Digital Projection of Films Is Coming. Now, Who Pays?

[R. A. Hettinga]

At the Financial Cryptography 2000 rump session, Paul Harrison and I organized a group sendup of a proposed encrypted digital projector transmission protocol from a nameless, um, content company, called "The Top Ten Reasons Why This Mickey-Mouse Projector Protocol Wouldn't Work."

We polled the audience, collected them and sorted anonymous written audience responses to a two-minute verbal description of the protocol by their ability to make us laugh out loud, and counted down the top ten to the audience at the end of the session. 

Number 4 was, I believe, "Excuse me sir, but exactly *where* did you tell me to stick that charge-coupled array?"

;-)

Cheers,
RAH
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<http://www.nytimes.com/2003/10/13/business/media/13projector.html?pagewanted=print&position=>

The New York Times


October 13, 2003 

Digital Projection of Films Is Coming. Now, Who Pays? 
By ERIC TAUB 

LOS ANGELES, Oct. 12 - Moviegoers who recently saw the Johnny Depp film "Once Upon a Time in Mexico'' at the Pacific Sherman Oaks Galleria 16 cinema here may have noticed that something was different. Instead of the traces of dust and scratches, and the slight shaking of the image that is perceptible at many screenings, they were looking at a picture that is pristine, sharp and steady. 

That is because the film was projected digitally, the images fed not from a five-foot-diameter reel of 35-millimeter film, but from a computer hard drive, and beamed onto the screen using a projector without any moving parts. 

Filmgoers evidently like what they see. "Given a choice between watching a 35-millimeter print or a digital file of the film, customers prefer the digital version," said Jerry Pokorski, executive vice president and head film buyer for Pacific Theaters, which operates the 16-screen movie complex in Sherman Oaks, in the San Fernando Valley. The theater's newspaper ads note when a film is showing in the digital format, and "our grosses are as much as 40 percent higher when we screen a film digitally," Mr. Pokorski said. 

One might think that a crowded theater and higher ticket sales are all the evidence a multiplex owner would need to be persuaded that digital projectors are worth adopting. But economics and industry politics, as well as continued disagreements over technical formats, have delayed the long-predicted digital revolution in movie theaters. A big sticking point is the standoff between theater owners and Hollywood studios over who will pay to update the nation's 35,000 projection booths. 

So far, the Galleria's digital system is one of only 39 that the supplier, Technicolor Digital Cinema,  has installed around the country as an experiment, at no charge to the theater owners. In all, fewer than 80 cinemas in the United States have movie-quality digital projectors - some of the others having been installed experimentally by another emerging competitor, Boeing Digital Systems, and the rest by theater owners. Throughout the world, fewer than 200 cinemas in some two dozen countries are using digital projectors to show movies - with most of the machines paid for by the manufacturers for test-marketing purposes. 

Aesthetics aside, the exhibitors say that the cost-benefit analysis comes down too much in favor of the studios, which could save a couple of million dollars on each movie they release if they could send it to theaters as digital files - whether by satellite, or high-speed network lines, or on hard drives - rather than shipping film copies that can cost $1,200 each. At that rate, a 2,000-print domestic release, common for a typical feature film, costs about $2.4 million in duplication costs, according to Screen Digest, a British research firm, which estimated that the movie studios spend a total of $1.36 billion a year to produce and distribute prints worldwide. 

The way the theater owners see it, the costs would not offset any benefits. A typical 35-millimeter projector, they say, costs $30,000 and lasts up to 30 years. But a feature-film-grade digital projector is expected to cost as much as $150,000, at least initially. And because it is a new technology, its effective life is unknown. Beyond the price of the projector would be the cost of the satellite dishes or high-speed transmission lines needed to receive the digital file, as well as an investment in the automated theater management systems to connect and control the entire operation. 

"With the cost savings the studios would enjoy, they could fund the U.S. transition to digital projection in seven years," said John Fithian, president of the National Association of Theater Owners, the exhibitors' trade group. "But theater owners could not sell enough extra tickets or raise prices high enough to cover those costs." 

Theater owners do acknowledge that there might be economic and operating benefits for themselves, as the Galleria 16 experiment seems to indicate. To prepare a standard 35-millimeter film for projection, several employees must now physically splice the film to the preview trailers the night before the first show. By contrast, to prepare a movie for digital projection at the Digital Cinema test site in the Galleria, an operator selects the film title and the accompanying trailers from a list on a computer screen, and adds them to the night's play list. 

