The Problems of Defining When a Movie Can’t Play By Michael Karagosian Editor’s Note: We are pleased to welcome Michael Karagosian as a regular contributor to Digital Cinema Report. Michael is founder and president of MKPE Consulting LLC a Los Angeles-based consultancy in the entertainment industry. It’s fair to say that he is one of the most knowledgeable people in the world on the subject of digital cinema. In his first column he looks at the challenges of dealing with ever-changing specifications. The opinions Michael expresses here are his own. We hope you find his perspective useful and thought provoking. We hear about system integrators such as Digital Cinema Implementation Partners and AccessIT signing with major studios and that financing is tough forcing a delay in the rollout of digital cinema. I’d like to offer some deeper insight however into the question of why the transition to digital projection is taking so long. First I’ll drop back to the beginning or at least my beginning with this technology. My entry into the cinema industry was with Dolby Laboratories and the movie Apocalypse Now back in the late 70s. Twenty years later came the first public demonstration of digital projection at ShoWest and there began my entry into digital cinema. That dates my engagement with our little paradigm shift to ten years. If you had asked me then I would never have guessed that I’d be here ten years later explaining why this transition is taking so long. But here goes. Electronic distribution of motion pictures has long been desired by distributors to lower their costs. In the 90s digital distribution was the logical transform of that dream. Clearly there was a need to be filled. But distributors are not the ones who make the investment. And there lies the biggest truth which has yet to be dealt with adequately. While it’s obvious that distributors will save money by distributing motion pictures digitally the economics must work for the exhibitor. The high cost of equipment the higher cost of maintenance and warranty and the much shorter replacement cycle do not encourage exhibitors to open up their pocket book. But there are other reasons for not jumping into this. For many years technology companies misread the industry. The belief was that exhibitors are simply an extension of studios. Studios are the customers. Studios make the decision to buy. Exhibitors would do as they are told. Even today exhibitors continue to share their frustration with me that some vendors still do not understand who the customer is. But studios have had their share of market misreads too. Two closely coupled events took place in 2005. Digital Cinema Initiatives a consortium of the six major film studios released the first version of its Technical Specification. Later that year these same studios engaged in the first signing of virtual print fee financing deals in which they agreed to subsidize the first purchase of equipment for exhibitors. The VPF deals refer to the DCI specification stating that equipment must meet these requirements for the subsidy to be paid. What the studios miscalculated is that it would take another five years for equipment to fully meet their specification. We’re still in that five-year period. Obviously installations have taken place anyway with a little over ten percent of US screens now with digital projection. One still sees the occasional Powerpoint presentation illustrating spectacular growth in digital cinema as if iPods were being sold. I used to receive emails from around the world commenting on this spectacular growth and predicting world domination in short order. But eventually those emails stopped coming. Some will recall that towards the end of 2006 I was predicting a “chasm.” The truth then and now is that we weren’t selling iPods after all and were headed for a big slowdown pointing to the need to think this transition out a little more carefully. The vendors who didn’t understand the fundamentals that my prediction was based on sooner or later came back to share their pain. But the fact that digital business is not business as usual has largely gone without comment. Of course the basic economic issue is that digital cinema is not a generator of new revenue. To be sure the technology enables digital 3D and it gives alternative content the benefit of a good digital projector. But the fundamental truth is that digital projection is only a replacement technology. The exhibitor replaces film equipment with digital equipment and we as cinema patrons go out to see a movie just as before. That’s it. And while it should be just that simple it isn’t. To present a movie today one must check with every major studio to be sure that the equipment in the theatre is on that studio’s “ok” list. In a world where nothing is fully compliant each studio interprets “compliance” in different ways. And the criteria changes. Most memorable is the time when a studio refused to allow its movie to be played on the server of a major equipment manufacturer simply because the criteria changed and the manufacturer didn’t comply quickly enough. E.g. the equipment was OK yesterday but it wasn’t OK any longer. Unfortunately this practice of changing criteria is unlikely to end soon. DCI continues to take a proactive role in changing its specification. Important core technology providers such as Texas Instruments have conceded that their projectors will not be fully DCI compliant in the field until the 2010 time frame. And server manufacturers are struggling to improve their products to fully meet specifications. The specifications are so complex that it may be impossible for any one vendor to meet them all. With compliance a moving target and a specification that isn’t frozen how do studios expect banks to finance this stuff? Even if the criteria didn’t change there are underlying problems. Studios have agreed to a common test plan and have jointly authorized test centers to conduct the tests. But no equipment passes all tests. In addition there is no central entity in the compliance plan that decides which tests must be met to meet compliance. In the absence of a healthy compliance program there is pain. I’ve heard stories from exhibitors where equipment is bought and installed only to learn that it has the latest version of software which some studios have yet to approve. And then there’s the situation that regularly populates my email box. When a studio requires that a telephone modem be installed to receive security keys for the movie to play. (Hey nobody said digital cinema was about advanced technology.) Some studios require exhibitors to fill out check sheets prior to delivery of a movie and will refuse the movie if something as innocuous as an automatic lens changeover mechanism isn’t installed. These problems don’t exist when an exhibitor plays a film print. With a film print the booking is made the content arrives and the content is played. There are no hurdles to cross in-between those steps. The economics of digital cinema remain tough and won’t change until much lower cost equipment is introduced. But setting economics aside what’s also needed in this business is some good ol’ pragmatism. In a recent Wall Street Journal interview Rahm Emanuel president-elect Obama’s newly appointed Chief of Staff was quoted as saying “Do what you got elected to do.” What digital cinema needs is some “do as you got in business to do.” Studio technologists have done their job. They created a specification that ensures a common distribution format and a secure way to play a movie in a theatre. They agreed on a test plan and have authorized testers. Let’s not base careers on defining when a movie can’t play. It’s time to fix the problems and let digital business become business as usual.