Sorry for the delay, I've been frightfully busy lately. Like many on-line publications, links will not allow access unless you're a subscriber. Here's the full text. Fights may be conducted in subsequent posts.===========================================|
Studios Discuss Plan to
Spur The Spread of Digital Cinema
May 17, 2001 -- Page One Feature
By ANNA WILDE MATHEWS and BRUCE ORWALL,
Staff Reporters of THE WALL STREET JOURNAL
It seems like a simple and compelling idea: use digital technology instead of old-fashioned celluloid to project movies in theaters. But making it happen is proving more complicated than the story line of a “Mission: Impossible” film.
Hollywood studios, theater chains and digital-equipment makers have spent several years planning to replace reels of film with digital files that could be distributed on disk or beamed directly to theaters. But their plans quickly bogged down amid differences over who would pay for the new equipment needed, who would control it and whether the technology was ready to roll. Now, however, the studios, which could have the most to gain from the changeover, are hoping to break the logjam and head off potential interlopers.
According to people familiar with the matter, officials from at least four major film studios have been meeting quietly to consider forming a nonprofit company to help bring digital technology to the neighborhood multiplex. The studios’ goal: to provide the means for the cash-strapped theater industry to obtain special projectors, servers and other gear and to set quality guidelines that would ensure consistent color and picture resolution.
Those with knowledge of the talks say Walt Disney Co. has been a catalyst in the effort. But they add that Sony Corp.’s Sony Pictures Entertainment, AOL Time Warner Inc.’s Warner Bros. and Viacom Inc.’s Paramount Pictures have also been involved. Vivendi Universal SA’s Universal Pictures has signaled interest in joining, and News Corp.’s 20th Century Fox is another possible participant.
Disney and the other studios, which generally view the shift to digital technology as inevitable, decline to comment on the talks. But in general, “We think the studios need to play a role in accelerating the deployment of digital cinema on favorable terms to theater operators,” says Phil Barlow, executive vice president of Walt Disney Motion Picture Group.
The new technology could transform the economics of movies and shake up the balance of power in the industry. Digital movies wouldn’t wear out over time, as celluloid prints do. They also could save studios hundreds of millions of dollars in film-print production and distribution costs.
Some theater owners fear new high-tech distribution systems might give studios too much control over their operations. And the studios worry that the new technology might allow a tech company to set itself up as a powerful gatekeeper between them and the theater owners; they also cite security concerns about beaming their films electronically through the airwaves or by cable.
Critical Issues
Several critical issues still need to be resolved. The studios have yet to agree on technical standards, and any collaborative venture involving them could attract antitrust scrutiny. Big questions also remain on how best to split the cost of the equipment. Scenarios under discussion so far place at least some of the financial burden on the theater industry, which has been ravaged by a building boom that has landed many major chains in bankruptcy court.
The structure of the studios’ venture isn’t yet decided. But people with knowledge of the talks say that the participating studios, which would contribute money to a pool in return for an equity stake in the venture, probably would bear much of the cost of the new digital equipment.
The studios are eager to develop a plan that won’t spook strapped theater owners. Under one scenario that has been discussed, the consortium would lease digital equipment and provide it to exhibitors in exchange for a share of each ticket sale. To show films made by consortium members, an exhibitor would pay the studio venture 25 cents per ticket sold. Movies from studios that don’t join the group would cost exhibitors 35 cents per ticket. Programming other than movies would be subject to a 50-cent-per-ticket fee. Other options could include pricing plans based on a per-screening fee or a monthly charge, which might be more attractive to the theaters.
Those familiar with the matter say no specific plan has yet been floated to theater owners, many of whom remain skeptical of the new technology. “At this point in time I don’t see where the savings are or the benefits” for movie exhibitors, says Shari Redstone, president of the closely held National Amusements Inc. theater chain.
Film has been almost synonymous with Hollywood for nearly a century, and many directors and cinematographers are reluctant to abandon it. But, in addition to the studios, several well-known industrial companies, including Texas Instruments Inc., Thomson Multimedia SA’s Technicolor, Qualcomm Inc. and Boeing Co. are pushing for digital cinema and angling for a piece of the action.
Rather than relying on film stock rolling through a mechanical projector, the new medium uses digitally rendered images that are created by computer chips. One such chip, made by Texas Instruments, uses tiny mirrors to generate a picture. Another, from JVC, a subsidiary of Japanese electronics giant Matsushita Electric Industrial Co., relies on liquid-crystal technology.
The result, say the new medium’s proponents, is a movie experience that is as satisfying long after a film is released as it was on opening night. “My only real motivation is to improve the quality of presentation in theaters,” says “Star Wars” director George Lucas, one of the highest-profile backers of the digital format.
So far, there are only about a dozen digital movie screens in the U.S., and about 20 more abroad. That’s partly because many theater chains say they can’t afford the $150,000 per screen it would take to retrofit theaters with digital equipment.
Some in Hollywood believe theater owners’ views will change as a sizable slice of the industry emerges from bankruptcy under new ownership. Those new owners include Denver billionaire Philip Anschutz, who has been aggressively pursuing distressed theater assets. Because Mr. Anschutz is also the chairman and largest shareholder of Qwest Communications International Inc., many think the telecommunications company could provide the digital pipeline into Mr. Anschutz’s theaters.
However, Michael Bennet, vice president of Anschutz Investment Co., says the firm has no “master plan” related to digital cinema and adds: “Like other exhibitors, we still need to be convinced that digital projection is not simply a technological solution in search of a problem, but that it in fact can enhance the cash flow of the theaters.”
