Europe's Digital Shortfall (Courtesy Screen Digest)
On June 21st, just in time for Cinema Expo, Screen Digest published a report titled “Digital Cinema Moves Into The Mainstream“. Twelve pages in length and with 10 tables and charts, the report uncovered a significant “digital shortfall” in the amount of financing required to convert all of Europe’s screens to digital. David Hancock, a senior analyst at Screen Digest, authored the report and we asked him to shed some light on its key findings. (The interview appears after the jump).
Details From The Report
Not counting Russia there are roughly 32,600 screens throughout Europe for which a digital rollout will cost EUR €2.1 billion (or USD $2.65 billion). Of those screens 23,800 are covered for digital conversion through virtual print fees offered by Hollywood studios. Upwards of 5,000 screens will be handled directly by theatre owners themselves. Theoretically that means there is funding of EUR €1.65 billion (or USD $2.1 billion) for d-cinema conversions, leaving a gap of EUR €450 million (or USD $568.4 million) to cover all Europe’s screens.
And who is being left out of the funding equation? Well, it’s mostly art houses, seasonal theatres, repertory venues and mobile cinemas.
The United Kingdom and The Netherlands have set up special funding groups to help solve this problem. Support funds have also been established in such countries as the Czech Republic, Finalnd, France, Germany, and Sweden. On region in Poland plans to pull money out of a tourism fund and Italy is giving tax credits to any theatre which converts. The European Union is offering assistance through its MEDIA Programme.
Driven mostly by 3D content, the number of European screens equipped for d-cinema at the end of the first quarter in 2010 had risen 16% over 2009 to 5,333, or a full 15% of the region’s screens. Presently 75% of all digital screens in Europe are 3D capabe. Thanks to competition among France’s largest exhibitors, the country leads the 3D screen count with more than 700. The U.K. and Germany are second and third hovering around the 500 screen mark.
A Conversation With David Hancock
Celluloid Junkie: How did you come up with the EUR €450 million? Was it simply adding the number of each integrator’s VPFs (by screen) and the amount of those VPFs? Are you guessing at the amount of the VPFs as it is often hard to find the exact dollar or euro amount of a VPF?
David Hancock: I did not have to come up with a VPF figure, as I did this the other way round. I took the number of screens that are targeted by a VPF programme, added the screens that will DIY (like Odeon), and subtracted the cumulative figure from 32,600 screens (EUR total). This leaves the number of screens that do not fit into an announced model, and then I applied a EUR figure for conversion (EUR €75,000) to those remaining screens. That is the shortfall.
CJ: Do you think the shortfall might have something to do with the VPF recoupment amount being different with each integrator?
DH: No, that is already factored in. I am not saying that these screens are doomed. The point is that for this shortfall, people are needing to be creative to find solutions. And they already are. Look at the UK Digital Funding Partnership (DFP), the funding group in the Netherlands, the French support scheme. All these initiatives are filling this shortfall.
CJ: There are five main integrators in Europe right now (AAM, Digital Finance Limited, Sony, XDC, Ymagis). Do you see any additional integrators springing up to help with the digital rollout?
DH: No, I don’t see any more of this type springing up, but I do see more targeted outfits appearing, with a specific group of screens in mind, such as maybe for local municipality screens in Poland. We already have the UK and Dutch groups, that are effectively acting as third-parties to organise a group of screens together.
CJ: At the Cannes Film Festival the Société des réalisateurs de films, the French Director’s Guild, warned that d-cinema is going to dilute French culture and will force a higher turnover of films. Is this a broad fear generating a lot of discussion? There was some talk that the E.U. might get involved or investigate. How likely is that?
DH: Has been for years, and still is a concern. The European Commission has been looking at this for two years or so and is developing a support fund to help some screens. European Cinemas also has a grant system in place for digital cinema. So, the EU is involved at that level, it is also investigating various aspects of digital cinema, such as the support funds being proposed by individual countries (e.g. Italian tax credit).
European D-Cinema Growth - Q1 2010 (Courtesy Screen Digest)
CJ: The growth in digital cinema seems to be mostly in Western Europe. What about Eastern Europe? Is there any movement there or signs of an
increased rate of conversion?
DH: Yes, things are moving amongst the multiplex screens, specifically for 3D. Over 90 per cent of digital screens are 3D in Central and Eastern Europe. However, there are still many municipal (local authority) owned single screens in many Central and Eastern European countries, and these will prove more difficult to digitize.
