2009 has been a remarkable year for digital cinema. It did not produce the long awaited “holy grail” announcement from DCIP for the successful funding required to convert 14,000 US screens. But several significant developments took place that will shape digital cinema for years to come. Prime among these were the growth in 3-D screens, the shift in industry focus to 4K projectors, the significant reduction in deployment entities in the US, the introduction of standards for content accessibility, and the recognition by studios (finally!) that efficient security key management cannot be left to chance.
2009 was witness to several notable 3-D blockbusters with releases Monsters vs Aliens, UP, and Avatar. By year-end, 3-D will have brought in close to 15% of US box office, providing a big thumbs up for the 3-D format. Driven by the ticket premium that audiences pay to see a 3-D movie, exhibitors worldwide raced to install digital 3-D, growing the total number of 3-D screens to just over 9000, out of a total of 16,400 installations. Equally significant is that a large number of these systems were purchased outright, without the benefit of VPF-subsidized financing. The growth of unsubsidized 3-D screens provides a clear signal that exhibitors can be motivated to buy digital projectors when the technology adds value to their operations.
Jim Cameron’s Avatar, released at year end, was not only a motivator for the growth of 3-D installations, but a statement that 3-D movies have surpassed novelty status. The early 3-D of the decade had largely been relegated to animation. But Disney’s G-Force and Cameron’s Avatar both demonstrate that 3-D can perform equally well in live action. In Avatar, Cameron relied upon 3-D capture for the live scenes. In G-Force, Disney relied upon In-Three’s 2-D to 3-D conversion technology for its live scenes. In-Three’s year-end announcement of a partnership with India-based Reliance underscored the interest in the content community to convert existing assets to 3-D for re-release.
The momentum for 3-D is growing on the consumer front, as well. Studios seek to sell their investment in 3-D content to wider audiences. Manufacturers seek to add value to the Blu-ray format. A 3-D specification was produced by year end by the Blu-ray Disc Association. The Consumer Electronics Show (CES) in January 2010 is expected to be a showcase for 3-D consumer players and sets. The necessity for glasses may not allow 3-D to take over home viewing, but 3-D will have its place as the crème de la crème of formats for special viewings, such as movies.
The image resolution issue has been looming over the industry since the release of the DCI spec (DCI = Digital Cinema Initiatives, the joint venture of the 6 major film studios). To satisfy studios concerned for the quality of the first release format, DCI included a compatible 4K image spec in the distribution format. Of the two projection technologies accepted as digital cinema quality, only Sony entered into 2009 with a 4K projector. After losing its vaunted sale of 2K DLP technology to Regal, 2009 was the year that TI proclaimed that it, too, would produce a 4K projector.
The ripple from TI’s 4K announcement is substantial. By providing a standard input for servers to connect to, TI allowed a marketplace of competing 2K server companies to flourish. These companies were dealt two major blows, first by losing sales to Regal, the largest consumer-to-be of digital cinema products in the world. But also that TI’s announcement rendered the digital cinema server as delivered today to be obsolete. The second blow will be far more dramatic than the exhibition world recognizes, and deserves explanation.
A standardized secure link between 4K projectors and 4K servers, a 4K Cinelink so to speak, was never developed. Sony, which has always thought of itself as a vertical manufacturer of digital cinema products, isn’t interested in encouraging other server manufacturers to interface to its projector. Instead, Sony chose to install its server inside its projector, eliminating the need for an external 4K link, and forging the path that TI is now on.
However, the TI Series 2 projector, which is the only class of DLP projector capable of full DCI compliance as well as 4K, differs from the Sony concept. With the TI design, only the media block, the specialized guts of a digital cinema server, goes inside the projector. An off-the-shelf server, supplied by companies such as HP or Dell, will sit outside the projector. This has significant implications on how future products will be developed, and the choices that will be available to exhibitors.
By allowing server products from well-known IT companies to drive internal 2K or 4K media blocks, the Series 2 design opens the door for a new wave of software-only screen player products. Theoretically, screen player software (SPS) can be completely independent of the media block. In other words, the screen player software and the media block no longer must be married. One can envision a new wave of software-only products for exhibitors that integrate both TMS and SPS as a product family. Following this path, exhibitors can pick and choose products independently, installing the TMS and SPS software-of-choice on off-the-shelf servers, and independently selecting their projectors. This is the IT manager’s dream, which is why this approach is destined to be the next phase in the evolution of digital cinema systems.
To make this evolution practical, a common interface between media block and SPS is needed. Recognizing the need, many of the makers of today’s media blocks and servers met in December to form CoMBI, the Common Media Block Interface group. Your author was asked to chair the group. If successful, this group will become as significant to digital cinema as the DCI specification, even though its goals are far less encompassing.
