Digital screens more than doubled in 2007

During 2007 the number of digital screens equipped with DLP Cinema or Sony 4K technology more than doubled worldwide. At the end of the year 6,288 digital screens were counted, compared to 2,862 the year before. This represents an annual increase of 120%. A comparison of the different geographical areas shows that growth has been anything but uniform: North America saw a rise of 134%, consolidating the leading position worldwide which it had assumed in 2006. Within these two years North America increased its share of worldwide digital screens from 29% to 73%, overtaking Asia which had been considered the cradle of digital projection. With 786 screens Asia accounts for almost 13% of the worldwide total of digital installations by the end of 2007 with year-on-year growth amounting to 122%. Europe saw the numbers of its digital screens rise from 527 in 2006 to 897 making it the second largest market in terms of digital installations. Growth rates fell from 158% in 2006 to 70% in 2007. While the total number of European cinema screens equals about three-quarters of North American screens, the ratio for digital screens drops to only one fifth, which shows that Europe is lagging behind North America in the digital transition process.

The digital transition: an irreversible phenomenon

Experts agree on the inevitability of digital transition of cinema and actual figures confirm this development: in 2008 the world’s most important cinema market in value terms, the US, has already equipped around 15% of its screens. Against this background the open question remaining is how and not if the transition is going to happen. Key issues in Europe particularly focus on financing issues and models of how to ensure the participation of all existing cinemas in the digital transition process thus avoiding that a large number cinemas is being left behind.

How should the transition be financed?

Economic models: Virtual Print Fee (VPF)
The wide-scale adoption of the VPF model along with the DCI specifications, which were published in 2005, are often quoted as the driving forces behind North America’s leap forward. The VPF model is a business model aiming to finance the transition to digital and is based on the financial participation of distributors - the link in the cinema chain which is expected to reap the greatest economic advantages from the change - in the investments needed for the technological upgrade of theatres. The model also foresees a third party, the so-called ‘integrators’ standing between distribution and exhibition providing the digital technology and enabling the content delivery and settlement. The VPF model is particularly well adapted to a highly concentrated market like North America which is characterized by a limited number of players. Both the distribution and the exhibition sector are dominated by a few big companies with the market leading exhibitor, Regal, alone controlling 6,793 screens, about 21% of total screens in the US.
This situation cannot be compared to most European countries which are characterized by significantly more fragmented markets. The majors studios, which control on average 70% of the market, are flanked by hundreds of distribution companies and a vast range of exhibition companies. Faced with the involvement of such a large number of parties the VPF model has encountered more difficulties with regard to the practical implementation of such schemes. In 2007 integrators who offered their services on the European market – such as Arts Alliance Media (AAM), XDC and Ymagis – continued their efforts to conclude agreements with the majors. In the first half of 2008 both AAM and XDC announced that they had reached this objective and were ready to include several thousands of screens in their schemes. In France the last few months of 2007 saw an important new development with CGR, the third largest circuit controlling some 400 screens, announcing a VPF agreement with AAM as an integrator. This decision has in fact initiated a new phase in France, until then more or less limited to the preparatory stage and to combined efforts involving public authorities. CGR aims at almost complete digitalization of its screens and operated 90 out of 155 digital screens in France as of July 2008. In the last few months agreements have also been concluded by XDC in Austria with Cineplexx, and in Portugal, with ZON Lusomundo, for the digitalization of respectively 193 and 180 screens. With 91 digital screens the Belgium based Kinepolis Group was Europe’s market leader in terms of number of digital screens by the end of 2007.