CJ: What kind of impact is alternative content having in the E.U.? Is significant revenue being earned?
DH: In revenue terms it not yet significant. However, many exhibitors are doing it, the number is growing as the digital base (and satellite base) grows, and I believe it will keep growing in coming years. We are currently looking at a contribution of less than 1% of box office and this will probably grow to around 2% to 2.5% by 2014.
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Last night I had the privilege of attending the opening night of the Director’s Fortnight at the Cannes Film Festival. The film being shown was “Benda Bilili” a fantastic documentary about a Congolese band made up of homeless parapelgics who go on to win international acclaim. Before the lights dimmed however the audience was addressed by the head of the Société des réalisateurs de films, the French Director’s Guild which organizes the Cannes sidebar.
After handing filmmaker Agnès Varda a lifetime achievement award, Malik Chibane (at least I believe it was him) turned to the audience with a serious word of caution. He was speaking in French and between what I understood and what was translated by the person standing next to Chibane I figured it was worth repeating here.
Keeping in mind, I’m paraphrasing, Chibane told the audience that “Benda Bilili” was being shown in 35mm and a film projector, which is how films had been shown for the past 100 years. However, this won’t always be the case. Very soon cinemas throughout France will undergo a digital conversion and films will be delivered on hard drives. He warned that such technology will actually decrease the diversity of films being shown in theatres, especially for French films. He stated that small theatres wouldn’t be able to convert to digital cinema, just those showing big blockbuster films.
Then as the film started a short 20 second promo put together by the SFR was shown. Again it was in French so I’m paraphrasing, but effectively the message of the animated spot was that a lack of diversity undermines the movies and that digital cinema threatened French culture. The trailer is embedded at the head of this post.
This lead me to do a little research into Chibane’s statements and the creation of the trailer. It’s not news that certain European territories such as France believe smaller cinemas will be shut out of the digital cinema conversion since they do not show big Hollywood movies. In fact, SFR made three different trailers “dealing with the consequences of the current policy of digitization of cinemas” all of which can be seen on YouTube.
The themes of the other two trailers roughly translate to “the rapid turnover of film prints seriously affects the cinema” and “the hour is grave for the cinema”. The SFR’s statement on the subject both on their website and YouTube channel reads:
Digital cinema prevents the circulation of films and thus their distribution in the long term: it must be paid for by the distributor of a movie and third-party investors. Each screen (or theatre) will choose one or the other of these third-party investors. A distributor that wants to place his film into the national network of cinemas for an extended period of time will be forced to pay several digital cinema fees - one to each of the third-party investors.
Of course, the third-party investors being referred to are integrators such as Arts Alliance or XDC which operate in Europe and the distributors are most likely small, regional distributors. On Sunday afternoon the European Audiovisual Observatory will hold a conference in Cannes titled Digital Cinema Tango to discuss the issue.
There is a slight irony here in that “Benda Bilili” was actually shot on digital video cameras and was transfered to 35mm. That aside, what do you think of Chibane’s comments and what are your thoughts on the matter of digital cinema decreasing the diversity of content being shown in certain territories?
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Both at ShoWest and in the weeks leading up to the conference, I was able to speak with some of the folks over at Texas Instruments working on the company’s digital cinema offerings. They were happy to report that development of their 4K chip was right on schedule and some of the first 4K DLP projectors should be available for purchase in the first part of 2011, if not a little sooner.
For those who are just tuning into our industry, TI is the group that has been making DLP chips for cinemas since 1999. Each DLP chip is an array of 2.2 million microscopic mirrors that move and rotate at high speeds to reflect the appropriate light and provide 2K image. Projectors based on the company’s DLP digital micromirror device (DMD) have been installed on over 19,000 movie theatre screens worldwide, giving them at least 90% of the digital cinema install base.
However, last year for the first time TI’s dominance in the market was threatened when two of the world’s largest cinema chains, AMC Theatres and Regal Cinemas, announced they would be installing Sony’s 4K digital cinema projectors. While the DCI spec may only call for 2K, the marketing advantage of 4K was hard to overcome with exhibitors who were looking for a future-proof solution. So in June of last year TI announced they would be developing a 4K DLP chip for their OEM manufacturers, which include Barco, Christie and NEC. No development timeline or release date for the new chip was given.
