Server manufacturers face the most challenges in digital cinema. DCI continues to tweak its specification and test plan, requiring changes to designs. And the nascent 4K market will create a new market for media blocks inside projectors that will shift the way server technology is packaged and sold.
Note that XDC, reviewed in Deployment section, is also a manufacturer of digital cinema TMS and servers.
DTS Digital Cinema, a division of DTS, was sold to Beaufort in May of 2008. Beaufort, in turn, was majority-owned by Phil Emmel of Datasat in the UK. Earlier this year, the company jettisoned the Beaufort name and is now known as Datasat Digital Entertainment.
As part of the $3.25M sales agreement, the company was to pay an additional $6.75M in May 2009 (see DTS 8K for 15 May 2008), and divest itself of the name “DTS Digital Cinema” by April 2009. Notably, the company continues to use the DTS name on products, and DTS has not shown any further revenue from the sale other than $3.25M.
DTS did not complete its asset purchase of Avica prior to the sale. Datasat sold its rights in jointly developed technology with Avica to Digital Cinema Systems Corporation, aka Digicine. Digicine is acquiring the remaining assets of Avica and now producing the next generation of the server.
In search of a server to sell, Datasat first entered into an OEM deal with Doremi for a DTS Digital Cinema branded version of its server. Earlier this year, Datasat switched to an OEM deal with Qube, whose co-branded server it now sells. Datasat also acquired a TMS from DTS, which it has since improved and added to its product line. The company retains its DBS exhibitor management system, and continues to sell and support the older DTS cinema audio products.
Datasat’s management is unseasoned and thin. Despite its efforts to build a presence in the digital cinema market, the company’s primary revenue continues to be film licensing. It’s unlikely that its current path will enable it to replace those revenues. The industry has yet to hear the long-term business strategy for Datasat.
Digital Cinema Systems Corporation, aka Digicine, came into being to absorb the jointly developed assets of DTS Digital Cinema and Avica, following the acquisition by Datasat of DTS Digital Cinema. Digicine is in-process of purchasing the remaining assets of Avica.
The Digicine Filmstore server quickly came to market and is now approved by Disney. The core design philosophy of Avica continues, providing value-add software with commodity hardware. (Server hardware is provided by Dell, and media blocks by AJA or Mikrom.) Digicine is also looking at the TMS space, and is expected to make an announcement early in 2010. With TMS and SPS software in hand, and no investment in media block hardware, Digicine is well positioned for the media-block-in-projector market.
Dolby Laboratories’ contribution to cinema sound is legendary. It is a strong company, with a market cap of $5.4B, and has weathered the recession well. Several important changes took place in Dolby in February of this year, when Ray Dolby stepped down as chairman, and Bill Jasper retired as CEO. (Bill’s retirement had been planned for several years.) Kevin Yeaman, formerly CFO, stepped up to take the CEO title. Ray and Bill are 30-year veterans of the company’s entry into the film market. Dolby’s new management has no connection to film, and indeed, no connection to Hollywood.
In cinema audio, Dolby has long been the market leader, dominating industry sales and installations. No manufacturing company has a better name in cinema than Dolby. But it obtained that position by successfully introducing proprietary technology into the distribution channel. In contrast, digital cinema has no proprietary technology in the distribution channel, making the digital market a completely different game for Dolby.
It has not played the digital game well. Through a series of missteps, Dolby allowed cinema newbie Doremi to enter the market and install thousands of servers over Dolby’s hundreds. Its digital 3-D technology competes with that from RealD and others. Even its cinema audio products are now being challenged by compelling entries from QSC, USL, and Datasat.
With the changes in management, and lackluster sales in cinema, Dolby’s focus is moving away from the cinema market. It has empowered an unseasoned product strategy team to steer its direction in cinema, continuing the downward spiral. Dolby waited too long to introduce a low cost version of its digital cinema server, losing significant sales along the way. It focused on the development of its own 2K media block for its new server, only to find that the product was obsolete at launch due to TI’s decision to move forward with 4K. The company has significant software skills giving it an opportunity in the nascent TMS/SPS market. But the signs are thin that it has such vision.
