D-Cinema 4th International Forum:
ALTERNATIVE CONTENT AND NEW BUSINESS MODELS
 
Milan, 29 November 2003

Talk by Elisabetta Brunella
Secretary General of MEDIA Salles

As you know, MEDIA Salles was created in 1991, in the framework of the then brand-new MEDIA Programme and with the support of the Italian Government, in order to address exhibitors and to promote European films in cinemas.
One of the best-known of MEDIA Salles' initiatives is the "European Cinema Yearbook" which has been collecting data on cinema-going in 32 European countries since 1989.

As well as an analysis of basic indicators, such as tickets sold, box office, average pro-capita admissions, number of screens and seats, market shares of films according to their nationality, MEDIA Salles decided to devote special sections of the Yearbook to those phenonema which have influenced and continue to influence the structural transformation of cinema exhibition, the cinema-going habits of audiences and, more in general, the economy of the cinema exhibition industry.
For this reason, for some years now the Yearbook has been reporting on the situation of multiplexes throughout Europe (according to the practice adopted by MEDIA Salles, this means complexes with at least 8 screens), whilst the eleventh edition (2002) - has a section devoted to digital cinema.
This decision is underpinned by the desire to offer precise data to support evaluation and debate involving operators and companies both inside and outside the cinema industry on the development and adoption of digital technology for the production and distribution of films.
In line with this approach, the aim of my talk today is to provide you with a statistical framework for discussion concerning the digitalisation of cinemas.
We can see immediately how many screens are equipped for digital screening and where they are located (update: August 2003).
In recording this data we have taken as our basis the screens that have adopted the DLP CinemaTM technology produced by Texas Instruments.
There proves to be a total of 162 of these screens, 80 of which are distributed through North America, 9 in Latin America, 16 in Europe, 55 in Asia and 2 in Australia. Let us compare the 2003 data with the figures recorded at the end of 2001.

TABLE 1: DIGITAL SCREENS WORLDWIDE (with DLP CinemaTM Technology produced by Texas Instruments)

From this comparison some interesting observations emerge:

• in the space of a little under two years there has only been a slight increase in the number of digital screens in Western Europe
• digital screening has also made an entry - for the moment a decidedly timid one - into Eastern Europe, Australia and Latin America
• North America has seen the numbers of its digital cinemas increase fourfold
• Asia, and in particular China, where 34 of the Continent's screens are located, has shown signs of confidence in this new technology

GRAPH. 1: DIGITAL SCREENS WORLDWIDE (with DLP CinemaTM Technology produced by Texas Instruments)

In general an attitude of extreme prudence can be observed on the part of the exhibitors. Indeed, if we examine the trend in the number of "conventional" screens, it can be seen, for example, that in Western Europe the past few years have seen significant investments resulting in a considerable increase in numbers.
Over a seven-year period there has, in fact, been a 36% rise in the number of screens.

TABLE 2: TOTAL SCREENS WORLDWIDE

GRAPH. 2: TOTAL SCREENS WORLDWIDE

The same confidence does not seem to be evident, at least for the moment, in the field of digital cinema.

Turning our attention to North America, the situation seems to be the exact opposite, i.e. marked by an overall reduction in the number of screens in the United States, starting from 2001, and by a flattering growth in digital screens, in terms of percentage variation, as they increase almost fourfold in roughly two years. Yet here, too, this growth has proved to be far smaller that the prospects that seemed to have been opened up by the release of Star Wars: Episode II in digital format, in May 2002. It was, in fact, generally believed that following this event, there would be one thousand digital screens available in the United States.
Here, too, caution seems to have prevailed.
One of the reasons for this attitude may be found in the difficulties of obtaining digital films, difficulties which only partly emerge from the statistics regarding the number of films distributed with DLP CinemaTM technology.
There were 4 of these in 1999, 12 in 2000, 18 in 2001, 13 in the first eight months of 2003.

TABLE 3: DIGITAL FILMS WORLDWIDE (with DLP CinemaTM Technology produced by Texas Instruments)

At a first reading these figures indicate growth. However, this increase has not affected all markets: in fact some films were only available for digital screening in one, or very few, territories and did not experience truly international circulation.
The case of films that were distributed analogically worldwide but only available in an English-language version for digital screening is significant.
This particular element can, at least partly, offer an explanation for the stalemate in the situation of digital screens in Western Europe.
Observing the origin of films made available for digital screening, it can also be seen that the vast majority come from the United States and that Europe, a territory that is comparable to the United States in terms of production capacity, has only played a marginal role in this field up to now.

TABLE 4: DIGITAL FILMS WORLDWIDE (with DLP CinemaTM Technology produced by Texas Instruments)

To sum up:

• digital screens are spreading very slowly, certainly more slowly than was predicted;
• the forecasts predicting that 5% of all screens in the United States would be digital by 2004 have proved unrealistic;
• the cost of equipping a cinema with a digital screen is still in the region of at least 100,000 euros, a sum that is a long way from that estimated by economic analyses of the sector for digital screening to become competitive with respect to analogical screening (50,000 euros);
• The supply of films in digital format is still scarce and irregular. These factors mean that digital screening remains in an experimental phase.

