Digital Cinema: Digital’s front row seat

Product shortages: given the recessionary climate from which av is emerging, that’s not a phrase that has been bandied about of late. But last month Christie announced the opening of a new factory to keep up with demand from a market that is set to represent a €2.5bn shot in the arm for the av sector. Digitisation means big business for pro-av and nowhere more so than in cinema.

This year has been the tipping point in the world of the big screens, with most of the major European cinema chains either announcing or confirming their plans to digitise at June’s Cinema Expo – both NEC and Sony signed off significant agreements.

In terms of the big picture, France tops the league for number of digital screens in Europe, with 1,100, followed by the UK with 870 and Germany with 760. However, these numbers represent a small proportion to total cinema screens.

The major factor that has driven this interest – and investment – is 3D. But this has also been compounded by the fact that movies on TV, home cinema and downloading are contributing to dwindling cinema audiences, which in turn has made electronic formats attractive to cinema chains since they open up opportunities for alternative content, such as live events, to improve their offerings.

But it’s worth stating that this move away from 35mm film originally came from the film studios, rather than the cinemas themselves, and for economic reasons.

Digital cinema is defined as equipment meeting the DCI Standard and is referred to within the film industry as ‘D-Cinema’, while all other forms of digital cinema are referred to as ‘E-Cinema’.

DCI (Digital Cinema Initiatives) is a joint venture of the six major US film studios, which published a system specification for digital cinema using the ‘JPEG2000′ standard and defining certain quality levels of image and sound. Additionally, theatre managers require server controls for managing and displaying content in multiple theatres, and studios want their content encrypted with secure delivery, playback and reporting of play times to the distribution company.

Protective standards

The DCI standard has been designed to handle these requirements. There is considerable movie content generated in countries such as India and China, where the DCI standards or secure standards to protect Hollywood from fraud are not required, but it is D-Cinema and not the lower specified products that are dominating these markets.

There are only four projector manufacturers licensed to sell and produce DCI equipment – Christie, Barco, NEC and Sony. The products from the first three are based on Texas Instruments’ (TI) 2K DLP technology.

Sony uses its own 4K SXRD technology. The DLP products are currently 2K resolution and Sony’s SXRD chip provides a resolution of 4K.

The big savings from digital come from lower distribution costs, which benefits film producers. The replication cost of an average feature film is about £1,000, and making thousands of prints for a wide release movie can cost millions. An average film produced to the DCI standard can be stored on a 300Gb hard drive for a fraction of this cost, and hard drives are returned to distributors for reuse. With several hundred movies distributed every year, the industry hopes to save billions of pounds.

For popular films, distribution by satellite is being introduced. This is far more efficient than replication of the data on a hard disk, shipping by courier and returning the hard disk. It is forecast that within five years most major Hollywood films will be distributed electronically, but the economics depend on large numbers of the same material and a critical mass of cinemas being digital.

The use of satellite distribution in the US market is far higher than in Europe – here we have many different versions of the same movie because of the different European languages, meaning smaller numbers of each product, which makes satellite distribution less attractive.

However, for the exhibitors and cinema owners the move to digital is less attractive. The revenue from most movies is paper-thin. The initial costs for converting a cinema to digital is high – £100,000 per screen, yet a cinema can purchase a 35mm film projector for £30,000 and it will last for 30-40 years. Experience with computer-based media systems show that average lifetime is five-10 years.

A further incentive for digital distribution is the possibility of greater protection against piracy. With traditional film prints, distributors typically stagger the film’s release in various markets. In the subsequent markets, pirated copies of a film may be available before the film is released in that market.

Despite the obvious benefits, the move to digital has been slow. The beginning of 2009 was a sluggish time for conversion of cinemas to digital due to the recession. However, during the year the economy recovered and several successful 3D movies were launched, demonstrating the potential for additional revenue from this media since it enabled cinemas to earn more per showing.

Also, the funding of digital equipment through the virtual print fee (VPF) has been agreed with the studios and distributors, several of the European integrators, as well as Sony. The VPF scheme is backed by the studios, with savings made by distributing films digitally, which is cheaper than duplicating conventional film. The capital cost of the equipment is recovered through this fee.

Another concern until recently has been the 2K vs 4K debate. Last year TI announced the development of a 4K DLP chip. Now, all the new equipment from the three DLP manufacturers is capable of being upgraded to 4K for a small cost when the 4K chips become available.

Growth potential

In addition to the increased revenues to be made from 3D movies, exhibitors have the ability to show alternative content such as live special events, sports, pre-show advertising and other digital or video content. Some low-budget films that would not normally have a theatrical release because of distribution costs might be shown in smaller venues.

This has resulted in record growth for Europe’s digital cinemas. The number of digital screens in Europe tripled between 2008 and 2009 to about 4,500. Most of these are 3D-enabled, and the growth has further accelerated in 2010. There are estimated to be 120,000 screens worldwide, with 40,000 in North America and 36,000 in Europe, according to statistics from Dodona Research. At the end of 2009, PMA market data showed that 19,500 had been converted to digital – an increase of 89.2 per cent over 2008. By mid 2010 that number has risen to 26,800, with 34 per cent of the US market being digital and 20 per cent in Europe.

Other strong indications that digital is on the rise include Odeon UCI cinema’s VPF deal with Universal Pictures to fully digitise their network in the next few years, with equipment supplied by NEC.

According to Mark Kendall, NEC business development, the two companies ‘have not yet signed an agreement for supply of full digitisation, although we are working hard to finalise this in the very near future’. However, he adds that NEC’s addition to its Series 2 range of digital cinema projectors has generated contracts for more than 1,000 units throughout Europe.

As well as the Odeon UCI development, Sony has signed an agreement to provide its Digital Cinema 4K projection systems to National Amusements, which operates 950 screens across the UK, US and Latin America. It also announced the next phase of its agreement with AMC Entertainment Inc, with 5,325 screens in five countries.

It’s this rush that has caused the inevitable product shortages, with all four of the DCI projector suppliers reporting shortages and delays. Meanwhile, the three DLP vendors are quoting delivery times varying from February 2011 to April 2011 for new orders.

Christie, the largest supplier worldwide with a market share of close to 50 per cent (according to PMA), announced it had produced and installed more than 12,000 DCI projectors. To keep up with ongoing demand, it is opening a new manufacturing factory in Shenzhen, China, to expand its production capabilities.

Currently, most of the European cinema chains have at least some digital screens, of which more than 80 per cent are 3D capable. The forecast by 2014 is that close to 80 per cent will be digital.

That said, the projector market in Europe is hobbling out of recession at a slower rate than in other regions. More than 50 per cent of projector sales are into education and this market is largely government funded. While education budgets appear to be ring-fenced, manufacturers are looking over their shoulders with their fingers crossed. And within this context, the cinema industry is one of few bright sparks, regardless of its limited impact.