Eye balls and Euros - Digital Cinema is at the end of the beginning and primed for growthNancy Fares, Business Manager, Texas Instruments DLP® Cinema Products
I am the Business Manager for DLP Cinema® Products; my role includes product line responsibilities, Profit and Loss (P&L), product marketing and overall strategy for the DLP Cinema® Products group. This year marks the 10th Anniversary of DLP’s entrance into the cinema industry, with the first fully functional and Hollywood endorsed digital DLP Cinema movie projector. After years of prototypes, in 1998 DLP delivered Hollywood’s biggest image critics and cinematographers with a digital projector that met the world’s highest standards on colour, brightness and reliability and therefore pioneered the digital cinema concept. A year later, in 1999, the studios released the first movie in digital format on DLP Cinema, which was Star Wars: Episode I - The Phantom Menace. DLP Cinema honours the heritage of the ultimate viewing experience while incorporating the latest technology innovations, such as the 3D single projector solution and cutting costs for cinema exhibitors, distributors and ultimately the consumer.
As we celebrate our 10th year in the film industry, DLP Cinema projection technology is installed in over 6,000 theatres on every continent except Antarctica. Today there are more than 1,200 theatres that offer the digital 3D experience powered by DLP Cinema technology, and this number will continue to increase as more DLP projectors are deployed globally.
It was over ten years ago that Texas Instruments and other companies began working on digital cinema and today we’ve reached the point where we have a viable market. While a little less than five percent of the world’s cinema screens have been converted to digital projection, it is fair to say that we have now arrived at the end of the beginning. Of the early adopters, approximately 75 percent of digital cinemas are in North America, with the rest split between Europe and Asia. It’s been a decade in the making, but we are finally past the point of beta testing and committees deciding standards.
It could be argued that the slow take-up of digital projection technology has been due to the need to agree to standards, to test equipment, and so on. However, it’s more likely that the primary reason why the pace of product development in digital projection technology has been slow is because the true cost and benefits of digital cinema to the main interested parties – equipment manufacturers, film distributors and exhibitors – are not reliably known or properly understood. The lack of solid facts about the economics of digital cinema has led to a very long game of poker. Such games aside, the long term picture looks rosy for exhibition, distribution and equipment manufacturers. Ultimately, it will become more viable to show movies to much larger audiences since digital prints cost less, require less handling, and offer far more flexibility in programming.
For exhibitors as a whole, there is also the prospect of higher revenues from sources such as alternative content and the 3D revival. In addition, it has been suggested that potential gains exist from programming content by daypart and by demographics. Many would argue that targeting audiences throughout the day will also increase revenue thanks to the ability to deliver relevant advertising messages to the changing demographics.
Regardless of studio incentives and deployment plans, d-cinema installations will certainly heat up in 2008, as there are many more digital 3D titles in the production pipeline. In fact, there are expected to be 12 to 18 3D movies by 2010. Whether 3D exhibition is a novelty, or becomes part of mainstream cinema for the foreseeable future, the increased box office results make the exhibitor’s conversion a more local, immediate and understandable business decision. And some exhibitors are not waiting; the recent announcement of Odeon UCI regarding its intention to install 500 3D systems over two years is explicitly targeted at the high-profile slate of 3D movies in the pipeline.
The problem in the minds of some is whether 3D is just a gimmick or something that is actually an artistic aspect of cinema. At ShowEast 2007, Jeffrey Katzenberg, CEO of DreamWorks Animation, stated that moviegoing is going to become more exhilarating in a way never-before-seen thanks to digital 3D technology. The idea is that the audiences will be pulled into the film, instead of reached out to, which was the "gimmick" idea that 3D originally started with.