Collective initiatives in the public and private sectors
Many acknowledge, however, that the VPF model cannot be considered the “universal panacea” for the digitalization of European cinemas. Exhibitors focusing on independent and domestic films will hardly benefit from this scheme. Thus, from several sides – exhibitors with less negotiating power, professional organizations, public institutions – voices of concern are being raised about the risk of many cinemas being left behind by a digitalization financed via a VPF model. “Federation” or “integration” of those screens considered less attractive by the studios has become an objective that meets with widespread consensus. This is also the direction taken by a workgroup set up by the CNC in France which is developing economic models examining forms of loans enabling a digital transition taking into consideration all screens and preserving the diversity that is a characteristic of French cinemas.
An even more advanced example of a collective initiative can be found in Norway. In 2008 Film&Kino, an organization that groups together the Country’s municipal cinemas – that is the vast majority of them – and collects taxes on cinema tickets (around 2.5%) and on DVDs, received the Government’s authorisation to use part of its annual income to co-fund the digital transition of all 440 Norwegian screens. The Norwegian Government believes it should guarantee widespread access to cinema-going for all citizens, even those who live in areas where theatres left to the mercy of the market would be unable to find an economic balance. The total cost of the transition is estimated to amount to EURO 50 million. About EURO 33 million will be financed by Film&Kino and exhibitors. The remaining amount will be generated by distributors’ contributions based on VPF agreements which are currently being negotiated with the studios.
In the US NATO, the exhibitors’ association, has created the Cinema Buying Group (CBG), a purchasing group of 600 US and Canadian small and medium sized exhibition companies. CBG controls a total of about 8,000 screens and aims to enable the digital transition for exhibitors that would not be able to benefit from the VPF model on their own. Access IT was chosen as integrator in the first half of 2008. The declared objective of the operation, which many European professional organizations are watching with interest, is to ensure the survival and development of independent exhibitors in the digital age.

Standards as a key issue on the technology side

While in the past the quality of digital dominated technological discussions, the emphasis has moved to standards and reliability issues of the entire digital system in order to guarantee quality and performance to make investments more secure. Key issues include for example the generation and management of access keys or the compliance of equipment and materials with standards. This is the perspective of the initiatives taken by bodies such as CST and CNC in France or the FFA in Germany. There is co-operation among these bodies as well as with US organizations like the SMPTE.

Increasing availability of digital content; 3D as growth driver

2008 saw the confirmation of the trend US studios providing digital copies of their films, particularly on the English-language markets.
At the same time, there is a stronger perception that 3D screenings may be a driving force for the spread of digital technology. On the one hand 3D allows audiences a unique experience that cannot be obtained at home and on the other hand it provides exhibitors with a product that can be sold at a higher price. In fact, installations for 3D screens continue to increase amounting to currently almost 2,000 screens. RealD, a world market leader, has announced that in the next two years they foresee delivering 5,500 of their systems, based on passive disposable viewing glasses. Optimistic forecasts also come from two other suppliers of technology, Dolby and Xpand. The number of 3D titles on offer is constantly increasing with US production companies having announced the release of about 20 titles over the next two years. 2008 saw the releases of Journey to the Center of the Earth as the first full-length narrative feature in 3D shot with real actors and of the Belgian production Fly me to the Moon.
In the field of alternative content, visual music seems to be the most interesting product, from opera to the rhythms of Cuba the choice is being widened with the intention of offering special events – often live – through which the theatres can draw new audiences at times less favourable for the screening of films.

Digitalization of interest to advertising markets

Digitalization in movie theatres is being watched with great interest by the world of advertising, which expects the new technology to offer advantages such as release dates in line with those of TV, drastic reductions in the cost of producing material, the possibility of modulating campaigns according to the target audience, the genre and the film. In the hope that the new technology succeeds in giving a new twist to a traditional medium, as has already happened for display advertisements, where paper is yielding to digital screens.

Increasing growth in digital screens to be expected

Announcements by leading companies – technology and service providers as well as production and exhibition companies – indicate that the coming two-year period should see a broader and faster spread of digital screenings worldwide. According to the DCIP (Digital Cinema Implementation Partners) the next wave of digital development foresees the digitalization of 20,000 additional screens in North America. In Europe, 2008 has shown that fairly larger chains are now beginning to digitalise their screens, after years during which digitalization in its initial phase was mainly driven by independent exhibitors and medium to small circuits. In India, a market up until now dominated by 35mm and e-cinema, Scrabble Entertainment, a leading digital integrator, has announced plans to roll out a total of 1,750 digital screens using DLP Cinema over the coming five years.