Combining the data deriving from statistical surveys and the information emerging from professional meetings with exhibitors on the topic of digital cinema organised both by MEDIA Salles and by other bodies, as well as the results of audience surveys (e.g. the one recently published by Screen Digest on digital cinemas in California or that carried out in Italy at the Arcadia cinema in Melzo), it can be seen that the experimental phase has highlighted some points of vital importance for the future of digital screening:

• a positive view of digital technology by audiences
• increased confidence in the ability of the technology to provide visual quality comparable to that obtained on conventional film, particularly in view of the fact that the quality of digital screening remains constant through time
• concern that the introduction of digital technology may modify existing business patterns, as well as the roles and the equilibrium of the various different operators involved in the process of the film's life
• the question of the effects on the general public of the benefits foreseen from digital screening at the level of distribution (lower costs and greater flexibility). Will the benefits expected result in a better offer to the public, both quantitatively and qualitatively? In other words, will cinemas be able to provide a more diversified offer, including those films which at present do not prove so economical to distribute, or will the advantages for distribution be in favour of an even more crushing presence of those films that already cover 30% and more of a country's screens?

Up until here, we have spoken of digital screening "applied to existing content", or to full-length features.
In this phase, which we have called experimental, digital screening has already demonstrated that what we might call its main characteristic, i.e. flexibility, can also find its expression in different "applications".
This is the terrain that John Fithan, President of the US exhibitors' association (NATO), for example, defines as ODS - other digital stuff.

To give an example of this concept, without venturing too far into theory or the realm of the futuristic, I should like to quote a practical case of how a movie theatre equipped for digital screening with DLP CinemaTM equipment by Texas Instruments is used, both from a traditional perspective (the full-length feature typical of 35mm screening), and from that of ODS.
I refer to the experience of Palace Cinemas, outlined by its Director General, VJ Maury, during the training course for European exhibitors "European Cinema Exhibition - A New Approach", promoted by MEDIA Salles in Rome last September.

Palace Cinemas manages a new generation of cinemas in three countries in Central-Eastern Europe: the Czech Republic, the Slovak Republic and Hungary.
Two of these cinemas are fitted WITH one digital screen each (DLP CinemaTM di Texas Instruments).
They are the only digital screens operating in this part of Europe.

Tab 5 PALACE CINEMAS:
AN OVERVIEW

THE PALACE CINEMAS MOVIE THEATRES FITTED WITH DLP CINEMA TM TECHNOLOGY
(Sponsor: Pepsi Cola)

I should point out that the provision of Palace Cinemas' two digital screens was sponsored by Pepsi Cola
This can be considered proof of the interest that the transition to digital screening arouses in companies operating in other sectors, which intend both to develop their own business and to associate their image with a process that is considered innovative and of great attraction to the general public.
Returning to our main topic, I should like to give you some data on Palace Cinemas' digital programming.
The figures regarding films in the traditional sense of the term is fairly disappointing but certainly in line with what has been said about the scarce availability of digital films.

PROGRAMMING OF FULL-LENGTH FEATURES IN DIGITAL FORMAT AT PALACE CINEMAS

The two theatres thus turned to alternative content, which can be divided into two categories: events and regular programming.
A "regular" offer is made by the Prague screen which, thanks to its location in the city centre, can be used to run a "film with tourist content" in the late morning and early afternoon, specially intended for visitors to Prague.

PALACE CINEMAS PROGRAMMING OF ALTERNATIVE CONTENT IN DIGITAL

FORMAT AT THE PALACE CINEMAS

In this case Palace Cinemas holds the rights to the film and thus controls its programming.
Things are different in the case of "events", for which the Palace Cinemas offer is linked - and depends on - their production, although to a varying degree according to whether the event is a live concert, such as David Bowie's, or the launch of a new music DVD.

PROGRAMMING OF ALTERNATIVE CONTENT IN DIGITAL FORMAT AT PALACE CINEMAS

From this experience "in the field" VJ Maury identifies the field of "visual music" as one of the most promising for "ODS" in cinemas.
It is interesting to note that "content other than films" tends to develop "alternative uses" of the cinema. As an example of this concept, I would quote the distinction made by Maria Grazia Mattei in her article of the 19 October for the "Sole 24 Ore", with observations by VJ Maury based on the experience gained from the organisation of the "events" listed above.
During a live concert at the cinema, the audience behaves as if it were at a party, for example going in and out of the theatre or standing up rather than remaining seated.

In addition, business at the bar becomes more or less continuous, generating a higher proportion of takings with respect to takings from tickets, than that made during the screening of a film.
Alternative content and an alternative use of the movie theatre also draws a different type of audience.
Could this be a way of attracting those who are not habitual cinemagoers to "traditional cinema"?
Or will it lead to the cinema's loss of identity, exposed as it is to threats by new modes of accessing films and images, which are multiplying thanks also to the technology?
With this question, addressed both to managers of distribution and theatres, and to those who produce content, I hand over to the next speakers.