TI execs are still as leery of giving out specific dates as they are about being quoted on the record when it comes to 4K, but more recently they have begun talking more openly about their development schedule. The good news is that TI is meeting their internal deadlines for 4K development. The company is looking to the early summer time frame for having the first DMDs completed for testing with OEMs. There may even be a unit or two ready for demoing at IBC, though TI is realistically aiming to go into production on the new chips in the late part of this year. Of course, that is if there are no issues with raw materials, manufacturing and testing goes according to plan.
The 4K DLP chip will be 1.38″ with 4096 x 2160 pixels and will have an equivalent life-expectancy the same as the 2K chip, which is well over 10 years. I confirmed that the entire surface area of the chip, every single pixel, will be used for both 2K and 4K imaging, meaning the talk about TI only using a portion of the pixel area was incorrect. Theatre owners who have already installed 2K Series 2 DLP projectors may be able to upgrade to 4K on-site by replacing the light engine. Initial thinking is that the same lenses used for 2K can be used when projecting 4K content.
When TI hasn’t been working on their 4K chip they’ve been developing boards for Series 2 projectors. Production on Series 1 chips ended in December of 2009 and, as anyone who has tried to buy a digital cinema projector recently knows, OEMs are quickly running out of inventory on those units. Presently one OEM is up and running with Series 2 projectors and the other two should be online in the next few months. This is also about the time that all the manufacturers will be finishing their DCI compliance testing.
In addition, TI has a split development team working on subtitles for DLP projectors; one team works on SMPTE subtitles for Series 1 projectors and the other is completing CineCanvas subtitles for Series 2. CineCanvas subtitles should be ready for Series 2 projectors in the middle of this year and SMPTE subtitles will follow before the year is out.
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Is it just me, or has anyone else noticed that SmartJog has been on a roll lately when it comes to partnerships? After announcing an agreement with Ymagis in February, they formed a partnership with XDC just before ShoWest and earlier this week entered into a deal with Twentieth Century Fox to deliver digital cinema content.
The agreement with XDC mirrors the one SmartJog signed with Ymagis in that XDC will deploy SmartJog’s technology in theatres it has contracted with. Specifically, each cinema will receive a SmartJog Gateway server which will act as a central library storage device that receives the content. The two companies will integrate their solutions to better automate the delivery of digital cinema content. What wasn’t clear from the press release was whether XDC would eventually integrate SmartJog’s technology directly into their own theatre management system (TMS).
SmartJog’s solution will enable XDC, which operates primarily in Europe, to deliver digital content into its theatres directly from their mastering facility in Liège, Belgium. Additionally, XDC will also be able to deliver content to any of the more than 160 cinema complexes in SmartJog’s digital cinema network throughout Europe. Commenting on the agreement, Fabrice Testa, XDC’s Vice President Sales and Business Development was quoted in the release:
“After an initial phase of testing, we have decided to broaden our service offering to include the SmartJog solution. Our cinema customers will have the possibility to receive digital cinema content via SmartJog and our XDC Digital Content Lab will also offer to theatrical distributors a digital delivery service to all cinemas connected to the SmartJog network.”
Then this past Tuesday, SmartJog continued to expand its digital delivery empire by pacting with Fox to distribute the studio’s digital cinema content to their European network via satellite. The 160 theatre sites presently in the network consist of more than 800 screens and the company is planning to double its size to 300 cinemas by the end of the year. SmartJog’s solution allows for large digital cinema files to be transfered to theatres at an optimal speed (i.e. really fast) through satellite or terrestrial means. Julian Levin, Fox’s Executive Vice President, Digital Exhibition and Non-Theatrical Sales and Distribution, explained the studio’s reason for entering into the new relationship in the press release:
“With the rapidly increasing footprint of digital projection systems, 2D and 3D, coupled with emerging electronic distribution platforms, SmartJog has taken a leadership role toward providing a more efficient electronic delivery methodology which we believe will ultimately dominate the means by which movies are delivered to theatres worldwide.”
SmartJog began delivering digital cinema content through its network in early 2009. Since then they have distributed more than 70 feature titles as well as trailers and preshow advertising content. Since their distribution agreement with Fox is non-exclusive, the studio will presumably continue to work with Deluxe to deliver digital cinema content outside of SmartJog’s network.