As a side note, Dolby has been a strong player in the area of accessibility for the disabled. It was a major player in the SMPTE effort to establish a standard protocol between server and 3rd party closed caption system.
In its hit-and-miss strategy for digital cinema, it engaged in digital cinema deployment agreements with studios. Many exhibitors have approached Dolby to manage VPFs for their installations (which, of course, would use Dolby equipment), but late this year Dolby issued a firm negative. Not surprisingly, as a public company, Dolby has more lucrative areas where its assets can be put to work.
Dolby 3-D has been hailed as a high quality viewing technology for 3-D by not requiring a silver screen or battery-powered glasses. However, its high cost of glasses, and the modification required of the projector has not helped sales. Although lower cost glasses have been often discussed, it appears that the company is unwilling to invest in the tooling to make this happen. It may be betting that the cost of its glasses will look much better to exhibitors if they find themselves having to pay for RealD glasses. Dolby’s 3-D technology is licensed from Infitec, giving it a proprietary edge in the 3-D market with a technology that cannot be copied by others. However, its license is only for the cinema market, and does not extend to the consumer market.
Strategically, Dolby management no longer looks upon cinema as a breadwinner, but instead as the price it pays to maintain its relationship with the studios. (A relationship that is needed for its lucrative consumer licensing business.) If the company wishes to maintain a strong product position in the cinema market, it’ll have to work much harder than it is doing today.
Doremi can pride itself on being the last server company to enter the digital cinema market, and the first to wildly succeed. Its success has been nothing less than spectacular. It had the great fortune to have developed JPEG2000 technology for a non-cinema product, allowing it to step into the cinema market with the right technology ahead of competitors. It has shown deftness in garnering sales and establishing a worldwide presence, and recently announced its partnership in China with Time Antaeus Media Group. (Note that Christie Digital also has announced a partnership with Time Antaeus, and that the entity has not announced signed deployment agreements.)
To underscore its continuing success in winning sales, Cinemark’s recent announcement to use DLP 4K also pointed to Doremi as its supplier of choice for server and TMS. Following TI’s 4K announcement, the company was quick to announce that it would be supplying internal 4K media blocks for projectors.
But in a market as fluid as digital cinema, it takes more than luck and good salesmanship to maintain market strength. With success can come the belief that the market follows you, rather than you needing to follow the market. Doremi is showing signs of falling into this trap. It developed a 4K server for Sony, which was useful to Sony only until Sony’s own server was complete. It touts patented 4K add-on technology for its media block, but there are better ways to implement 4K than the method described in their patent. It poo-pooed the standards effort for closed captions, and instead developed proprietary closed captions technology with the intent to corner the accessibility market. But it misunderstood the accessibility market, and chose a transmission technology that is incapable of delivering the necessary companion audio tracks for hearing impaired and narrative audio. It has proven itself an expert in hardware design, but key customers such as Cinemark are demanding custom software from the company, where its expertise is thin. It’s said that Cinemark’s fix-it list for Doremi’s software is pages long. When invited to participate in the CoMBI effort by competing media block companies, Doremi chose to pass, preferring its own proprietary methods. In many ways, Doremi today looks like the Dolby of 10 years ago – a strong internal belief that it is destined to remain successful, and blind to paradigm shifts in the market that will affect its future.
Market challenges aside, Doremi has to work hard just to maintain status quo. The bulk of its 4000 servers installed under the Cinedigm Phase 1 plan must be changed out to meet the DCI compliance required of the deployment contracts. These are not just media block replacements, but wholesale server replacements. Cinedigm’s deployment agreements would have required Doremi to warranty its server for 10 years. If a server has a 5-year lifetime, then presumably Doremi built the cost of replacement into the price. The bet, then, is that both DCI compliance and warranty replacement will be handled in one go. Even if it wins this bet, the cost of replacing units in the field is substantial. Doremi is a small company, and unless it has healthy reserves, it’ll be relying on new sales revenue to cover these costs, impacting profitability.
