It’s not news that there has been a tremendous surge in the adoption of digital cinema around the world. The success of Avatar in 3-D convinced exhibitors that digital projectors were worth buying, and studios encouraged them to fill out their screens with digital projectors by agreeing to pay VPFs. The world digital screen count was around 75,000 end of June 2012, with US and Canada comprising about 40% of that. VPF roll-out periods among the various deals expire in the US this year, and Europe is not much different. VPF-driven installations will continue in South America, Middle East, and Asia , but only for 2 more years. The end of the surge is in sight, and along with it is a cliff that the manufacturers find themselves marching towards. What to do?
This has to the question on every projector manufacturer’s mind. We’re in year 7 of what is estimated to be a 12-year sales cycle. When replacement sales begin to materialize, they’ll ramp nearly as slowly as the sales of original equipment, stretching the sales gap even further. And the replacement rate will not be as quick as original conversion rate. To protect themselves, there are three paths available to manufacturers: sell as deeply into the market as possible to capture every possible sale (VPF or not), take steps to accelerate replacement sales, and expand into other product areas that can be included in the same sales channel.
It’s the first point that is driving the introduction of lower cost projectors by the manufacturers. The DLP 0.7-inch chip uses the same mirror size as the DLP 4K chip, but occupies only 1/4 the area for 2K-only resolution. Smaller chip size means a reduction in size for the optics, which drives down the cost. The fact that the imaging device uses the same technology as the 4K imaging device, but less of it, means this could have been introduced 2 1/2 years ago when 4K first became available. But a lower cost projector at that time isn’t what they needed. The industry was entering a hot market that reached up to $1.5B in annual worldwide sales. Timing being everything, the introduction of lower cost projectors this year makes sense, as manufacturers hit the road to capture every possible sale.
Accelerating replacement sales is not easy. The usual trick is to implement new features that the customer is willing to spend money on. The recent demonstrations of higher frame rates and laser illumination prime the pump for replacing Series 1 projectors with Series 2 models. Even if successful, there are only around 17,000 Series 1 projectors to be replaced, and there will be a span of up to 7 years to fill before Series 2 projectors are up for replacement. 17,000 projectors over 7 years hits about 30% of the sales target, considering that should be an 8,000 projector per year market, on average. Not enough to keep the production lines busy.
It’s good business to expand the sales channel with different types of products and services, and it can be a tool for maintaining the sales relationship in a replacement cycle gap. It’s not uncommon for projector companies to sell video walls and lobby monitors to cinemas. A more courageous strategy is to move into software, which is not always a core expertise. Sony has its TMS, and Barco bought the software assets of XDC for this reason. The strategy pony, though, goes to Barco for licensing Auro3D for cinema applications. Whatever success the technology may achieve, it is certainly an adventurous move for maintaining its connection to the cinema market during the sales gap.
