than film. The distribution fees are substantially less,
so the studios are willing to put up some amount of that financing. But the exhibitor has to have some piece of this,
some stake in the game.
IBD: How will digital projectors benefit the exhibitors?
Carey: It's more about them generating revenue. A properly installed digital environment gives them the ability to
go to alternative content, such as projecting live sporting events, concerts and plays
IBD: How are Technicolor's deployment plans going?
Carey: We've delivered about 300 projectors, but we're looking at going to 5,000. Our largest North American
competitor is Access IT (AIXD). They took a very aggressive approach to deployment, backed by some venture
capital money. They put together a different model that got to market sooner with some exhibitors who said yes to a
business model they we didn't think made sense.
We're in this for the long haul and we're not motivated by a press release of being the first to get to 1,000. We took
a more measured approach. We have our business model and we expect and plan to deploy multiple thousands of
screens. What matters to us is that our deployment is impeccable. We have the distribution infrastructure and
service relationships to be a trusted partner. We waited a little bit longer in order to get next generation equipment
that's more DCI compliant, because a lot of projectors out there aren't DCI compliant.
IBD: So the DCI standards are still evolving?
Carey: The specifications are almost done. Some final things are being clarified, but generally the specs are done.
But there's still the issue of who runs and controls the projectors. These are going into movie theaters where a
pimple-faced popcorn slinger is running your theater, and you have the world's most sophisticated digital video
playback system in place. The user interface is everything. We built something called the Theater Management
System.
It's very intuitive. If you know how to use iTunes, you can use our system. You click and drag and drop. A theater
operator can drop a movie on this screen and that one there, add some pre-show ads and off you go. It has real-
time monitoring of all the projectors and monitors and servers.
Our priority has been on systems integration, support and distribution rather than jumping on the first financing
vehicle we could get people to say yes to.
IBD: And you also think the rollout of digital cinema will ignite a market for films in 3-D?
Carey: Yes, largely because the visual experience is finally there. You're starting to see some really powerful new
technologies, such as Real D and Dolby 3D technologies. Another reason why I think 3-D is here to stay and is not
a fad is because there's now a production pipeline commitment. All the major studios now have made very specific
plans to produce 3-D content. DreamWorks publicly declared that all its films will be released in 3-D starting in
2009. 3-D is not that hard to do anymore. If you plan from the beginning to do 3-D production, you can manage it as
a relatively negligible part of your overall production costs.
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