2009 witnessed the number of deployment entities in the US cut in half, from 6 to 3. Gone are Dolby, Kodak, and Technicolor. Remaining are Cinedigm, DCIP, and Sony. This has left a major gap in the US market. Sony VPFs (virtual print fees) are limited to Sony projectors, and DCIP VPFs will be limited to AMC/Cinemark/Regal, leaving Cinedigm as the remaining choice for a sizeable chunk of the US market. But many US exhibitors refuse to sign up with Cinedigm, thus the gap. While the somewhat negative sentiment in the US towards Cinedigm is a boon to Sony, it also leaves plenty of room for a competing TI-centric deployment entity in the US.
As significantly, the model that studios first embraced for virtual print fee financing is now showing its flaws. The original concept was that industry businesses having large capital assets would be willing to apply those assets to the financing of digital cinema equipment. But the return on assets allowed by studio-defined deployment agreements has proven too small to encourage such investment. This greatly complicates the financing of equipment. To a large extent, the small return on investment is why both Dolby and Kodak chose to shelve their deployment agreements for good, although the challenges facing each company corporate-wide are very different. Of the various deployment entities around the world now active, only Sony fits the original model.
Deployment entities are a challenged breed. Neither exhibitors nor distributors are keen to share their pie with them. Profits are closely monitored, and risks remain high. Studios seek caps on what they spend, and expect transparency in how their money is spent. Depending on how the deal is constructed, either the exhibitor or the deployment entity is at risk to pay off the equipment should VPFs dry up. No wonder that exhibitors also seek transparency in how studio monies are collected and spent. Deployment operations that are not constructed for transparency will have a hard time getting traction.
Standards for Accessibility
The US Federal Americans with Disabilities Act, known as ADA, was passed in 1992. Standards were never developed, though, for bringing accessibility into film-based cinema, relying instead on proprietary methods. This was a boon of sorts for DTS, which became the only supplier of cinema media that could deliver a full suite of content accessibility features, including narrative audio, open captions that weren’t burned into the film, and closed captions (in conjunction with WGBH). The negative, of course, is that each of these processes incurred either a royalty or a license to use it.
2009 is the year that a full suite of standards came into being for the implementation of accessibility features in digital cinema. Though certainly not a huge impact, distributors and exhibitors will now find themselves compelled to deliver and play accessible content. Exhibitors that might feel under the watch of compliance authorities will be compelled to install accessibility systems if also installing digital cinema. Once installed, the impact to cinema operations should be minor. But the impact to studio workflow will be ongoing. SMPTE standards unambiguously call out how HI and VI-N tracks are to be distributed. No royalties or licenses apply, but creating the content for day-one distribution will take some doing for those studios where this is not already part of the workflow.
Security Key Management
Since 2004, your author has campaigned for standards that support an interoperable workflow for security key management. Studios have been slow to grasp the problem. DCI chose to not add the Facility List Message to its specification, against the advice of its own security consultant. (The FLM is generated by the exhibitor, and provides the information needed to create security keys, known as KDMs, for movies.) The result has been that implementation of FLM generators has yet to take place. It took until 2009, with the spread of non-subsidized single-screen digital 3-D, for studios to recognize that they can’t rely on a deployment entity to collect security information from every installation.
While some studios have turned to ISDCF (Inter-Society Digital Cinema Forum) to help solve the problem, the direction given has been sadly deficient. Reportedly, studios squabble over solutions in DCI meetings. The problem was, and remains, that distributors do not understand the issues of security. (Fox and Sony’s past insistence that the modem was critical to secure delivery of encrypted keys is a prime example of this). The processes required to insure a smooth workflow require detailed knowledge of how things work beyond the boundary of the studio. If they turn to a commercial entity for a solution, they are handed a proprietary method that will lock the studio to the vendor. Even when quality help is at their door, they are unable to appreciate its value. It is evident that the solutions to a very real problem will not come from studios. Nor will it come from Cinedigm or Sony, not due to lack of talent, but due to company cultures. DCIP could become the white horse, but its internal issues in technology management may get in the way of meaningful contribution. A leader in security key management is needed, but one has yet to raise its head.
The two questions most frequently asked are:
1) How many screens will be installed in the coming year?
2) When will film prints dry up?
The US digital screen count is approximately 7500 today, up by 2500 from a year ago, about 1000 of which were 3-D. In the prior year, US screen digital growth was around 2000, approximately 500 of which were 3-D. The growth in 3-D screens in the US may slow down this coming year, now that Avatar is released. But DCIP’s financing should kick in, although these installations won’t start until mid-year, and one shouldn’t expect an accelerated pace of rollout (see the section on DCIP below). It would seem reasonable to say that 2010 will add another 2500-3500 digital screens in the US. If digital cinema installations grow at an annual pace of 3500 screens in the US, film prints for 2nd run houses will diminish gradually over the next 4-5 years.
2010 is likely to be a time when a significant number of exhibitors choose deployment entities and place orders. However, if a new deployment entity appears, all bets could be off as exhibitors re-evaluate their options.
The remainder of this report provides a review of the activity and challenges for the major technology and services providers in digital cinema. Unlike prior Industry Reports, the companies in this report are organized under their primary product or service area. While a comprehensive list of companies appears in the Digital Cinema Products and Services Chart early in this report, a select set of companies are reported on below.