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Last week both the New York Times and the Wall Street Journal reported that an announcement from Digital Cinema Implementation Partners about their financing was imminent. The opportunity to play 3D content will certainly be welcomed by AMC Theatres, Regal Cinemas and Cinemark, however from the way the two newspapers covered the story you might get the impression it was the only reason. The financing would allow Hollywood studios to “roll out more 3-D movies in the wake of the success of James Cameron’s ‘Avatar’” wrote the Wall Street Journal and the New York Times said the “money would allow future 3-D film releases”.
Both media outlets seem to have gotten their hands on some internal briefings or at the very least seen an early draft of a press release as they have updated some of the details from previous reports about DCIP’s financing. A more exact figure of USD $660 million was cited by both papers which is down from the original USD $700 million rumor which was first floating around. As well, the number of screens has been upped to 14,000 from 12,000 with the Wall Street Journal putting the number of actual theatre sites being converted at 1,100. The New York Times laid out the details as follows:
According to a draft announcement making the rounds in Hollywood, the new financing, arranged by JPMorgan and Blackstone Advisory Partners, would total about $660 million. Of that, $445 million is expected to come from senior bank debt, $135 million from what is described as “junior capital” and $80 million from equity contributed by the member theater circuits. Nine banks, including Bank of America and Citibank, are part of the lending group. Blackstone raised the $135 million from other investors.
I always find it amusing to see how mainstream media covers the transition to digital cinema in reporting such news. The Wall Street Journal piece states:
In a digital conversion, theaters rip out old celluloid film projectors, and stop receiving weekly shipments of large film canisters. They instead use fiber optic lines to transfer huge digital film files.
Sure it would be great if delivering digital cinema content to theatres via fiber were actually possible on a large scale, though the reality most films will be delivered on hard drives and in some cases satellite. In fact, their story even contains two pictures; one of film canisters and the other of a hard drive stuffed into a Pelican case. They went on to write:
Studios currently pay $1,000 to $1,500 per screen for a celluloid print—and then must pay to replace that print when it wears down after about six weeks. Under this venture, studios will agree to pay Digital Cinema Implementation Partners, a fee for every booking of the film. That fee will be about $850 per booking, according to people familiar with the matter.
I’m not sure how many exhibitors actually request a second print after the first print has “worn out” in six weeks, but I’d bet it’s not a lot. As for the $850 virtual print fee, this seems about right, though the actual amount DCIP’s VPF deal has never been made public, and is likely to remain private. They went on to point out that Warner Bros. was the only studio not to have signed a VPF agreement with DCIP but cited inside sources who say the studio was close to “finalizing” their deal. (That would indeed be news if it turns out to be true).
Another moment of levity came when the Wall Street Journal wrote that the pending announcement would be a “boon to Sony of Japan and Belgium’s Barco” without mentioning it would also help Texas Instruments, which makes the DLP chip found in Barco’s projectors. Since AMC and Regal have announced deals with Sony and Cinemark has said publicly they are going with Barco, it was probably safe to leave out Christie and NEC, two additional d-cinema projector manufacturers. And I suppose mentioning Doremi, Cinemark’s chosen d-cinema server, would have been a little to techy.
One key point both newspapers may have overlooked is that the financing is for VPFs, which usually don’t cover the cost of 3D technology. Granted, the three circuits will no doubt upgrade a large percentage of their screens to 3D, however the way the stories are reported makes it seem as if the financing will mean every screen which is converted will be 3D capable, which may not actually wind up being accurate.
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SmartJog and Ymagis issued a joint press release yesterday announcing they had reached a non-exclusive partnership agreement and will integrate their technologies to offer theatre owners a more robust digital cinema offering. The pairing seems as if it would be complimentary given that SmartJog specializes in high speed delivery of digital content and Ymagis focuses on digital cinema deployment.
What this means is that when Ymagis installs digital cinema equipment at one of their theatres, they will also be deploying SmartJog’s digital content delivery solution. During the first phase of the partnership, the SmartJog Gateway will be integrated into the Ymagis Cinema Central Server, which is a theatre management system. Content will arrive through the SmartJog Gateway and be handed off to the Ymagis TMS. This solution requires a theatre to make room for a separate piece of network connected equipment. The second phase of the partnership will integrate the software which runs the SmartJog Gateway directly into the Ymagis Cinema Central Server, allowing for content to be delivered straight to the TMS without need for additional hardware.