Bad Memories
The history of bickering between the studios and theater chains may make it more difficult for the two industries to reach a meeting of the minds on digital cinema. Though relations are cordial on the surface -- many executives have worked on both sides of the fence, and a lot of business between them gets done on the golf course -- each camp also complains bitterly that it gets chiseled by the other in the weekly negotiations to book new films on the nation’s nearly 36,000 movie screens.
And both sides have bad memories of the messy rollout of a previous technical innovation: digital sound. In the early 1990s, three rival and incompatible sound formats hit the marketplace in close succession. Because the movie industry couldn’t come to a consensus on a format, many theaters installed all three systems at a significant cost. Exhibitors felt pressured to make the investments, as formats such as Digital Theater Systems were launched in connection with pending blockbusters, such as “Jurassic Park.”
Now, theater owners are worried that a similar situation may unfold with the next installment of Mr. Lucas’s “Star Wars” series, due in theaters next year. Many exhibitors fret that Mr. Lucas could allow theaters with digital screens to play “Episode 2” for a week or two before it moves into conventional theaters, which might force some of them to buy digital projection equipment they can’t afford.
Mr. Lucas says he has “no plans to do anything like that,” and adds that such a move might hurt the overall box-office performance of the film. “There are limits to how much I’ll sacrifice myself on the altar of digital technology,” he says.
People familiar with the matter say that a primary aim of the current studio talks is to set guidelines that will allow rival equipment makers to develop compatible products, so that theaters aren’t forced to install more than one system.
Fear of Intrusion
Nonetheless, many theater owners are concerned that digital technology could cause them to lose control of how they operate their businesses. Studios currently hold little sway over how their movies are exhibited once they ship the prints off to theaters. If a movie fizzles in its second week, exhibitors are quick to demote it to a smaller theater within their multiplex, or even yank it altogether, even if their contract with the studio dictates otherwise. That’s because the studios lack the ability to accurately monitor several thousand prints of a particular movie at once.
But the situation could change if digital films were zapped into theaters via satellite or fiber-optic networks. Some theater owners think the new high-tech systems would allow the studios to collect much more information about which auditorium each film plays in and which ads and preview trailers precede it. They even voice concern that, in a dispute, a studio could withdraw a film.
“Whatever structure is developed has to leave the existing players in the same position as they are today, vis-a-vis the relationships on film booking, control of the projector within the theaters and so on,” says Kurt Hall, president and chief executive of United Artists Theatre Co.
To get what they want, the studios will have to convince exhibitors that the new systems would be mutually beneficial. Their pitch is that digital transmission and projection gear would allow theaters to fill hours of dead screen time with new kinds of programming, such as concerts, corporate events or sports matchups, which could also be delivered via the digital pipeline. Digital cinema backers point to a report by Forrester Research, a Cambridge, Mass., technology-research firm, which predicts that by 2006, such nonmovie fare on digital screens could bring in $560 million in new revenue.
Alternative Programming
But there are doubts about whether there’s a big audience for such so-called alternative programming. On a recent Saturday night, for example, AMC Entertainment Inc. showed a prerecorded, digitally transmitted concert by the pop group Destiny’s Child at five of its U.S. theaters. Ticket sales were weak, but AMC says it is still interested in exploring such programming. In any case, most theater owners say, they don’t need extra offerings on already-crowded weekend nights. What they want is something that could fill seats during the day, or on a slow Tuesday night.
The studios are acting in part because there are others waiting in the wings to take advantage of any delay. Boeing has offered to lease equipment to theaters as part of a deal that would involve charging the studios to use its transmission system to beam their films across the country. Technicolor Digital Cinema, a joint venture between Technicolor and wireless giant Qualcomm, has a separate plan to finance the equipment for 1,000 new digital screens. In return for the gear, exhibitors would pay a “small percentage” of each ticket sold, an amount that the company has estimated could average as little “as 12.5 cents per ticket.”
Equipment companies such as Texas Instruments and JVC see digital cinema as the springboard into much more lucrative digital products they can sell to consumers for use in their homes, such as high-definition TV sets and other audiovisual gear.
Texas Instruments has been quietly campaigning on behalf of digital cinema for more than four years. In 1997, it flew a group of Hollywood executives to its Dallas headquarters in a corporate jet to view an early version of a projector based on its chip. Since then, Texas Instruments executive Doug Darrow says he has held dozens of screenings for officials at each major studio, showing them clips from their own films. At one point in 1998, he moved to Burbank, Calif., for three months to facilitate his daily jaunts to the lots.
“We want people who are making movies to get familiar with digital cinema, work with it, refine it,” says Mr. Darrow, who is business manager for Texas Instruments’ commercial-entertainment products. In that spirit, Mr. Darrow is working with people such as Bill Butler, cinematographer for the 1978 film “Grease.” When shown a digitized version of the film a while back, Mr. Butler complained that the Texas Instruments projector didn’t produce the correct shade of red for John Travolta’s letter sweater.
So Mr. Darrow’s engineering staff zapped the film version with a spectraphotometer and spent three months making sure that their company’s next chip produced the correct brick-like shade of red. Mr. Butler says the digital projector has improved a lot, at least enough “to fool someone off the street.” But, he adds, “technical people can still tell the difference.”
Write to Anna Wilde Mathews at anna.mathews@wsj.com2 and Bruce Orwall at bruce.orwall@wsj.com3
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
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posted 05-23-2001 02:19 AM
? You know, this used to be a real skilled job, but in six years we might not even be around!
. Motion-picture film has NOT been "celluloid" (cellulose nitrate) for fifty years! IMHO, they want readers to think of film as "old-fashioned", rather than the elegant and sophisticated technology it really is. 
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