Distribs firm up mechanics of funding
ORLANDO, Fla. — The broad strokes of a business model to support the widespread rollout of digital cinema systems are starting to come into focus.
Many of the public pronouncements at ShowEast and elsewhere revolve around work on technical standards. But behind the scenes at the trade show, there is clear evidence of agreement on key parts of a strategy for funding d-cinema systems in thousands of theaters nationwide. Two components form the basic approach:
- Third-party financiers — likely at least two separate companies — would buy the required projectors and file servers to skirt federal regs barring studio collaboration on biz initiatives.
- Distribs would shoulder most, or even all, of the financial burden for the equipment rollout by paying those outside companies for use of the installed equipment.
The studios may pay on an hourly basis for using the equipment. Alternately, the third-party financiers could charge them on a “per-print basis,” charging the digital equivalent of film print costs.
From a studio perspective, the main point is saving money on distribution costs, so the usage charges would decrease incrementally over time as the third-party companies pay down their initial investment and approach profitability.
Exhibs would be mostly off the hook for funding the equipment rollout, but there has been some discussion of circuits paying for subsequent servicing and maintenance of the systems. D-cinema is expected to boost exhibs’ ability to play revenue-producing cinema advertising before features, so theater owners are relatively receptive to paying a fair share to participate in the digital revolution once systems are up and running.
Ideally, studios would like to roll out as many d-cinema systems as possible to reap economies of scale.
Costs too high
Current per-unit costs of $100,000 or more are considered unfeasible for a broad digital rollout. But equipping, say, 15,000 screens for digital simultaneously could bring costs down to a much more bearable range of $50,000-$65,000 per unit, proponents estimate.
Meanwhile, there’s the big related question of how many studios will sign aboard for distribbing by digital through the third-party arrangement.
Most have had discussions with a number of financial and exhibition vets seeking to form funding companies. But there’s a range of digital enthusiasm at the various studios.
“Conceivably, you could have a few studios go in while some others are slower to get involved,” said one well-placed source.
Universal, Disney and Warner Bros. appear hottest to trot on digital, while Paramount is considered most hesitant and others fall somewhere in the middle.
Chuck Goldwater, CEO of Digital Cinema Initiatives, told a ShowEast crowd Tuesday that disagreements over different resolution requirements stipulated by various studios can be easily overcome.
DCI is supported by a consortium of studio reps, who have voiced different opinions over whether current “2K” versions of digital projectors offer sufficient image clarity. Some studios are anxious for the development of so-called 4K technology, which would offer greater image resolution but won’t be readily available for some time, Goldwater said.
“DCI will encourage further 4K research and development,” Goldwater said.
But he added that digital distribution systems already available are sufficiently “scalable” to be upgraded from 2K to 4K when the technology becomes available. So lower-res projectors can be installed initially and later replaced with 4K equipment without incurring prohibitive upgrade costs, he suggested.
On the other hand, some circuits already are installing even lower-res projectors sufficient to play onscreen advertising but not movies. Some proponents of digital movie distribution fear exhibs will thus get much of the benefit they seek from digital and won’t be inclined to embrace movie-quality equipment at a later point.
That’s lighting a fire under the studio community to get the digital rollout going as soon as possible. Similarly, some exhibs say they no longer want to drag their feet on the technology when it appears the studios are in a mood to fund its rollout — a mood that could change at any time.
DCI hopes to publish final standards for a uniform, worldwide set of engineering specs for digital by first quarter 2004. Industryites say it’s also likely the confidential talks on business models could go public about the same time, perhaps at ShoWest in Las Vegas in February.
ShowEast continues at the Marriott Orlando World Center through Thursday.