Although many predict the number of 3D screens around the world will reach nearly 5,000 by the end of 2009, Katzenberg is predicting that 6,000 3D-equipped screens will be installed by March of 2009. Katzenberg boldly stated at ShowEast, "[3D] is going to be the majority of your business" in the future. In addition, Katzenberg strongly believes that consumers will be "excited" to pay a premium for an exceptional quality product. Time will tell, but there is no debate that digital 3D is not a gimmick. And without a digital cinema system, you will miss the chance to see if he’s right.
The central problem in the adoption of digital cinema technology has been that the technology initially shifts costs from software (reels of film) to hardware (digital files). This immediate problem has tended to overshadow larger benefits of digital technology everywhere. Interestingly, the conversion is estimated to cost approximately $8 billion or only 32% of the worldwide box office last year. Nevertheless, an immediate problem demands a solution and one is the Virtual Print Fee (VPF) model widely adopted in the United States. Locally, CGR Cinemas (France) is the first European exhibitor to sign up to a VPF-based rollout with one of the three major integrators. However, there are other financing models in the market, including exhibitors who have spent their own money to reap the benefits of digital technology.
Regardless of the business model, there is a great appetite to accelerate digital cinema deployment in Europe. Compared to the US, the European market is more complex and consequently the ability to set up a deal has been made more difficult by multiple languages and more complicated relationships. In addition, the European market is more fragmented. It has one of the largest populations of smaller and remote cinemas. In October 2007, the European digital forum announced completion of a study that found the average cinema screen in Europe to be slightly more than 26 feet wide or less, with seating for 180. As a result, there is train of thought that the full Digital Cinema Initiatives (DCI) specifications are considered "excessive" and another standard for smaller theatres and specialty markets should be considered. Although this could solve specific problems such as antiquated cinemas in rural areas, it is not a viable solution in the light of the loss of revenue from piracy. Perhaps instead of playing poker, it might be time for all the parties to sit down and hammer out a solution.
Looking forward there are still some big uncertainties regarding the future impact digital cinema will have on the industry. Digital Cinema is a relatively small market in which a few deals can make a big difference. It is likely, within the next couple of years, that one or more large exhibitors will decide to go it wholly or partly alone.
Although it is possible that the forecasts will be exceeded, the peak adoption of the new technology will fall in the period just after that covered by the five year forecasts you see rather than within it. If this is correct then half the world’s cinema screens could be digital by 2013, compared to a third in 2011, and five percent today.
As members of the Entertainment industry we need to step back and realize that we are all facing hyper competition on patrons’ time and entertainment budget. Let me say it simply, we are at war against all other forms of entertainment for “eye balls” and Euros! We need to be diligent and serious about bringing and keeping our patrons in our movie theatres. Better content or product on screens, a better experience at the movie theatre, and the conversion to digital quality movies with the emerging 3D and alternative content, are some of the tools we have available to us to fight with. We need to get serious about enabling the transition to digital cinema. The cost of projectors, in the long run, will not be the limiting factor for our success, but rather our limited vision of the competitive threat we face. Digital projectors will get cheaper and are going to be very easy to use.
Reduced costs in delivering movies to cinemas means that more movies will be brought to cinemas, to improve the choice available to consumers, to take advantage of the dead spots created by current programming practices, and so on. These changes also mean that there will be more cinemas…thus more choices for consumers. Probably not more megaplexes showing blockbusters, but more small cinemas showing a greater variety of movies to smaller audiences.Probably these cinemas will be a little more expensive to attend, and have fancier concession products, because they will not have the same economies of scale as multiplexes and megaplexes, but they will be nice businesses to own. Both these types of development and the competitive threat we face, will create a need for more sophisticated customer relationship management techniques, as well as better marketing. Not too long ago, CRM in exhibition could have been satirized as largely consisting of a distributor herding customers in on the back of saturation marketing campaigns. In the cinema of tomorrow, alternative programs and special events mean exhibitors will have more control and more input into the success of the industry.
Ten years in and most of the fog and confusion around digital cinema has, at last, blown away allowing the path ahead to be viewed with relative clarity. Who would ever have thought it would be that “simple”!