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Digital cinema and video-on-demand will change the way movies are distributed and increase industry revenues by $6.5 billion in the next five years, according to a new report from Forrester Research.

Although exhibitors’ financial problems and studios’ security concerns have depressed digital cinema’s development, technology vendors will step up and invest in the necessary infrastructure, the researchers predicted. By 2006, one-third of the nation’s screens will be digital, a step that will offer theater chains new revenue opportunities via in-theater ads and non-movie presentations, such as premium sporting events. In addition, more than 25% of U.S. households will have digital cable with VOD services, which will increase movie viewing at home.

“The Internet will never be an important venue for the distribution of mainstream feature films,” said Forrester analyst Eric Scheirer. “Rather, it’s two other digital technologies — digital cinema and cable-based video-on-demand — whose rapid development will fuel strong industry growth.”

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