One bonus that comes with the partnership is that the two companies will be able to share their respective content delivery networks. This means Ymagis would be able to send content to any theatre in SmartJog’s network, even if the exhibitor wasn’t signed up with them. Both companies are based in France so it’s no shock that integration and deployment will begin in that country. Most, if not all, of the exhibitors Ymagis works with are in Europe.
Because the agreement is non-exclusive, Ymagis is still able to integrate content delivery technologies from other companies into their TMS while SmartJog is free to offer their solutions and technologies to other integrators and deployment entities in the market. As for the latter, it’s just a matter of when, not if, we’ll hear similar announcements in the future.
]]> That collective sigh of relief you may have heard over this past weekend no doubt came from the North American motion picture exhibition and distribution industries. The Los Angeles Times report that investment bank JPMorgan was finally able to round up roughly USD $700 million for Digital Cinema Implementation Partners must have come as some relief.
Heaven knows we’ve been hearing about DCIP’s quest for financing for well over a year now. It seems at every ShoWest, Cinema Expo or Show East for the past 18 months we’ve been told by investment bankers that money is on the way. Though let’s face it, if the staggering amount of money being sought wasn’t enough to cause a delay, the worldwide credit crunch certainly didn’t help. Financing hasn’t been easy to come buy in any business sector and no matter how lucrative the project.
Of course, DCIP is the deployment entity founded by three of the world’s largest exhibitors; AMC Theatres, Cinemark and Regal Cinemas. With anonymous sources close to the negotiations confirming that DCIP’s financing will be announced in the next two weeks, the company can finally begin the rollout digital cinema technology on 12,000 screens across the United States and Canada.
Back in 2008 JPMorgan, armed with virtual print fee agreements from the studios, went looking for USD $1 billion for DCIP to convert 14,000 screens across all three circuits. Since then, AMC has gobbled up Kerasotes adding another 900 odd screens to the mix. There was no word on which screens or theatres will be converted or what will happen to those screens which don’t make it into the first 12,000. Nor was a time frame given to complete the transition, though it has been widely expected to take three years.
JPMorgan and DCIP had postponed their search for financing for about year, picking it up in the last quarter of 2009, when credit worries began to ease. According to BusinessWeek the investment house was looking for $525 million in senior debth and $200 million in equity.
After the Los Angeles Times broke the news, it was truly interesting to watch news reports fly in from global media outlets that wouldn’t normally cover what could be considered just another run-of-the-mill financial update. Especially one that is technically still a rumor. Certainly this can be attributed to the success of “Avatar”, whose worldwide box office gross is USD $2.1 billion to date with no sign of slowing down. In fact, most of the posts and articles contained what seemed to be obligatory sentences such as:
“The [digital] equipment can also be upgraded to show 3-D films, which Hollywood studios are relying on to bolster revenue as DVD sales decline.”
What is important to keep in mind amidst all the cheerleading and speculation about a forthcoming announcement is that the money JPMorgan has raised (or is raising) is only meant to finance digital cinema servers and projectors. Traditionally studios have left 3D technology out of VPF agreements, making exhibitors financially responsible for installing their choice of 3D equipment. In other words, the 12,000 screens will be converted to 2D, but not necessarily all of them will be 3D capable. At least not initially.
Even so, any increase in the North American 3D screen count would be welcome. One exhibitor I spoke to recently complained that by the beginning of April he could potentially be juggling four 3D releases including “Avatar”, “Alice In Wonderland”, “How To Train Your Monster” and Kenny Chesney’s 3D concert film.
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Problems With "Avatar" In Germany
It was bound to happen. With James Cameron’s 3D epic “Avatar” being released on more than 16,000 screens in 122 countries on December 18th, surely there would be a few snafus. One Deluxe insider claimed “Avatar” marked the first movie title for which they shipped more hard drives with digital cinema packages (DCPs) than 35mm prints. So whether it was a faulty server, malfunctioning projector or invalid key, a few dark screens or missed screenings seemed inevitable. And with the enormous amount of promotion and hype surrounding “Avatar’s” release there were thousands of sold out auditoriums making whatever problems that cropped up difficult to hide.
