Digital Cinema - Issues and Opportunities from Red to Blue Report

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July 2008

Digital Cinema is shifting gears and changing the entire value chain. In the process it is expanding the definition of "Digital Cinema" - creating new issues and challenges that lead to new opportunities. Digital Cinema is also affecting some adjacent industries in sometimes surprising ways.

This report visits each step of the Digital Cinema value chain. The processes, technologies, products, issues and opportunities are explained. It includes an expanded section on the topic of stereoscopic 3D movies, an area that is surprising a lot of companies.

This is an extensive report covering a large number of topics and it includes 127 illustrations and 34 tables. Please download a free excerpt to see what is covered in more detail.

(dĭj-dēa) – Helping Companies Find Opportunities empowered by Digital Media

Gary Sasaki 408-981-2288 gary.sasaki@digdia.com Digital Cinema – Issues & Opportunities from Red to Blu July 2008

digdia helps companies find growth opportunities, create winning strategies and business plans in the digital entertainment value chain.

Services include strategic consulting and market analysis with an understanding of the industry value chain and technologies.

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1 Introduction

This report looks at the issues and opportunities in the Digital Cinema value chain. "Red to Blu" is a wink at two ends of this chain. "Red" refers to a "4K" camera that

has many cinematographers buzzing, while "Blu" refers to Blu-ray. The Digital Cinema Initiative (DCI) first published version 1.0 of their recommended

specifications in mid-2005. These specifications gave the industry a target for how movies should be packaged in digital form and how they should be delivered to and

exhibited in the theaters. Because DCI 1.0 had the backing of all of the major studios, the specification kick started the move to Digital Cinema.

Since then the specification has gone through a couple of revisions and it is now at version 1.2, published in March of 2008. These revisions consist mostly of a compiling of the hundreds of errata created to address inconsistencies and clarifications. The Society of Motion Picture and Television Engineers (SMPTE) has also transformed the DCI specifications into a set of engineering specifications. The number of "digital screens" in mid-2008 exceeded 6,300 worldwide. Most of these screens were a result of one company, AccessIT, that helped to promote a system consisting of a fairly limited set of equipment and a financing model called a Virtual Print Fee (VPF) that made it more affordable for theaters to install. By limiting the type of equipment they installed, AccessIT was able to avoid some of the open issues that the DCI specification hadn't adequately addressed. The VPF put most of the expense of installing digital projection and server systems on the distributor. The distributor, after all, benefited the most because it is much less expensive to deliver a movie digitally than to make a physical film print and deliver it.

So, to the casual observer, the world of Digital Cinema might look like everything has settled down and the time for new opportunities in better products, solutions and services has passed. Not so. After the initial burst of activity that the DCI specification helped to start, the industry found itself needing to shift into "second gear". Security, interoperability, business model refinements and management issues were among the areas that needed to be addressed. And, to the surprise of many, stereoscopic movies and live performances have emerged as money makers. Further, "Digital Cinema" has expanded in definition well beyond that addressed by the DCI specifications. Theater owners, represented by the National Association of Theater Owners (NATO), identified many other issues that needed to be addressed.

Their Digital Cinema Requirements, version 2.0 also came out in March of 2008. And, even these requirements don't cover some of the areas that companies are finding opportunities in.

2 Digital Cinema Overview

This section gives a quick overview of Digital Cinema. Later sections will look at each area in more depth to uncover some trends, issues and opportunities.

Figure 1 - Digital Cinema Ecosystem Overview

Figure 1 gives a very high level view of the Digital Cinema ecosystem. Some of the elements of each major area are shown to the right of the blocks, while a few of the key technical standards that have recently emerged are shown to the left.

• Pre-Production, which is not a focus of this report, is when the movie is written, financed and planned. Financing is, of course, a major milestone of any movie. Things don't really get started until a movie is greenlighted. Digital Cinema becomes a factor when the producers try to estimate costs. In general the use of digital techniques is more affordable than traditional techniques, but Digital Cinema also opens up the possibility for many new expenses that add cost to the traditional production. For example, many roducers now are thinking about producing in stereoscopic 3D because they think they will be able to make more money. On the other hand, stereoscopic 3D also costs more to make.

• Production is when the "filming" (a term that tends to be used, even if film is not used) is done. Cinematographers are increasingly turning to digital cameras. In the process, everyone (even costume designers) has to learn the strengths and weaknesses of going digital; and, they are always comparing results to film.

One big advantage of going digital is a fairly quick turn-around time for the "dailies". A process that used to involve rushing film development and processing now is replaced with instant feedback displayed on monitors. Color is also digital, and where the cinematographer's color choices were once burned into film, they now risk being lost in a sea of bits. As such, the ASC1has come up with a Color Decision List (ASC CDL) that provides colorists in Postproduction with information on what the Director of Photographer (DP) wanted when the shot was taken.

