by Michael Karagosian
©2004 Karagosian MacCalla Partners, all rights reserved worldwide
Published in the February 2004 issue of INS Asia Magazine
Last issue I described digital cinema as having as many challenges as there are layers on an onion. These challenges include the interoperability of projectors and servers, the choice of image compression algorithm, the packaging of digital content for international distribution, options for audio, and piracy prevention including the issues associated with security key management in a business-to-business environment. An issue I consider prime, which is also the least discussed and least understood, is that of motivation. In this article I take a look at the factors that are moving digital cinema forward, and the factors that tend to slow progress, towards the eventual conversion of 160,000 screens around the world.
Economics is the chief motivating factor for any technology. The economics of cinema is straightforward. When one sees a movie in a cinema, it is the outcome of a business-to-business transaction. Movies are rented to exhibitors by motion picture studios, and exhibitors present the movies to the public for a fee. Exhibitors are responsible for the equipment in their cinemas, and studios are responsible for promoting and distributing their films.
The cost of a film print is approximately US$1000 (depending on who is asked, prints range in cost from under $1000 to $1500), and in the US today, it is not unusual to require 4000 prints for first release. The studio can experience a significant savings by distributing a less expensive digital file in place of film. That's the plus side.
On the negative side, without a subsidy, the cost of buying digital cinema equipment would be borne solely by the exhibitor. The cost of equipment is significant, with digital cinema systems costing 4-6 times that of a film system. The cost of ownership takes this figure higher yet, due to the high risk of obsolescence of this emerging technology, and expected maintenance costs. Comparatively, exhibitors enjoy little or no risk of obsolescence with film equipment, and can expect their equipment investments to last 15-20 years.
Overall, from an economic view, the studios stand to save money, while the exhibitors absorb the costs and the long term risks. Obviously, a business discussion is required to sort out the imbalance.
There are factors other than economics that stand in the path of digital cinema. Simply put, digital images do not "wow" an audience. To the credit of today's technology, most movie goers are not aware that they are viewing a digitally projected movie until they're told. But many exhibitors say that their digital cinema audiences first compliment them on the comparatively higher quality of uncompressed audio, while receiving few compliments on the quality of the image. Today's digital cinema technology has reached the point where it can replace film, but it has not impressed the audience with a better image, which many exhibitors feel necessary to increase audience attendance and justify the investment in equipment cost.
Outside of America, there are motivating factors that could help propel digital cinema forward, particularly in countries where the number of cinemas per capita is quite low. For instance, America has approximately one cinema screen per 5500 in population. India, at the other extreme, has approximately one cinema per 86,000 in population. Obviously, India is the more likely country to experience growth in the number of cinemas. As that growth takes root, India, or any other country in a similar position, will look towards newer technologies to fuel their expansion. This has indeed started to happen, particularly in Asia-Pacific counties, but again economics has stood in the way. Digital cinema systems are too expensive to fuel cinema growth, as the makers of film projectors, who are enjoying healthy sales, will testify.
In countries such as Singapore and China, digital cinema-grade projectors have been installed. But in many countries, less expensive electronic cinema systems are being deployed, which do not meet the quality standards of Hollywood motion picture studios. In the case of India, the electronic cinema approach will work well, as their cinemas rely almost exclusively on nationally produced content. But eventually, as countries deploying electronic cinema begin to enjoy increased circulation of their content in the world market, and as the world market provides more content to these countries, higher quality systems will be demanded.
The Role of Security
Piracy is a problem generally associated with digital content, but in the case of digital cinema, piracy could become an ally. With digital, it will be much easier to provide forensic marking of movies, as with fingerprinting technologies, to trace camcorder theft. The digital print itself will be encrypted, further hindering theft. In their effort to stem piracy, motion picture studios are moving towards day and date release worldwide, which will grow the demand for electronic distribution due to the cost savings it provides over distributing film prints. Thus piracy offers several significant motivating factors for digital cinema.
However, the introduction of electronic security is a sword with two edges. Both studios and exhibitors encourage the use of content protection methods to protect their business. But if misapplied, electronic security could become a tool for forcing changes in their business relationship. Electronic security brings with it the potential of electronically driven business controls in the form of digital rights management that could bias the business relationship in favor of distributors. Here again, a business discussion is required to bring confidence to business partners before equipment is widely installed.
I have identified a few areas where a business discussion is required. Unfortunately, there has been little progress in having such a discussion. Two years ago, Digital Cinema Initiatives was formed (originally called Newco), a coalition of the seven major film studios in Hollywood. DCI's goals were to develop agreement among the studios in both business and technical matters, and become a focal point for business discussions with exhibitors. Over these past two years, DCI has accomplished much in the way of achieving agreement among the studios on important issues such as image quality and furthering the work of the Society of Motion Picture Engineers (SMPTE) on digital packaging. But no progress has been made on the important issues of business. Particularly in the area of security, where business issues are so closely tied to technology issues, this has become a major hindrance in the goal to fully specify a digital cinema system.
One of the earliest presentations I recall seeing on digital cinema reviewed the cost of converting cinemas to digital from film - somewhere in the order of US$5B for America alone. The presenter then went on to say that this cost was worth it due to the additional revenue that would be created through new forms of cinema entertainment - often called "alternative content". The idea of new revenue through new forms of content has been a popular belief of many technologists, but a belief not shared by the majority of cinema owners. Movies are a unique form of content in that they profit through multiple releases, from cinemas to airplanes to hotels to the direct consumer in the form of DVD discs and VHS tapes. Most movies today would not be profitable if they relied solely upon the first release for revenue creation. For cinema owners, the primacy of the first release is essential to their business success, as their audience size would dwindle if movies were released on DVD the same time as in the cinema. There is little threat that this release cycle will change, as the profitability of the multiple release cycle for motion pictures is well proven. Given that the cinema alone cannot generate the necessary revenue to be the sole release vehicle for content, and that the cinema owner relies upon the primacy of the first release to attract an audience, new forms of content must be non-perishable and be able to generate revenue through a release cycle similar to that of motion pictures. Alternative content such as sporting and music events, each of which is a perishable form of content, do not fit this requirement.
However, in America, as in several other countries, the shift is in progress to bring electronic advertising into the cinema using low cost electronic servers and projectors. This is not digital cinema, but takes advantage of low cost electronic distribution. Both advertising company and cinema owner benefit economically from electronic advertising, providing the motivation for the change. People, of course, do not go to cinemas to see advertising, nor do they want to see their movies on the low quality systems on which the ads are displayed. While electronic advertising is establishing itself in the cinema, this must be viewed as a different phenomenon from the introduction of digital cinema.
10 years ago, digital cinema was a fanciful idea largely hindered by inadequate or unsuitable technology. Then, as now, the potential cost savings incurred through electronic distribution provided the motivation to propel it forward. Today, the underlying technology exists to enable digital cinema, but the prime issues that remain to be solved are those that impact the business of cinema. Until the business issues are satisfactorily addressed, the widespread adoption of digital cinema could remain a fanciful idea.