The King is dead, long live the King! The digital revolution brings exciting opportunities
IHS Screen Digest’s David Hancock offers an exclusive preview of the “Global Digital Cinema Update” seminar he will moderate at CinemaCon on Monday morning, April 15.
The global march towards a fully digital-cinema exhibition sector continues apace. Since 35mm became the minority cinema format in January 2012, a net 25,500 new screens were converted during the past year to finish 2012 with very nearly 90,000 digitized screens, or 73 percent of all screens worldwide.
The majority (two-thirds) of these screens were converted outside of North America, which is relatively advanced in digitization terms. A total of just under 36,000 d-screens are now located in North America, equivalent to 40.2 percent of the global total, but U.S. growth slowed down during 2012 as the final screens are proving the most difficult to convert viably. This is a pattern that may be repeated in many countries around the world, although several countries are already fully digital or soon will be, underlining that it is possible to achieve a smooth transition, especially where it is actively managed by public or private bodies. Denmark, Hong Kong, Luxembourg, Norway, the Netherlands and South Korea have all achieved a full conversion to digital cinema, whereas Belgium, Canada, Finland, France, Indonesia, Switzerland, Taiwan and the U.K. are all at above 90 percent penetration of digital screens. As I wrote last year, the end of 35mm is accelerating and the end of the format is still predicted for 2015 as a mainstream cinema format.
There were high growth regions for d-cinema in 2012, notably the Middle East followed by Latin America and then Asia-Pacific. In Latin America, Mexico dominated growth, more than doubling its digital screen count during the year with 2,633 d-screens. Outside of Mexico, the Latin American exhibition sector (and public agencies) is waking up to the urgent need to engage with the digital conversion, and the narrow timelines of any virtual-print-fee (VPF) deal that may be on the table. Some countries are going to struggle (this also applies to isolated parts of Europe) with an absence of both VPF deals and/or public money. However, there has been a strong growth in a number of territories in Asia-Pacific, with the Philippines, India and Malaysia also more than doubling their d-screen totals in 2012 and Indonesia almost finished with the conversion process entirely. In India, as in China, d-cinema is coexisting with e-cinema, fed by the high numbers of local productions that create a content self-sufficiency absent elsewhere in the world.
Globally, an average of 73 percent (up from 55 percent in 2011) of the world's modern screens are now converted to d-cinema (and 5,500 e-cinema screens in India). There were more d-screens converted the previous year than in 2012, showing the rate of new d-screen additions has started to fall as mature markets come to the end of their deployment process and momentum switches to previously underdeveloped regions such as Latin America. Only Africa, the Middle East and Latin America now have more than half of their screens left to convert.
3D still accounts for the majority of the d-cinema installed base, but only just at 51 percent. The worldwide total for digital 3D screens hit 45,545 in 2012, a 26.5 percent increase from the 36,000 installed a year earlier, the majority of which were deployed internationally. Total international 3D screens surpassed 30,000 at the end of 2012, a 36 percent annual rise. China (which also became the second largest box-office market in the world during 2012, sealing a decade of high growth in all areas of its film industry) is the driver behind international 3D and boasts 73 percent penetration of digital 3D in its cinemas, with just over 9,000 3D-equipped d-screens.
One consequence of this, and one which is now becoming more apparent, is that the language of cinema is being increasingly driven by technology. Outside of the films themselves, the currency of the industry side of the film business is now issues such as High and Variable Frame Rates (HFR and VFR), 4K image capture, digital archiving, 3D/immersive sound, laser illumination and a wide range of other things. The net effect on cinemas is that what was once a technology-free zone is now a meeting point of consumer and industrial technologies and applications, and cinemas will continue to respond to this trend during the year ahead.
An issue of the moment has to be high frame rates. For The Hobbit, IHS Screen Digest estimates that around 1,200 screens around the world upgraded their technology to play the HFR 3D version, somewhat less than originally envisaged but still a promising start overall. The jury is still out on whether higher frame rates have any place in cinema, but the fact that Peter Jackson is pushing the technology boundaries forward underlines where the cinema industry is heading. The second and third parts of the story in 2013 and 2014, and the run-up to James Cameron’s Avatar 2, will ensure that frame rates stay on the agenda, if only for a limited number of high-profile films.
Laser-illumination technology is also a live issue, offering a low cost of ownership to exhibitors with a light source that can last around 30,000 hours compared to an average 1,000 to 2,000 hours for traditional lamps. It also offers increased brightness, especially important for 3D. The technology has several hurdles to overcome, not least cost, speckle, safety parameters and regulation, but laser-illuminated projectors already exist (the four manufacturers of d-cinema technology have all showcased this technology). The cost is currently prohibitive and further research and coordinated development is needed this year in order to offer an economically viable projector for the next generation of digital cinema. The replacement cycle for projection technology will begin around 2017 and most observers put commercial laser-illuminated products at between three to five years away, which seems to dovetail nicely. A transition is likely to begin with the largest and most profitable screens as well as giant-screen theatres.
