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Digitizing the multiplex

A years-long battle over digital cinema technical standards is over. But getting the technology into theaters could be a cliff-hanger.

For two days in mid-August, film projectors in more than 50 theaters around the United States shut down, and a live version of jam band Phish's farewell performance in Vermont took over the big screen.

This unconventional movie-hall moment was made possible by Regal Entertainment Group's state-of-the-art digital network, which is at the forefront of a move to replace the whirring, old 35mm film projectors with high-tech digital projection systems.


What's new:
Recent breakthroughs in technology standards have brought the "digital cinema" transformation within shouting distance.

Bottom line:
Getting the the new digital system into theaters could be a cliff-hanger. And the new technology standard could leave at least one major digital media player on the sidelines: Microsoft.

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Regal doesn't show full movies in digital format yet, a move deeply desired by big movie studios that believe phasing out film will save them millions in distribution costs. Now recent breakthroughs in technology standards have brought this transformation within shouting distance, and some Hollywood optimists say the digital transition could get under way in earnest as soon as early next year.

"There are clearly a lot of varying agendas in this business that are trying to push the process and deployment (of digital systems) faster than they probably should be going at this point," said Kurt Hall, co-chief executive officer of Regal. "We've learned that you never know how everything will work until you get out and start doing it."

The "digital cinema" transformation refers specifically to the distribution and projection of films in theaters, not to the digital filmmaking of directors such as George Lucas, or the computer-aided production that creates monsters and special effects in "Spiderman" and "Lord of the Rings." Technology for digital projection has been available for years, but incompatible formats and expensive hardware has kept it out of all but a few theaters.

A technology consortium called the Digital Cinemas Initiatives (DCI), created by the major Hollywood studios in early 2002, is finally nearing completion on a set of technical recommendations that is intended to rally the industry around a single technological standard. A few details remain to be completed, largely dealing with securing the files against unauthorized copying while in the theater. But the fundamental technology specifications, based on the JPEG 2000 video format, have now been chosen.

The DCI's work is expected to be endorsed relatively rapidly by official film standards-setting bodies. Equipment makers such as Texas Instruments and Sony are already scrambling to make projectors and network equipment that complies with the group's early specifications.

Studios see this as a multimillion-dollar boost to their bottom line. Today they create a film print for every screen that shows one of their movies--about 36,000 theaters in the United States and 150,000 worldwide--at an estimated cost of about $1,000 per print. Indeed, by some industry estimates, the film industry spends close to $800 million every year on printing and distributing film alone.

Under the proposed new digital system, studios could instead create a single digital master file and send that to theaters over a high-speed network. The file--which would have to be locked down with industrial-grade copy-protection in order to satisfy studio's piracy fears--would be stored on servers in the theater, sent over a local area network, and then shown on screens using digital projectors.

Aside from cost-savings, boosters of this technology note that digital projection systems will enhance the quality of the movie itself, creating a clearer picture and eliminating the scratches and other damage that degrade a film print that has been copied too many times.

Industry observers say the fact that studios have been able to agree on a new technology is a tribute to how desperately they want the shift.

"The major studios are competitors in every way, for audience, scripts and stars, and are part of larger corporations who each have own strategic agenda," said Charles Swartz, executive director of the Entertainment Technology Center at the University of Southern California. "The fact that they were able to get together and see that agreeing on this would be to the benefit of the entire world is remarkable in itself."

The new technology standard could leave at least one major digital media player on the sidelines: Microsoft.

The company has worked hard to make its Windows Media 9 video technology useful for in-theater applications, and it's already been adopted in some limited-use applications, including by the Landmark Theater chain to show independent films. DCI Chief Executive Officer Chuck Goldwater said his group had talked with Microsoft, but that the JPEG standard proved more attractive for several reasons.

"We've had conversations with Microsoft, as we have with many vendors and manufacturers," Goldwater said. "Microsoft has a proprietary operating system, and one of our guiding principles and goals was to create technical specs based on an open architecture."

Who pays?
Throughout the process, it has been theater owners who have been the most vocal skeptics. They like the potential benefits, they say--but they don't want to get stuck paying for something that helps studios' bottom line and not their own.

"Originally everyone thought we'd go out and buy (the digital systems) and put them in," said John Fithian, president of the National Association of Theater Owners. "We didn't, because it does not make sense as a mathematical proposition for theaters."

The Digital Cinema Initiatives is working on that problem too. The group is not allowed to negotiate on behalf of the studios, but it has been quietly suggesting some basic models for funding the digital investments.

One possibility would have third-party investors--possibly banks or venture capitalists--finance the purchase of the equipment. The investment would then be repaid out of a pool that included money from everyone who benefited from the new technology.

"What I've been saying is that (payments) should be relatively proportional to the benefits expected to be derived from digital cinema," Goldwater said.

Studio executives declined to talk on the record for this story.

For their part, theater owners believe that the studios will likely bear at least part of the costs of installing digital projectors. In Fithian's words, the studios' fund would pay theater owners for a "Chevy" of a digital system. If an owner wanted a "Jaguar," that money would have to come from the owner's own pockets.

Theater owners have longer-range worries, however. They're used to maintaining low-tech film projector systems that last for decades. They want equipment that won't substantially increase their maintenance expenditures and be simple enough to be operated by minimum-wage high-school projectionists. Most of all, they want to ensure that they don't buy an expensive upgrade that--like many other products marketed by the high-tech industry--will be rendered obsolete in just a few years.

"We have got to be very careful," Regal Entertainment's Hall said. "It's like if someone gave you a million-dollar house on the beach and then you lived there for a year, got a tax bill, and found out you couldn't afford to live there after all."

The only way to suss out these real-world issues is to do slow market tests, probably one market at a time, Hall said.

The Digital Cinemas Initiative that has quietly shepherded the technology standardization is scheduled to close Sept. 30, although some expect its mandate to be extended to take care of the final security pieces and help guide the business model. Goldwater said he is pleased with the work his quiet organization has accomplished.

"One thing I can say is that the pieces of the puzzle are just about all in place," Goldwater said. "Technical specs, products and services that meet them, and the foundation of the thinking about business issues (are all in place). The rest is up to the individual participants."