Doremi is privately owned, with its biggest challenges being diversity and vision. Doremi makes servers for the cinema and broadcast market. It has proven itself to be adept at hardware, and has opportunities in this area. But it is the software market where Doremi will find growth, and where it has the least skills.
GDC Technology, a subsidiary of publicly listed Global Digital Creations Holdings Limited in Hong Kong, has long been the Asian leader for digital cinema servers, and was the first to install digital cinema servers in China. It is the 2nd largest server manufacturer in the world. Its president, Dr. Man-Nang Chong, has steered the company wisely, creating a presence in Los Angeles near the Hollywood studios even when not focused on the US market. This was particularly beneficial in its negotiation with studios for digital cinema deployment agreements in Asia, which were signed early this year. In contrast, its regional competitor, Time Antaeus Media Group, does not have a presence in Hollywood.
The company was quick to announce its development of a 4K media block following TI’s 4K announcement, although rumors indicate that its media block is really supplied by 3rd party manufacturer AJA. (AJA also supplies media blocks for several other companies.) The company is quick to implement new features, and was early to implement Real D EQ (ghost busting) and WGBH closed caption drive.
GDC also sells a TMS for use with its servers. The TMS can directly source content to its servers without first ingesting the content to the server’s internal storage. Now that GDC is also a deployment entity, one can expect its TMS to become a full-featured product, supporting remote inventory management and VPF management. GDC’s skills in server and TMS software make it an ideal player in the nascent TMS/SPS market.
Qube, a division of Real Image Media Technologies in India, offers both “E-cinema” and digital cinema servers. Its E-cinema products are targeted for preshows and exhibition of non-DCI compliant content. The company has achieved significant penetration in India, but also has installations in the US, Portugal, Puerto Rico, and the Czech Republic.
The company entered into an agreement with Datasat to supply servers co-branded as Qube and Datasat. Datasat provides sales and marketing in the US and Europe, and will inventory and support the products.
As a software company, Qube has significant potential ahead. It is likely to become a future TMS/SPS supplier, and has taken serious interest in the CoMBI effort for a common interface to projector-based media blocks.
With the media block moving into the projector, some light should be shed on the several makers of media blocks that power today’s digital cinema servers. The media block is the core signal processing element of the digital cinema server. It is the media block, not the server itself, that must be FIPS compliant per the DCI spec. A complete digital cinema server today is comprised of both specialized software and the specialized hardware of the media block. Most, if not all media blocks today, simply plug into a card slot on a commercially built computer motherboard. Because the plug in card contains the specialized hardware, many server companies specialize in software development, and buy their media blocks from 3rd party suppliers.
Notably, Dolby, Doremi, and Sony design their own media blocks. 3rd party media blocks today are supplied by AJA, headquartered in Grass Valley, California, and Mikrom, headquartered in Berlin. USL, headquartered in San Luis Obispo, California, is also poised to enter the media block market, having demonstrated its prototypes at major trade shows.
With the media block moving into the projector, the need for the digital cinema server with its combination of specialized software and hardware disappears. The specialized hardware will now go inside the projector, and the specialized software will install in an off-the-shelf server purchased (and warranted) from companies such as HP or Dell. The digital cinema projector with internal media block becomes the only unique hardware in the installation.
Brand identification will change. One will think of the media block in their projector much as one thinks of the video card in their desktop computer. As with the video card in the computer, the media block will become a commodity. At a minimum, it will need to be DCI compliant and SMPTE DCP compliant. The CoMBI effort will add a new requirement, that of a common interface to the external computer. The only other customer requirements, as with any commodity, will be price and reliability.
The branded products, and those which must meet specific customer requirements driving a close relationship between supplier and customer, are the Screen Player Software (SPS) and the Theatre Management System (TMS). Both of these are pure software products, residing on off-the-shelf computer hardware. It is expected that these two products will be bundled, eliminating the need for the multiple and complicated TMS-to-server interfaces that exist today, and providing users with a common look and feel throughout.
The emerging paradigm shift to a commodity media block has not yet sunk in with all of the media block makers. With four projector manufacturers, and six makers of media blocks, competition will be fierce.