Hollywood Software announced its acquisition of Digital Cinema Systems, Inc. (aka DigiCine), making the DigiCine Filmstore server the first hardware product offered by the company. The Filmstore product has a colorful history as long as digital cinema, and worth recapping.
DigiCine was formerly known as Avica, manufacturer of one of the first MPEG Interop digital cinema servers on the market, and once upon a time blessed as THX Approved. In the early days of digital cinema, Avica, like Dolby, struggled with the studio-driven transition to royalty-free JPEG 2000 compression. Upstart Doremi took advantage of the situation, emerging as the market leader in JPEG 2000 servers. Seeking a buyer, Avica exclusively licensed its technology, including its Filmstore server, to DTS in 2006, also giving DTS a three year timeframe to acquire Avica’s assets. Two years into the deal, DTS sold its cinema division to the company now known as Datasat, without completing its acquisition of Avica’s assets. This left a messy split in the ownership of technology rights, with core technology owned by Avica, and joint improvements owned by Datasat. DigiCine was funded to acquire full rights to both sets of technology, and to carry on the development of a fully DCI compliant server, resulting in Filmstore 3.
With its new acquisition, Hollywood Software is touting the advantages of integrating a Theater Management System (TMS) with a Screen Management System (SMS), the core manager of a digital cinema server. It’s an arcane concept, presuming that third parties will always provide the Integrated Media Block (IMB), the server that installs inside a Series 2 projector. This move is counter to the evolution that has led to the so-called Series 3 projector, where the media block is integrated inside the projector, and cannot be sourced by 3rd parties.
Projector integration is a natural outcome of the evolution of the technology. The projector manufacturer has the leverage in equipment sales, having the product with the biggest price tag. Server companies have increasingly been compromised in sales, particularly in VPF-subsidized deals. In such cases, a cost ceiling was often imposed, with the projector manufacturer taking the lion share of the allowed cost, leaving only a thin margin for the server company. The next wave of sales will not be any friendlier for server companies. Without VPFs to subsidize equipment and artificially prop up costs, the pressure on margins will be greater than ever. Projector manufacturers are preparing for this scenario with Series 3 designs, comprising complete projection systems, where the stand-alone server company is completely cut out of the sale.
So why would Hollywood Software buy an arcane technology whose value lies only in legacy systems? The answer appears to be that the company is betting on a prolonged down cycle and a delayed replacement cycle. For owners of Series 1 projectors, a more capable outboard server could make sense, and would require a much smaller investment than a new Series 3 projector.
But Hollywood Software’s bold, counter-evolutionary move is not without risk. Series 1 and Series 2 projectors are limited in capability by the internal electronics of the projector, which cannot be overcome with a more capable IMB. Series 3 projectors can evolve into 4K HFR/3D capable systems, for example, which are capabilities that are permanently out-of-reach for Series 1 and Series 2 designs. Such capabilities are unlikely to add cost to a new Series 3 projector, but will certainly drive down the value of technologies such as Filmstore, designed to give longer life to Series 1 and 2 projectors. Even if Filmstore finds its market niche, it’ll have to stand in line with similar and better-known products from GDC Technologies and others. As one may recall from the numbers released during GDC’s once-planned IPO, GDC’s margins are massive, making it a formidable competitor in a price-sensitive market.
One of the selling points for upgrading older systems with new, more capable Filmstore servers is that it provides a healthy path to full SMPTE DCP compliance. But oddly enough, Hollywood Software’s acquisition of DigiCine will also give it ownership of the digicine.com domain, which is used as the namespace identifier in the Interop DCP format. The digicine.com FTP site is also the home for Interop DCP documentation. As the new owner of Interop DCP, in daily use in 130,000 cinemas worldwide, perhaps Hollywood Software will find new ways to monetize its investment. Which is why now, before the sale closes, would be a good time to open up the Interop DCP specification, before it becomes privatized by a company barely known to the digital cinema DCP community.