THE DIGITAL CINEMA STORY

THE DIGITAL CINEMA STORY
HOLLYWOOD DRAMA DOESN'T GET ANY BETTER THAN THIS
BY JAMES LAVORATO


It's a complex and provocative story rife with high stakes drama and a cast to rival any Hollywood blockbuster. Intricately woven into its plot are all of the major movie studios (and their global media parents), the world's largest electronics firms, leading edge digital imaging and microchip technology, the worldwide cinema exhibition business, billions of dollars, Hollywood's biggest movers and shakers, and, arguably, the very existence of the cinema as we know it.

Digital Cinema (the name given to digitally exhibited movies at theatres) has been in serious development since the mid 1990's and many believe it is now at the breakout point. But is the cinema ready for the systemic and seminal changes that the adaption of digital technology will instigate? It's time to unravel the complexities of this intriguing saga and see if we can determine how it will evolve -and (perhaps more importantly)the impact it will have on the entertainment industry.

THE TECHNOLOGY - NOW YOU SEE IT/NOW YOU DON'T

Until recently, there were two imaging technologies that supported Digital Cinema. Texas Instruments' DLP and JVC's D-ILA. Both systems currently offer what is referred to as 2K image resolution. Sony then introduced a 4K imaging system - SXRD -which, more or less, threw a spanner into the D-Cinema works. Termed 4K for the number of horizontal pixels per frame (4096 horizontal pixels x 2160 vertical pixels)the SXRD system offers 4 times the quality of 2K by more than doubling the per frame pixel density.

Without going into all the nuances of each technology, following is a brief overview of each.

JVC's D-ILA (Digital Image Light Amplification)

Developed by Hughes Electronic's in the 1980's for military displays, Hughes later partnered with JVC to refine the technology. D-ILA uses a derivative of a chip technology termed LCoS (Liquid Crystal on Silicon) and a holographic color filter. Capable of producing a 4K display to rival Sony, JVC is currently working with Aurora Semiconductor to produce an advanced LCoS chip for higher resolution projection.

TEXAS INSTRUMENT'S DLP (Digital Light Processing)

Sometimes referred to as a DMD (digital micro-mirror device) the DLP chip contains millions of tiny mirrors which switch on and off thousands of times per second either reflecting light or not. Capable of very high resolutions (some estimate as high as 10,000 lines) the DLP system currently uses three DMD chips (red, green, blue) to generate all the required colors for the 2K DLP D-Cinema projectors. A four chip system is likely in the future with one chip dedicated to the gray scale (i.e. black level) for improved contrast. In time, DLP may be capable of producing true 6K to 8K 35mm film resolution, but this will come at a high cost.

SONY'S SXRD (Silicon X-tal Reflective Display)

The Sony SXRD 4K projectors use GLV or grated light valve technology. GLV (a DMD derivative) uses red, green, and blue lasers reflected off ribbon patterns on a chip.

Below is a comparison of the current image resolutions:

35mm Film - 6-to-8K resolution
SXRD - 4K
DLP and D-ILA - 2K
HDTV - 1K

There are currently about 1000 D-Cinema installations worldwide - which represent less than 1% of total screen count - and the majority of these theatres have redundant 35mm film projectors as well. To my knowledge, there has been no long term use of a D-Cinema projection system operating as would a 35mm projector at a multiplex cinema or "grind house" (as they are referred to in the industry). That is, operating 12-14 hours per day, every day. So, whether or not the current generation of D-Cinema equipment could hold up under these conditions is unknown.

Digital Cinema Initiatives (DCI) was the creation of the Hollywood studios whose main function was to recommend universal standards for the Digital Cinema Distribution Master (DCDM) file, (the format by which every digital film is to be distributed) in what are called Digital Cinema Packages (DCP).

The DCI was to set the specifications for all "theatrical" films and other "alternative" content (such as, in-theatre sports, concerts, and other pre-feature entertainment) to be distributed and exhibited at cinemas via DCI compliant D-Cinema equipment. DCI was to fulfill this task and then disband - which it has. In a nutshell, DCI proposed three D-Cinema projection formats:

- 2K projection at 24 frames per second
- 4K projection at 24 frames per second
- 2K projection at 48 frames per second

For the full read on DCI D-Cinema System Specifications go to: www.dcimovies.com/DCI_Digital_Cinema_System_Spec_ul.pdf.

FOOTING THE BILL

D-Cinema is a potential cost saver (no need to process or distribute film prints throughout the world) not a revenue generator. Since the cost savings (estimates range from $1-$3 billion annually) accrue solely to the studios, financing the film-to-digital conversion has always been a sticky issue, as the expense of the required D-Cinema projection equipment (currently estimated at $90,000-$120,000 per movie auditorium) and its continued upkeep and maintenance falls on the exhibition (theatre owners) side of the industry.

Currently, film distributors (principally the studios) charge the cost of the production of film prints against each movie (each movie is accounted for as a separate product). This cost varies depending upon the movie's length and the number of release prints struck. Typically, each film print costs between $1,500-$2,500 to produce with exhibitors paying for shipping to and from their theatres. However, that formula doesn't work with D-Cinema for a variety of reasons, one being that it would take the studios far too long to write off the large investment D-Cinema is currently burdened with.

