By Michael Karagosian Eleven years have passed since the first public introduction of digital cinema at ShoWest. The industry has since come a long way…and it has still a long way to go. With nearly 100 percent worldwide digital screen growth in 2009 and with the three major circuits in the US set to rollout in 2010 one might get the sense that digital cinema is on a roll. While the US is on track to convert approximately 50 percent of its screens there is still the remaining 50 percent to think about as well as the rest of the world. 3D has proven itself to be the reason for adopting digital projection. Nearly all of the digital cinema installations in 2009 were 3D resulting in a large number of installations where only one or two screens were converted to digital. Naturally distributors need all screens converted to digital in order to completely transition to digital distribution. But the majority of these new screens weren’t installed under a deployment agreement. No monies are committed to fitting out the remaining screens with digital projectors leaving a less-than-desirable footprint of projection technologies that requires dual film and digital distribution. While 2009 was witness to an incredible growth in digital screens the question we were left is how the industry will transition to 100 percent digital projection? Some territories notably Norway and Ireland are on the way to converting all screens within their borders. The US is also taking major steps towards 100 percent digital projection. The top three US circuits are poised to install approximately 10 000 systems over the next few years which should result in the total conversion of a little over 50 percent of all US screens. In a market where the major circuits have chosen to convert it’s only a matter of time before the whole territory converts. But plans for completing the adoption of digital projection elsewhere in the world fall short. The reasons heard are many: money is not available the technology is still too expensive the next generation of products will be better the deployment deal is not right. What will it take to populate the rest of the world’s screens? Let’s review the issues. Money is not available. Better said: money is not available in attractive ways. Virtual Print Fee financing cannot cover the payments required of a standard five-year loan or lease for this equipment. Knowing this studios are willing to pay VPFs for a longer than five years. But the details of the financing are left to the deployment entity. Unless you’re the Digital Cinema Implementation Partners and can float your own bond financing equipment through VPFs can be a challenge. Equipment is still too expensive. The cost of digital cinema equipment has come down substantially over the past 11 years. What was once available for $125K-$150K range can now be purchased in the $50K-$60K range. Prices will come down further but the rate at which prices are dropping is beginning to level. Occasionally new projection technologies are discussed but the challenge is that the developers of new technologies target a diminishing market of available large screens. The market for new projectors in large screens is diminishing because these tend to be the first sites where digital projectors are installed. The big market lies in smaller screens most of which can be lit with around 5 000 lumens. The $15K to $20K digital cinema projector that targets this market would not only sell in substantial volume but would complete the worldwide conversion of screens to digital projection. However that projector has yet to materialize. The next generation of products will be better. Anyone accustomed to buying personal computers every few years knows that the longer you wait the better the performance and features. Digital cinema is no different. DLP will be introducing 4K projectors within a year and media blocks will be installed inside projectors allowing the external server to be purchased off-the-shelf from a major brand such as Dell or HP. As an industry we are still transitioning equipment to not only receive current Interop distributions to also receive standardized DCI-compliant SMPTE DCP distributions. SMPTE DCP is needed to fully enable the accessibility features now standardized in digital cinema products. In addition to the evolving distribution format security key management remains an under-developed area of digital cinema. To play a movie equipment serial numbers are communicated manually someone has to match serial number with digital certificate information and with that information a KDM (encrypted security key) is created and emailed to the exhibitor. Not only is this system not scalable but it is the bottleneck of the supply chain. Some people like to think that satellite distribution is required to scale digital cinema but distributors have been delivering hard goods to exhibitors for over 100 years. It’s the security key supply chain that is the bottleneck and it is a problem that must be solved for worldwide growth of digital cinema. The deployment deal is not right. Members of DCIP enjoy a bond-financed rollout but most deployment entities around the world are not in such an envious position. When financing through a bank other sources of capital are needed. The usual source of junior capital is either the equipment manufacturer or the exhibitor. Transparency can be a problem. Contractual arrangements are held under non-disclosure forcing valuable details to be hidden from exhibitors. Thus we have the complaints that the deals aren’t yet right. Ideally the next 11 years of digital cinema will be witness to the final conversion of worldwide cinemas to digital projection. In this many challenges remain both technology-wise and financial in nature. Perhaps the greatest challenge is the introduction of lower-cost equipment. One should expect that the digital cinema system 11 years from now will look substantially different from those available today. It’s a change the industry should look forward to. Michael Karagosian is founder and president of MKPE Consulting LLC a Los Angeles-based consultancy in the entertainment industry. Visit his company at http://mkpe.com.
