Session 1: Digital Cinema (including 3D) Roll-out: A Status Report

Mike Karigosian, Founder, MKPE Consulting LLC

Panel

Oleg Berezin, Nevafilm, CEO

Peter Wilson, Director of Technology, European Digital Cinema Forum (ECDF)

Mike Karigosian, Founder, MKPE Consulting LLC

Digital Cinema Implementation Partners (DCIP) has raised $445M in debt and $135M in capital to finance the role-out of 16,000 3D cinema.  We have lost Dolby, Kodak, and Technicolor, leaving only Cinedigm, Sony, and DCIP as deployment entities.  We expect to see a lot more pressure for accessibility for people with disabilities in 3D theatres.  USL Inc and Intelligent Access are two companies that have developed closed caption systems with glasses to address disability issues.  An upcoming challenge is standardizing the audio channel standards.

Oleg Berezin, Nevafilm, CEO

Russia: Digital Cinema Roll-out, a status update

NevaFilm has a studio, dubbing facilities, cinemas, alternative content, and research.

Right now the Russian cinema market is at the state of “crossing the chasm.”

Year            number of screens            number of sites

2009            2102            792

2008            1886            754

2007            1568            665

2006            1327            628

2005            1071            556

2004            811            480

2009

More than 110 theatres have digital cinemas.  Expect the share of digital screens will grow to 25% in 2010.  Only 3 digital screens in Russia today cannot handle 3D.  The 3D projection technologies in Russian theatres as of 2009 are

Dolby 66%

XpanD 27%

RealD 4%

MasterImage 1%

Imax 1%

Dual projection 1%

39 of the 60 Russian films released only on 35mm (no digital file) did not return even the cost of printing the 35 mm film from the Box Office.  Only digital deployment will help drive the Russian film market.  But the transition to digital is held up because the major chains cover 40-50% of the market, primarily in the major cities.  There is no economic support for the many independent theatres in small towns to convert.  The indie chains would like to convert, but there is no negotiating block for them to join in order to make the finances feasible.  There are 385 indie chains out of 463 total chains, with 655 of the 2102 screens.

In order to drive the transition to digital cinema in Russia, the government must recognize the cultural importance of cinema and the indie theatres, the taxes for distribution and equipment needs to come down (import duty is 15%, and the VAT on theater tickets is 18%).  Russia needs to address four I’s: Institutes, Infrastructure, Investments, Innovation

The market needs fair models for business, society, industry, government, etc.  We need to protect local culture and save the social role of cinemas.  There is danger of a digital divide between major and minor theatre chains brought about by the struggle between “socialism and wild capitalism.”

Peter Wilson, Director of Technology, European Digital Cinema Forum (ECDF)

The net new installations of digital and 3D in Europe were 1000 screens in 2008 and 6100 screens in 2009.  Cinema Exhibitors Assoc Funding Group is advancing the 3D rollout in the UK.  Odeon signed Virtual Print Fee Agreements (VPFs), including Warner, and has secured financing.  The French CNC (the French gov’t cultural authority) plan for their digital cinema rollout was rejected by the Competition Authority.  Europalaces (French chain) is moving ahead with digitization.  UGC (French chain) signed up with Ymagis.

Italy offers a tax credit for digital cinema.  But the Italian Health Ministry is investigating 3D glasses hygiene.  Arts Alliance and XDC have signed rollout agreements in the Netherlands.  Norway theatres are state owned, and the government has a rollout tender granted.  Arts Alliance has an agreement with indie theatres in Denmark.  And the European Commission is developing a digital cinema plan in 2010.

It is not correct to say that all single screen cinemas are at risk.  Many will survive because they show a wide variety of content over the course of a week, rather than book a single feature for a sustained run.  They are not tied to mainstream content.

There are 31,500 screens in Europe. 22% in Western Europe and 49% in Central and Eastern Europe are single screens: 7884 single screen theatres.  22,600 screens out of the 31,500 are covered by VPF agreements.

Key controllers of the digital transition:

– Norway, theatres are gov’t controlled

– Germany, it is hard to get competing interests to agree

– France, the rejection of the CNC may be a guide to European attitude

Q&A

What are the barriers to theatres selling high quality glasses that consumers can buy, keep, and use when they come back to the theatre?  (Peter) Some European theatres sell RealD passive glasses now.  The cost of active shutter glasses is high.  There is no barrier, per se.  (Mike) A strong request inside the US is the desire to reduce waste.  There is much talk of recycling and/or selling the glasses.  There are 3 different projection technologies with 3 different glasses technologies in US theatres.  Consumers must be told that one pair won’t work everywhere.

What about 3D and digital cinema projection equipment for lease in the temporary/special event market?  (Mike) It is available today.

What about compression and artifacts being introduced as 3D movies move to broadcast TV?  (Mike) Theatre owners would love the content to look best ‘only in theatres.’  (Peter)  There are several systems and processes to produce high quality 3D in broadcast.  Don’t let perfect be the enemy of the good.  3D broadcasts will improve from lessons learned over time.

How many 3D screens are there?  (Mike) There are close to 6000 outside the US, and about 4000 in the US.