Several financial schemes - such as issuing bonds against the film production savings, charging virtual film fees, having the exhibitor carry a subsidized mortgage-type instrument - have surfaced. But none have been adopted.

To make matters worse, given the quick atrophy of the digital projection equipment, first (and probably second or even third generation) adopters may well require replacement equipment.

"Star Wars Episode II: Attack of the Clones" (in the summer of 2002) was, the first commercially released digital movie using the current D-Cinema technology. At that time, I happened to be doing consulting work for a small theatre chain (UltraStar Cinemas) based in San Diego. Because of my and the theatre owners' interest in D-Cinema I negotiated, on behalf of UltraStar, a deal with the Boeing Company. The arrangement was for Boeing to install six D-Cinema platforms at four UltraStar theatre locations (which, at that time, represented the highest concentration of D-Cinema installations in the world).

Boeing's interest was in testing the transmission and encryption mechanisms of their communication satellite network. The test worked flawlessly; however, when completed, the inclusive cost of the six platforms had totaled $3 million and within six months the equipment was obsolete. For Boeing, the proof of concept of their transmission capability and encryption technology was worth every penny as that knowledge could be utilized by other industries (such as the medical industry) even if the cinema industry never availed itself of it.

Besides the technical issues a financial agreement between Boeing and UltraStar was structured and agreed to by both parties.

- UltraStar was charged a minimal cost per D-Cinema platform of $300/month
- UltraStar agreed to pay Boeing 10 cents per ticket on all digital prsentations
- Boeing reserved the right to exhibit advertising and alternative content with a
50/50 split
- Boeing paid for the equipment and the cost of installation

A similar arrangement, however, would not be feasible for the entire industry given the large upfront cost and lengthy time of payback.

3D "ADDS" ANOTHER DIMENSION

Although D-Cinema may not be a revenue generator, 3D films might, as the 3D effect cannot be replicated elsewhere (most notably in the home). Around for decades, 3D may get a free ride if the industry moves to digital. Remember the DCI proposed formats? Well the 2K at 48 frames per second could be used for 3D movie presentations.

All well and good, but 3D has problems of its own. The ideal would be autostereoscopic 3D which doesn't require glasses, but that technology is currently only available on small digital displays because of the limited sweet spot (where the viewer must sit in order to get the 3D effect). So, glasses will be required. There are several types of 3D glasses but all are cumbersome and the best are expensive to purchase and maintain.

Big proponents of 3D movies are filmmakers James Cameron, George Lucas, and Peter Jackson. They feel 3D may well "save the cinema". In fact, Lucas wants to re-release both "Star Wars" trilogies in digital 3D. And In-Three, Inc., a California based company, is here to help him. In-Three has perfected a process termed "dimensionalization". This process restores depth in films shot in 2D. A rival firm, Three Dimensional Media Group also has a 2D-to-3D conversion process. These 2D-to-3D conversions work but are extremely labor intensive. The human touch is required because too much or too little depth will give viewers a headache (literally). Currently, it takes six people to judge each converted frame. Cost? About $4.5 million for a feature film (although this can vary greatly depending upon such factors as the film's length and scenic complexities). However, this could be an option for re-releases of older movies or for those currently being shot in 2D.

PROS AND CONS

With approximately 10 million seats, and operating at a chilling 12-15% utilization rate, U.S. cinema exhibition needs to bolster attendance - however it can. In 2005, global box-office attendance was down 7% from 8.4 billion to 7.8 billion admissions. Total worldwide box-office was $22 billion, certainly not a small number, but highly skewed toward certain genre - namely, escape/fantasy and comedy/drama movies. For example, of the top 10 grossing films (which generated a whopping 25% of total box-office) 8 were fantasy, and 2 comedy/drama. In the U.S., the number was even more skewed, with the top 10 grossing 27% of total box-office.

Although D-Cinema won't help box-office revenues, it will drastically change the landscape for the industry players and clearly presents advantages and disadvantages to each. For example, it would allow the studios to tap into the estimated $600 - 800 million in pre-feature advertising revenue, which is now going to U.S. exhibitors, and is expected to continue to have rapid growth.

Listed in Exhibit I are some of the advantages and disadvantages to the various industry players.

DAZED & CONFUSED

Rumor has it that.....Christie Digital (parent Ushio Electronics, Japan) and its subsidiary Access Technologies say they will roll-out 4000 DLP based systems by 2008.....Warner Bros. (parent TimeWarner) announces plans to test JVC's upcoming 4K projector in Japan to test transmission of DCMD from L.A. to the Far East via fiber.....Sony announced a deal to install their SXRD 4K projectors in Landmark Theatres which wants to integrate independent films with Hollywood mainstream features.....Thomson announced a deal with DreamWorks, Sony Pictures, Universal, Warner Brothers and other studios to install 15,000 (principally SXRD units) throughout the U.S. and Canada over the next 10 years, with 5,000 in the 2006/7 period.