Few would have predicted that such issues would be caused by humans, rather than technical errors. But that’s just what happened in Germany during the first few hours of “Avatar’s” release. Apparently upwards of 70 screens were unable to play the film in digital 3D because they had not received the keys, or received the wrong keys. The problem affected theatres run by Cinestar and Cinemaxx in cities such as Eisenhuettenstadt, Mainz, Garbsen and Berlin. Audiences that had shown up for the first showings of the film were told they could see the film in 2D or were offered a refund.
It should come as no surprise that news of the dark screens spread rapidly in mainstream media, especially in the tech press. Outlets such as The Register and Heise ran stories that faulted Deluxe Digital, the service provider Twentieth Century Fox used to distribute both 35mm and digital prints. However, having seen first hand the amount of resources, energy and effort Deluxe put into the release of “Avatar” it is highly unlikely that they somehow managed to bungle the key delivery. More probable is that one of Fox’s field offices neglected to relay some last minute playdates they had managed to secure.
One rumor that has been going around about the incident is that digital cinema servers at theatres which experienced the issue had either improper or out-of-date firmware. Nobody involved in the situation could confirm this to be true. Let’s hope for everyone’s sake that this was not the case, as it would only serve to highlight some of the technical hurdles inherent in digital cinema.
Public opinion about the “Avatar” black out was largely driven by tech blogs and podcasts. Indeed, it was somewhat humorous watching tech-heads line up with advice on how to solve the issue of digital cinema security which the industry has spent years standardizing. Here is an example from CNET’s popular Buzz Out Loud daily podcast which has a worldwide listener-base of tens-of-thousands (if not hundreds-of-thousands). The news was first reported by someone who write into the podcast:
For years now I have heard you explaining that DRM only punishes the honest customers. Well, today I was such an honest customer for the last time. I went to see Avatar in my local Cineplex. I saw a huge crowd standing in the lobby and knew something was up. The theater manager explained that the premiere screening of the 3D version could not commence. They had been waiting for the digital key to arrive that is necessary to decrypt the film. It should have arrived by email from FOX over four hours earlier but it had not.
Apparently this was a problem for every movie theater in Germany and probably every cinema in Europe that wanted to show the film at that day. The 2D version was not affected by the way. I gather 50% of all the perplexed visitors had no idea what kind of key he was talking about. But definitely 100% were pissed and had no understanding why they made all the way and effort to come to the movie theater only to be told: “Sorry, we don’t want your money!”. 16 Dec 2009 was supposed to be the day I see a masterpiece. It turned out to be the day I swore to never set foot in a movie theater again.
Screw you FOX and happy downloading!
Angry Andy.
Buzz Out Loud - Avatar Key Issue - Clip 1
Not quite sure how Andy plans to download and view a 3D version of the film. That Tom Merritt, the show’s host, was surprised that keys are sent via email was rather humorous. It didn’t take long however for other listeners to start writing in with their own thoughts and solutions. The very next episode featured this listener email:
Why don’t the movie studios just use public key cryptography methods to encrypt the movies? Each theater could have it’s own public and private key pair, and the studio could encrypt the movie using the theater’s public key and only the theater’s private key would be able to decrypt it. That way if they have the movie they can play it. No need to wait for the key from the studio. Plus, this is much more secure than sending the key via email…
Kevin, Phoenix AZ
Buzz Out Loud - Avatar Key Issue - Clip 2
There was one final email in which the hosts debate why studios send keys with specific business parameters (dates) in them, rather than open keys:
]]>Hey BOL,
Public key cryptography is a good idea but I have a feeling that the movie studios don’t trust the theaters and thus wouldn’t want them to be able to play the movie until it is supposed to be released. With regular encryption the movie studios can send along the movie before it is released and don’t have to worry about the theaters being able to play the movie until the key is sent to them at the time the movie is released.
Love the show,
Alex Kaiser, Mill Valley, CA
For the past several weeks there have been whisperings in conversations throughout the motion picture exhibition industry about organizational changes at Kodak Digital Cinema. To put an end to the conflicting reports that were coming my way I did the most simple of things; picked up the phone and spoke with someone directly at Kodak. Strange, I know, given that this business has gotten us all so used to playing our cards close to the vest, but sometimes a direct approach actually works.