• Postproduction, or often simply "post", is where the editing is done. If the movie was shot on film it must first be scanned into digital form in a step that is sometimes called telecine. While most movies are in 2K (1,080 x 2,048) and some are in 4K (2,048 x 4,096), film is sometimes scanned to 6K (or more) to get a better master. Further, 35mm film's aspect ratio is different, so for example, a 2K scan is actually 1,556 x 2,048.

Editing is done using a non-linear editor which usually works on a lower resolution proxy to speed up the process. An Edit Decision List (EDL) results, which is used later to cut the full resolution file. Another major step is the Digital Intermediate (DI), a process of color grading and highlighting every element of every frame of the movie. The colorist may start with the ASC CDL as a baseline. Visual Effects (VFX) are created and rendered. Different elements of the image (live action, VFX, CGI) are composited together. Soundtrack, sound effects (SFX) and subtitles are also worked on and combined into a final mix. If the movie is in stereoscopic 3D, the editor must also "depth grade" the scenes to make sure the viewer won't get a headache when watching it. Everything is then "conformed" into a high quality Digital Source Master (DSM), the equivalent of the "cut negative" in film days. The DSM does not conform to any particular standard and it can consist of terabytes of data.

The DSM is then used to create a Digital Cinema Distribution Master (DCDM), which is a more manageable file that conforms to the Digital Cinema Initiative (DCI) inspired SMPTE 21DC2 standard. The DCDM is the equivalent of the "answer print" in film days.

• Distribution begins with packaging the DCDM into a form that can go out to the theaters. If the theater is using film, the movie is scanned to traditional film, cut to size to fit onto several reels, placed in canisters and shipped to the theater.

1 American Society of Cinematographers

2 Society of Motion Picture and Television Engineers 21DC is the current name for the original DC28 standards group.

If the theater is digital the DCDM is put into a Digital Cinema Package (DCP). The DCP is a compressed version of the movie (still can be 200 Gigabytes), along with lots of metadata to describe how the movie should be shown. The DCP is usually delivered to the theater using a hard disk drive (HDD) or via satellite.

A Key Delivery Message (KDM) is also generated and delivered separately to the theater via e-mail, USB, or CD. The KDM allows the theater to unlock the encrypted DCP. The distributor is also involved in advertising and merchandising activities.

• Exhibition is the done in a theater. If film is used, the projectionist splices the reels together into one big continuous film and placed on a platter which feeds the projector. If the screen is digital (many multiplexes have some digital and some film screens) the DCP is loaded into a secure digital cinema server and the KDM file is input to decrypt the movie. The KDM is keyed to specific equipment and show conditions, so KDM management is important. A Show Play List (SPL) is assembled that contains all of the elements of a show, such as previews, advertisements and the movie.

A multiplex theater may have a hierarchical server system that stores files in a central server and then transfers these files to specific playout servers attached to the projectors in the specified screens. Every link between every element is encrypted and secured. Even the image and audio are secured with watermarking that can trace pirated movies down to the specific theater, screen and time of original showing. For stereoscopic 3D movies the glasses need to be handed out and the projector is setup appropriately.

The theater may also have a Theater Management System (TMS) that coordinates and manages show times, electronic signage, Point of Sales (POS) and other elements of running the theater. Sometimes elements of the TMS are monitored or controlled by a central corporate center.

The National Association of Theater Owners (NATO) has released their recommendations on how many of the elements in exhibition should work.

• Video has become an important element of the movie industry because it provides a sizeable portion of the profits. After a specified "window" movies usually are released first to special venues such as the military and airlines. DVDs are next, where small retailers get them first and large discount retailers get them a few days later. Then, usually (historically) about 45 days later, the movie might be released to electronic form, such as a movie download service and Video on Demand (VOD). After this window the movie Digital Cinema finds itself on premium television channels, and is eventually found on free channels (and eventually recycled to the premium channels). One of the emerging elements in video is interactivity. Interactivity is most commonly found on Blu-ray (HD DVD, too, but this format is now defunct). Interactivity will also start to show up in cable, satellite and Internet Protocol television (IPTV) services. A common thread amongst many of these interactive services is a Java-based standard called GEM, which stands for Globally Executable MHP. MHP is the Multimedia Home Platform, and is part of a worldwide standard called Digital Video Broadcasting (DVB). In the U.S. the GEM standard is part of "tru2way", which will be used in digital cable. GEM is also what Blu-ray Disk Java (BD-J) is based on.

The following charts (next two pages) show more detailed workflow diagrams, though they still simplify many elements.

There are many details that this overview obviously doesn't mention, and as they say, the devil is in the details. The following sections will take a closer look and uncover how these details are handled and where opportunities may exist for handling them better.