To add to the confusion, a business model using a watered-down version of D-Cinema already exists. Emerging Cinemas, a New York City based firm, specializes in digitally distributing and exhibiting a variety of content. Its play list consists of first-run foreign, independent, docus, and film fest movies. Internet based, Emerging's business model (like D-Cinema) works well from a technical standpoint; however, whether or not its content has the widespread appeal to generate a profitable box-office remains to be seen.

So, the big issues surrounding the movie industry's convergence to digital technology remain unanswered. Should industries always adopt advanced technology and does that adoption add value? In the future, more and more companies will be asking that question. It just so happens it's being asked in the movie industry right now.

EXHIBIT I - DIGITAL CINEMA GAME PLAYERS ADVANTAGES AND DISADVANTAGES

Studios (Distributors) - Advantages

- Saving on film prints & distribution
- Conduit for ad and pre-feature entertainment revenue
- Streaming "non-movie" content into cinemas, i.e. concerts
- Retains distribution control
- Potential use for 3D movies
- Fights content piracy
- Easier day & date releases - globally

Studios (Distributors) - Disadvantages

- Not a revenue generator
- Antitrust/Legal issues
- Possible loss of distribution control
- Loss of exhibition outlets
- Dual movie inventories (digital & film) for unknown period of time
- Atrophy of digital equipment
- Funding complexities & high cost
- Lengthy conversion time frame

Exhibitors - Advantages

- Ease of projection operation
- Potential use for 3D movies
- Ability to exhibit premium "alternative" content
- Expands possibilities for increasing theatre utilization
- Opportunity to become content providers

Exhibitors - Disadvantages

- Funding complexities & cost to convert
- Partial loss of current ad and pre-feature entertainment revenue to distributors
- Potential high cost of equipment maintenance, spare parts, electrical power
- Risk to early adopters
- No box-office revenue enhancement
- Requires very high-end components

D-Cinema Equipment Manufacturers - Advantages

- Spurs innovation
- High sales opportunity
- Technological cross-fertilization of product lines

D-Cinema Equipment Manufacturers - Disadvantages

- Too long a transition period
- High cost of equipment
- May need to finance or partially finance conversion
- Long conversion time

Cinema Equipment Suppliers - Advantages

- Expanded installation/service business
- Post-conversion maintenance business
- Expanded sales of ancillary A/V products
- Rejuvenated sales opportunity to static industry

Cinema Equipment Suppliers - Disadvantages

- Cost to train service staff
- Few opportunities to sell 35mm equipment due to D-Cinema overhang
- Exhibitors not inclined to expand or invest in unknown environment

The Moviegoer - Advantages

- No price increase for possibly improved movie presentation
- Potential to view currently unavailable "alternative" content
- Helps satisfy thirst for entertainment variety

The Moviegoer - Disadvantages

- More lengthy pre-feature ads and promotions
- Doesn't address other movie attendance issues, i.e. cell phones, etc.
- No perceived on-screen image enhancement

CINEMA TRAINING CENTRAL 2007 TRAINING SCHEDULES

CTC 2007 WORKSHOPS AND SEMINARS ARE SCHEDULED FOR: MARCH 26 - 28,

MAY 7 - 11, SEPTEMBER 17 - 21 AND NOVEMBER 12 - 14.

TRAINING PROGRAMS WILL INCLUDE:

• Managing A Cinema (2 Day Workshop)
• Concessions: Where The Money Is (1 Day Workshop)
• Digital Film Festivals - Why Have Them & How (1 Day Workshop)
• Pre-Feature Entertainment & Alternative Content - Why Embrace It (1 Day Seminar)
• Digital Cinema - Present & Future (1 Day Seminar)
• Marketing Your Cinema (1 Day Workshop)
• Modern Theatre Design & Planning (1 Day Seminar)
• Primary Technical Training (2 Day Workshop)
• Intermediate Technical Training (2 Day Workshop)
• Advanced Audio Technical Training (3 Day Workshop)
• Advanced Projection Technical Training (3 Day Workshop)
• In-Home Cinema - Designing/Equipping/Installing (1 Day Workshop)

All workshops and seminars start at 9:00 am and end at 4:00 pm each day.

For a virtual tour of CTC go to our website (gotoeec.com).

Regular tuition rates: 1 Day Programs - $295, 2 Day - $395, and 3 Day - $495. Discount tuition rates are available, please contact us for more information.

To receive a copy of the Cinema Training Central 2007 Guide please provide a ship-to address or call 800-448-1656.

Since I've Been Away

Sorry for the pause in adding to Cinema Mucho Gusto. As it turns out there will be a number of new postings in the next several days. To update. There is be a 2007 Cinema Training Central Program Schedule, which is much expanded from prior years. An article entitled "The D-Cinema Story" which discusses the present state of Digital Cinema and its future, with a detailing of the advantages and disadvantages to all of the Cinema Industry players. And finally, an article on the role China will play in the entertainment industry over the next decade.
Look for these items and more. And it's good to be back.
Jim Lavorato