Indeed, Kodak Digital Cinema is dramatically changing the focus of its business. Bob Gibbons, Director of Marketing and Communications for Kodak Digital Cinema lived up to his title by being very upfront in explaining the company’s new strategy. “We’re going to really concentrate on areas that build more directly on our unique capabilities of service and intellectual property licensing,” said Gibbons. “We’re going to discontinue all development and manufacturing of our preshow advertising systems, our Kodak screen management servers, our Kodak theatre management systems and what I refer to as our role as a feature systems integrator, putting the packages together and marketing the packages.”
Acting as a systems integrator has been the most visible part of Kodak’s digital cinema business up until now. Moving forward, Kodak Digital Cinema will instead develop and license digital cinema technologies to be commercialized by others while continuing to provide services and support for existing systems. Though Kodak may not be manufacturing preshow video players any longer, they will continue to prepare and distribute preshow content and playslists.
Gibbons puts the number of Kodak digital cinema servers out in the field at around 300 and he was firm in reiterating that the company would absolutely continue to provide service and support for their equipment. However, he stated, “If you are thinking of working with Kodak as an integrator and having us put a package together for you, well we’re not going to do that anymore so you’ll have to move on and work with somebody else.”
Other aspects of the business that will continue is Kodak’s network operations center which monitors the health of digital cinema equipment on a round the clock basis. Kodak’s diagnosis most of the problems that occur with installed equipment remotely from their NOC. They are often able to fix the problem without sending technicians. As for any intellectual property the company may be working on for digital cinema, Gibbons said, “Kodak has a long history in imaging and different aspects of picture quality. We have somewhere around 500 patents in the digital area alone and so we’re going to continue to develop some of that and so far as people want to license that and put it in their products we’d be happy to talk with them.”
According to Gibbons, Kodak has no plans to sell any assets developed by Kodak Digital Cinema that may no longer be called for due to their new strategy. This includes their proprietary secure media server and theatre management system. Though never say never, because if you gave Kodak a call and were interested in licensing the intellectual property Kodak built for its servers, “we sure would be interested in talking to you,” he said. “I don’t want to say we’re not doing that, but at this point we are not doing it.”
Of course, whenever a company like Kodak shifts its business strategy there are bound to be a few casualties when it comes to personnel. Since Kodak is such a large company some of the engineers may well end up in other assignments. Same goes for those working in sales. But in the end there will be some layoffs, however small. “We’re not talking about a gigantic operation here,” said Gibbons. “When we get all done with the number of people who will be let go because of jobs being eliminated it will be in the dozens. A couple dozen. It won’t be more than that.”
Speaking about the news with exhibitors who had been working with Kodak as system integrators, the reactions ranged from disappointed to bitterly angry. Some theater owners had been with Kodak for years, while others had only recently signed on. All of them seemed to question digital cinema’s current business model given that both Kodak and Technicolor have gotten out of the systems integration business over the past year.
On a side note, all references to Kodak Digital Cinema have been removed from Kodak’s corporate website.
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The UK’s Cinema Exhibitors’ Association (CEA) had previously announced that they are setting up an organization to support small-to-medium sized exhibitors in the switch to digital, along the lines of the semi-hibernating Cinema Buying Group (CBG) of NATO. CEA’s CEO Phil Clapp commented at the time that:
many [cinemasl also recognise that they are extremely unlikely to be able to secure funding deals to allow them to convert on their own. We strongly believe that the proposed funding group may be the only option to achieve this for a significant majority of small and medium-sized cinema operators.
Now the time has come to appoint someone to head up this mission. From the announcement:
As detailed in an advert appearing in the next edition of Screen International, the CEA is looking to recruit - initially on a six month contract - an individual with the following qualities:
- Experience of work in film distribution and/or exhibition at a senior level, with an understanding of the key industry issues and processes between the two sectors;
- Experience of digital cinema contracts and/or deployment;
- Knowledge of the major US studios and international distributors, including the key decision-makers on issues around digital cinema;
- Proven negotiating skills; and
- Experience of running an organisation at director or a similar senior level.
Key initial tasks for the successful candidate will be to: establish the necessary business, governance and financial structures for the group; undertake an analysis of the current market for digital cinema in relation to group members; and, through discussion with potential funding partners and others, to identify those approaches which might provide a ‘best fit’ for group members with regard to financial support.
It may be somewhat optimistic to think that this can be achieved in six months, but the contract does have an extension option. Expect whoever is appointed to be spending a lot of time on a plane somewhere between Heathrow and LAX.
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