Digital Cinema in India

by Michael Karagosian and Nirav Shah
©2004 Karagosian MacCalla Partners, all rights reserved worldwide
Published in the December 2004 issue of INS Asia Magazine

This series of articles has delved into the role and expectation of Hollywood and the US cinema exhibition industry in digital cinema. While the US may be the dominant market force internationally for first release films, it is by no means the only market force. India, for example, is the largest producer of first release films in the world. While the Indian cinema industry is only beginning to explore its potential in the international marketplace, it dominates the market for film entertainment in India. This makes the Indian motion picture market unique, and worthy of analysis in the worldwide transition to digital cinema.

First, let's quickly review the US situation. The US television market is now transitioning to digital, and the US cinema market will eventually follow. With the digital high definition (HD) format becoming the norm for the television market, many stakeholders in the US do not wish to see the high-quality film standard of the cinema be constrained by the lesser quality of television. Thus, the establishment of 4K (4096 vertical lines) as the target image format for digital cinema by Hollywood studios, compared to the upper limit of 1080 vertical lines for HD video.

In the US, many of the details surrounding the technology of digital cinema are actively being sorted out, including image compression, encryption, the handling of security keys, and the integration with back-office scheduling and management systems. Potential first-purchase financing models have also received some discussion among stakeholders there. The pending resolutions to these issues collectively are looked upon as the factors delaying a rollout. However, the most fundamental reason for a delay is the technology roller coaster introduced by digital cinema. Digital cinema will impose a transition from mature film-based technology, having a medium cost and requiring a turnover of equipment assets every 15 years or so, with not-so-mature very high cost digital technology, likely requiring a turnover in assets every 3-5 years. This requires a significant shift in the cinema business model, which has not been embraced by US cinema owners.

In the eyes of many, these issues are unique to the US. To some extent, the highly developed transition to HD television and home theatres in the US is driving the high standards, and thus expensive technology, that are sought for a US transition to digital cinema. However, not all markets are transitioning to HD television as quickly, nor are all populations to witness a large increase in home theatres. At the same time, most populations enjoy regionally produced content, and those producers of regional content may be content to have their productions viewed on systems of lesser quality than that which can equal or exceed the best of film presentations.

While these motivational differences exist in many regions of the world, most regions continue to rely upon Hollywood for a significant part of their entertainment content, and thus cannot easily separate themselves from the issues surrounding the US transition to digital cinema. India is unique in this regard, as it has a strong regional cinema industry that is largely independent of Hollywood content. Thus, India has a different set of issues to solve in the transition to electronic distribution of motion pictures, which we will review.

Hollywood motion pictures comprise only 4-5% of India's 850+ annual first-release cinema content. This independence brings to focus the unique problems that Indian cinema has, and the manner in which electronic distribution of content could benefit their industry.

Due the high cost of film prints, which cost approximately 70,000 rupees each, only A-grade cinema centers, located in large metropolitan areas, receive first release prints. A typical Bollywood movie may be released to 150-350 cinemas, including overseas release. B and C-grade centers located in outlying areas then wait 5-8 weeks to receive the worn prints from the A-grade centers. This poses several problems for the owners of B and C-grade centers. Audience demand for a motion picture product often does not last 5-8 weeks, lessening their opportunity to fill their cinema houses with paying patrons. Presentation quality also suffers, due to the worn prints they receive. The motion picture producer suffers, too, as the limited availability of the movie in the opening weeks encourages the rampant sale of pirated copies. Thus, the current film distribution model in India has created a downward business spiral for the owners of B and C-grade centers. Electronic movie distribution would benefit these centers, making it possible to participate in the first week of movie release, increasing revenues not only at the door, but also in ancillary operations such as concessions and parking.

To add to the Indian exhibitor's worries, the looming deployment of a pay per view model in the Indian television market must also be considered. While not a threat today, future consumer access to movies through a delayed release model based on pay-per-view television could severely impact B and C grade centers. For this reason, future deployment of pay per view television influences today's trend towards electronic distribution to the cinema.

Distributors are also facing higher costs associated with A-grade cinemas. The world-wide trend is for less seats per screen and more screens, as exemplified by the growth of the cinema multiplex. To achieve maximum profits, a blockbuster film must now book more screens, which requires a higher investment in prints. An electronic distribution model can allow the movie distributor to distribute widely without the need for increasing its investment in prints, paving the path for an increase in revenue.

Combined, these factors provide strong motivation to the Indian cinema industry to move to the electronic distribution of first release movies. There are forces, however, that push against this transition, or at the very least, place limitations on it. Among these is the large investment needed to move into Hollywood-style digital cinema. As discussed already, this investment poses significant problems for exhibitors in the US, where ticket prices are high. The problem it poses for the Indian cinema industry, where ticket prices are low, is simply too huge to consider in a wide-scale rollout. Uniquely, Hollywood is not the major producer of content distributed to Indian cinemas, which allows the Indian market a significant degree of freedom in choosing its direction.

It follows, then that a logical technology choice for India is "electronic cinema". Electronic presentation systems can be installed for considerably less money than high quality "digital cinema" systems. Such systems will not be as stellar in presentation as digital cinema, but will could offer enough improvement over the worn film prints and low quality film projection systems of the B and C-grade centers to attract patrons back to these cinemas.

However, even the cost of these systems must be carefully weighed. The investment in electronic presentation equipment must offer a financial return within a time frame of a few years, as the fast pace of technology could make these systems obsolete in that short time. This could be a difficult game to win, but it is a game that some players within India are willing to play.

Today, India has, according to different claims, 100-150 electronic cinema installations, most all of which are based on single-chip DLP™ projectors or LCD projectors. As one would expect, single-chip DLP technology and LCD projectors are significantly lower in cost than the DLP Cinema™ technology used in high quality digital cinema applications. It remains to be seen, however, if these installations will generate the additional revenue needed to make the investment in digital cinema worthwhile.

If successful, India could be facing a major transition to electronic distribution of first release motion pictures within the near future.

Nirav Shah is based in Mumbai, India and is engaged in business development for one of the 3 major telecom players of India. He went to USC for Masters in Computer Science and MA in Communication Management and has worked with MKPE Consulting LLC, as well as the Entertainment Technology Center's Digital Cinema Laboratory in Hollywood, where the Digital Cinema Initiative conducts its tests. The views expressed here are his own.

Michael Karagosian is President of MKPE and a Partner of Karagosian MacCalla Partners, both located in Los Angeles. He has served as chairperson for several groups of the SMPTE DC28 Digital Cinema standards committee, and also serves as a senior consultant to the National Association of Theatre Owners in the US, among other clients.