Top theaters on path to digital films

Film industry moves to upgrade following first screening of movie under Hollywood's digital cinema standards.

A group of major theater owners, representing more than a third of the screens in the United States, said Thursday that they will join forces to upgrade their theaters to new digital projection technology.

While the plan is still short on details or a specific timeline, it is one of the biggest steps yet in the film industry's slow move to replace film reels and whirring projectors with arrays of satellite receivers, servers and digital files.

A small number of theaters are already in the process of installing digital technology that conforms to standards set by Hollywood last June. The group of majors, which includes AMC Entertainment, Cinemark USA and Regal Entertainment, said it will collectively negotiate with equipment providers and potential funding sources to bring that process mainstream.

"We're going to start working immediately with manufacturers," said Kurt Hall, chief executive officer of the three chains' digital-technology joint venture, called National CineMedia. "There are some big issues that still have to be taken care of, such as security and operating processes, and all of that is going to take some time. We need to make sure we get it right."

The move to digital cinema represents a huge upheaval in the movie business, potentially costing well over $3 billion and transforming the way theaters operate. Theater owners and studio executives each have compared it to the move from silent to sound films in terms of its impact.

From a consumer's point of view, that might be overstating the case a bit, because movies will still be produced roughly the way they are today. But digital projection will provide pictures that are substantially clearer, with richer colors, than today's film projectors, and far outstrip the clarity of even the most high-definition TV screens.

Studios themselves have been among the biggest backers of the move away from film, because they will be able to send digital files to theaters over a satellite or fiber-optic connection instead of paying roughly $1,500 per copy for each individual film showing at the approximately 37,000 screens around the country.

Theater owners too have been well-disposed to the idea as they have watched audiences fall off over the last year, and seen growing competition from high-quality home theater systems. Digital projection will give them the ability to show 3D moves such as Disney's recent "Chicken Little," as well as beam in new kinds of content like live concerts and sports events that could fill seats on slow weekdays and afternoons.

"The programming we can show today has to be in 35mm celluloid, and that limits what we can do," said Peter Brown, chief executive officer of AMC Entertainment. "I think digital will open up a world of programming opportunities for us."

Who pays the bills?
Thousands of theaters around the country have been experimenting with digital technology of some kind over the past few years. The industry finally agreed on standards for format, projection systems and security last summer.

With those technical specifications in place, much of the debate has shifted to how theater owners will afford the $90,000 to $100,000 per screen for the new equipment--or more specifically, who will write the check.

For the most part, studios have agreed in principle that they would pick up the bulk of the cost over time, as long as some financing mechanism is found that will make the initial investments. Under this kind of plan, studios would pay a small "virtual print fee" for every copy of a film sent over the new digital networks, a little like paying Federal Express for a delivery.

That still requires somebody to pay the up-front capital costs, however. To date, several groups have emerged in this role, largely from the ranks of the companies that produce the technology being used.

A joint venture between Access Integrated Technologies and Christie Digital Systems, called Christie/AIX, is already in the process of installing digital systems for some small theater chains that are serving as the industry's version of early adopters.

Detroit-based Emagine theaters and Southern California's UltraStar will collectively install about 150 screens by the end of December, said Access Chief Executive Officer Bud Mayo. In those cases, theaters will pay a small up-front fee and a yearly maintenance charge, he said.

Thomson's Technicolor division, which has also been a leader in digital cinema technology, has said it will similarly arrange financing and install equipment for 5,000 screens over the next three to four years, and it's expected to support at least 15,000 screens over the next 10 years.

The National CineMedia group could adopt either of these as financing and equipment vendors, or new partners might emerge, Hall said. However, part of the group's goal is to make sure that the distribution systems from different companies will work together, so that theaters don't have to install redundant equipment.

"There was some concern that there were multiple plans out there, which could create multiple sets of equipment and multiple satellite dishes on a theater's roof," Hall said. "It is in everybody's best interest to have an open and efficient platform."

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