The focus on digital image has also led to cinema sound upping its game, and there has been a shake-up in this sector in the last year. Immersive or 3D sound is now a reality, with competition between companies and technologies fuelling an exciting sea change in cinema sound systems after two decades of relative stability. The main players are Dolby, unsurprisingly a prime mover with its object-based sound system Atmos, and Auro 3D (backed by Barco) which has developed a channel-based system (effectively 11.1) and is gaining some traction with exhibitors. With only a smattering of units installed, and high system costs per screen, the initial development is focused on premium screens where such an outlay makes sense, but the fact that such systems exist allows cinemas to offer a movie-watching experience unmatched by any other. The content creation side is also important and both manufacturers are looking to sign up films to be mixed in their format.
Digitized cinema delivery and projection also allows the exhibitor to program their cinemas more flexibly, as no expensive 35mm print is needed. The exhibitor is able to service a wider local demographic with more than films with the emergence of alternative content (non-film programming such as opera, ballet, theatre, etc.). This growing sector is widening the cinema offer and bringing older people back to theatres. The U.K. is the strongest market for this non-film programming outside of the USA and the one for which we have the most recent data. There were 131 such events screened in U.K. cinemas in 2012, up from 109 in 2011, grossing an estimated £12.5m (1.3 percent of the box office). The majority are live (52 percent), and 65 percent of them are in the opera, ballet and classical music genres. The economic driver for alternative content (we must find a better name for this!) is to attract audiences into cinemas at off-peak times, of great interest to exhibitors, and it is set to grow in the years to come (estimated by IHS Screen Digest at three percent of U.K. box office by 2015). Cinema on Demand, using social-networking technology and other consumer applications, is also taking its first steps into the cinema, offering groups of motivated customers the chance to influence directly the cinema program and exhibitors will begin to experiment with it during 2013.
The digitization of cinemas is not just about the onscreen elements. Phase One was always to convert cinemas to digital projection, but a Phase Two of sending movies into cinemas electronically was also envisaged. The development of electronic delivery systems is not necessarily developing as the industry had assumed five years ago. Satellite, an early frontrunner, is now one possible (and actual) method of delivering content to cinemas, but it is not the only one. Without the necessary volume, which can exist in larger monolingual countries such as the USA (where DCDC is progressing, having signed six major distributors as well as the DCIP exhibitor grouping) and France (where SmartJog and DSat are competing), satellite can start out expensive, although the price would be expected to fall over time as a satellite network develops. However, hard-drive delivery is still very much a viable solution for delivering content into cinemas and can be managed and organized to deliver a cost-effective system, as can be seen by a number of agreements between labs like Technicolor, Deluxe and United by Content (formerly KIT Digital) and other parties offering a streamlined hard-drive distribution infrastructure. The development and average speed of fiber networks varies around the world, ruling it out in some places, but where a quality infrastructure exists, then a broadband (IP) approach can also work, such as has happened in Norway (where Unique has built MovieTransit), Netherlands and parts of Asia and Europe. This solution is very much on the agenda as average transfer speeds go up and cost comes down.
However, the upshot of making hard-drive replication and delivery cheaper for the end customer (studios and distributors) is actually to entrench this system into the market, with price points coming down compared to what can be achieved via satellite and fiber. The end decision will be economic. The balance may shift once VPF deals come to an end, as the promised cost savings for distribution will then become a reality. The logic suggests that this aspect of the business needs much closer coordination and organization in order to truly deliver a low-cost, secure and rapid technology infrastructure.
These three possible solutions and the growing number of entrants into this area mean that electronic distribution is now a reality, and the market is becoming slightly crowded in Europe and around the world. In Europe, 25 percent of cinema sites are now equipped for DCP delivery, although not all these sites are active and over half of them are in France. The resulting patchwork of systems (satellite, fiber and hard-drive) across the globe is likely to be complex, and will require further technical cooperation between players and further down the line some consolidation of solutions will occur. For the operations side of film distributors, the eventual spider's web of companies, links and solutions is likely to prove challenging to manage, but the prospect of digital delivery to digital cinemas is moving closer to the reality that was dreamed of a decade ago.
As consumer-oriented aspects of cinema marketing grow, with more effective use of social media (slowly entering the cinema world), online and mobile ticketing and marketing techniques that are commonplace in other sectors but still not the norm in this sector, the cinema is finding itself as a meeting place of industrial and consumer technologies—a new feeling for many in the business and one which is only just beginning. We may be approaching the end of digital conversion, but this is just the beginning of a new era in the cinema’s history, one where technology enables creativity at the production end of the business and a high-quality customer experience at the other end. The King is dead, long live the King!