Technology execs from AMC, Cinemark, Marcus, and Regal met with Texas Instruments to introduce themselves to Kent Novak, new SVP of DLP at TI. With the economic downturn, TI has made strategic internal changes that will lead it to become more of a chip maker than a sub-system maker. It’s been said that TI could not develop DLP Cinema today due to the cutbacks in its system development effort.
I’ve been asked why AMC would attend this meeting, given it’s loyalty to Sony. (See “Sony” later in this report.) First, AMC is not without TI projectors. Also consider that if TI falters in digital cinema, then the funding for DCIP would also be at risk. Simply put, if digital cinema has a critical technology, it’s TI DLP.
From the meeting, and from outside investigation, I believe TI will continue to support the DLP product line, but in a reduced capacity. While not publicly stated in its annual reports, revenues from overall DLP sales has been in the $300M-$400M range, significant enough to continue the product. Digital cinema sales could add significantly to this number, which will also keep its interest in cinema. But the reduced capacity will be due to the cutbacks in system development. After the Series 2 reference design is released, TI will likely push the R&D for future improvements off to the projector companies.
In the course of the meeting, the subject of 3-D projector licensing was raised. Nancy Fares, Business Manager for DLP Cinema, announced TI would forgo plans to license 3-D in the upcoming Series 2 design. She credited me with convincing her that it would be a difficult license to execute.
As importantly, TI reached out for help on other matters that could unreasonably impact them. One studio threatened to withhold content unless they change their Cinelink 2 link encryption to a technology now in process of standardization within SMPTE. (The SMPTE technology is owned by Sony – that should give a hint as to where the threat was coming from.) TI clearly stated that if they have to change current product in the field to meet this new SMPTE standard, they would pull out of digital cinema. Hopefully, this threat has already been diffused.
But another problem exists that could truly be threatening. TI’s link encryption in Series 1 projectors was not implemented in a manner that meets the DCI security specification. In large part, the upcoming Series 2 design was initiated to meet DCI. While most studios were willing to grandfather the Series 1 design, Fox and Sony wanted a compromise upgrade installed. The result is called the “Gore board,” named after the Gore anti-tamper protection material used in the modification. Total cost to install these boards in existing installations, including labor, is somewhere between $5M and $10M. While one would expect Fox and Sony to be willing to include the upgrade in the equipment costs to be recouped through VPFs, not all studios are ready to follow in their footsteps. In the worst case, if one studio doesn’t pay, none of them have to pay. Even with a partial payment from Fox and Sony, Christie Digital will have to pick up the difference, since Christie projectors are in the majority of installations today.
There are several fingers that can be pointed, not the least of which is to TI for getting themselves into this mess without figuring out up-front how to pay for it. But there’s more to the story. It turns out that the sensitivity of the Gore material is so great that TI is experiencing failures in the units now installed. It is designed such as simply touching the board will cause it to destroy the private key inside, forcing a physical replacement of the board. (With a dark screen in between.) As a result, the board is not shipping in Series 1 projectors, contrary to the current belief of studios. Stay tuned for more.