Mark Kahn, a Pacific Theaters engineer responsible for the company's digital installations, said: "My policy is to keep it simple, so I created a program that allows the projectionist to just push a button and leave. The system lowers the lights, plays the trailers, turns off the lights, and starts the digital projector.'' 

To ensure that a technical problem does not interfere with the show, a copy of the digital file runs simultaneously on a second hard drive. If the first hard drive fails, an operator can switch to the backup drive. And for good measure, a 35-millimeter film copy of the movie is also running, and that projector can start showing the film if both hard drives crash. 

But Mr. Pokorski of Pacific Theaters says he does not believe that eliminating the film-preparation tasks will necessarily translate into lower labor costs. "It still takes from 4 to 10 hours to prepare and test the digital print prior to its first screening," he said. "There is really no overall financial benefit for us to go digital, so we should not have to pay for the transition." 

Before the digital transition can occur in earnest, various technical and business issues also need to be resolved, which is why many industry experts predict that the shift may still take seven years to complete. 

Hollywood studios, though, are eager to make the switch, and not only because they will no longer have to make and transport costly film prints. Using digital play lists, like those that catalog music on personal computers, movies and trailers will begin at the right time and in the right order, simply by highlighting a title on a computer screen and adding it to the list. And the film studios plan to use various forms of scrambling software - encryption - to keep the movies unviewable by anyone not possessing keys to the digital code. 

"By switching to an encrypted digital projection technology, the motion picture industry will be able to reduce the losses it now incurs due to piracy," said Charles Swartz, executive director of the Entertainment Technology Center, which, through its Digital Cinema Laboratory, is testing various digital projection technologies for the industry. 

Thwarting piracy is only part of the laboratory's function. "We need to create standards that are better than the consumer can now get at home with an HDTV and a surround-sound system," Mr. Swartz said. 

The lab expects to complete its work by the end of the year. In 2004, Digital Cinema Initiatives, an industry group set up by the movie studios, plans to establish specifications. Then, the Society of Motion Picture and Television Engineers would be asked to adopt technical standards for the industry. 

The recent digital installation at the Sherman Oaks Galleria used a digital projector made by Christie Digital of Cypress, Calif. Technicolor also uses projectors made by Barco, a Belgian company. A third manufacturer, Digital Projection International of Manchester, England, has supplied digital equipment to a number of Japanese movie theaters. All three makers use the digital light processing, or D.L.P., chip invented by Texas Instruments , to project the image. Eastman Kodak has licensed a separate projection technology, known as D-ILA, from the Japanese electronics company JVC  and expects to market digital-feature-film grade projectors beginning in 2005, according to Bill Doeren, general manager of the Digital Cinema Group at Kodak. 

Doug Darrow, the Texas Instruments business manager overseeing the development of the D.L.P. chip, predicts that the costs of digital projection systems will come down. 

"Once the standards are defined, companies that can develop cheaper solutions will enter the marketplace," he said. "We'll see a tiered approach, with smaller screens able to use less expensive projectors." 

But the exhibitors say they are skeptical. "With only 35,000 screens in the U.S., and an additional 115,000 in the rest of the world," Mr. Fithian of the theater owners' trade group said, "the economies of scale are not there to create lower prices." 

Talks between the theater owners and the studios to resolve the transition issues began last March. Neither side will comment on their status of the discussions. Several third parties have stepped into the financial breach, proposing to finance the hardware and software transition, and then charge the studios a per-screen fee.  The studios say they have looked at the third-party approaches, but "we've not yet begun examining them," said Chuck Goldwater, the president of Digital Cinema Initiatives. 

Rather than wait for all the issues to be resolved, one big theater owner, the Regal Entertainment Group - which owns the Edwards, Regal and United Artists theaters - has installed a less-expensive type of digital projector in 306 of its 561 cinemas. The systems, which project an image quality comparable to high-definition television, but not fully equivalent to 35-millimeter film, are being used for packages of advertisements before feature films or when renting out the theaters for corporate videoconferences or special remote transmissions of concerts and other live entertainment. 

"We're making money on our ad sales," said Kurt Hall, president of the Regal CineMedia unit. "And we've built our digital infrastructure. Once digital feature film standards are set, we only have to upgrade our projectors to be ready." 


-- 
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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