In Focus: D-cinema divide hangs over the digital switch

Every period of radical change goes through an initial 'what if'' stage where enthusiasts and sceptics try to predict the future.

Digital cinema has been rather longer than most in the 'what if'' foothills, partly because of lack of engagement with the issues but mainly because the technology has been out of sync with the business models.

Early exponents talked of a democratisation of the industry, with digital as the long-awaited bringer of choice that would break Hollywood's stranglehold on the theatre.

The studios saw a chance to create premium rate content which would both refresh the medium and open up a new source of revenue from a market which was losing the rapid growth in DVD.

In both cases early optimism has already run into the realities of the market - though the potential for 3D and alternative programming, including a wider choice of film, continues to show promise.

There is one 'what if' scenario, however, that is looming larger by the day and seems to confirm the fears of the pessimists - what if, far from democratising the business, the only part of the business that could make D-cinema economics pay is the big chains with first-run studio fare'

The 20% or so of cinemas which account for 90% of box office in Europe will make the change for one simple reason. The studios, on which their business depend, have decided that D-cinema will happen and have already invested both money and credibility in the switch.

Disney and DreamWorks have both bet the bank on 3D - one of the brighter digital hopes - by committing to make all their prestige feature animations in the format.

Deals are on the table from manufacturers and aggregators, such as Arts Alliance Media and XDC, based on the virtual print-fee cost-sharing model.

While progress has been painfully slow in signatures from exhibitors, there is at least now an inevitability about the process for the bigger multiplex businesses. Most experts believe the major chains have been looking at alternatives, including signing unilateral deals for their member theatres, but choices are likely to be made over the next year.

Arts Alliance Media, for example, which tabled a deal in 2007, say it is on the brink of another major deal. When such announcements are made, the so far leisurely pace of adoption will speed up dramatically, simply because the economics of running 35mm and digital side by side are so unworkable.

Arthouse in danger

But what happens to the arthouse and independent stragglers for whom no convincing business model has yet been tabled' Some experts say that covers as many as 50% of all Europe's theatres.

The banks and financiers - and indeed the content providers - are not interested in putting together thousands of micro-deals. Even in a country like the UK with its pioneering digital screen network and strong multiplex culture, some experts believe between 100 and 400 may be at risk.

And Phil Clapp, CEO of the UK's Cinema Exhibitors' Association warns there is little prospect for some kind of Indian summer for celluloid. 'I can't really see much of a vinyl rump,' he warns - a reference to a late revival in demand for vinyl LPs in the music business.

In other words, those who fail to make the jump may quickly become uneconomical.

The prospect of mass closures of theatres across Europe is a nightmare scenario for governments as well as the industry. After all, the cinemas least able to afford the transition are likely to be either in less privileged areas, or the kind of venues where subsidised European and independent films are screened. Justifying production subsidies for films that even fewer people than now will actually see will become a big political issue for the future.

Yet most countries have ruled out direct subsidies and the current economic downturn is unlikely to fuel enthusiasm.

Most governments take the line articulated by Peter Buckingham, head of distribution and exhibition at the UK Film Council: 'I do not believe that it is the role of European or the UK government to make up the casualties from exhibition or distribution as a result of the social and cultural issues that arise from digital roll-out.

'It is up to the industry to ensure independent distributors and cinemas are in no worse a situation than they are in at the moment.'

Tackling the challenges

The industry is showing precious little sign yet of how it might go about that task, although initiatives are emerging.

Some exhibitors may benefit from cheaper equipment from manufacturers, others may find an effective leasing plan.

In some territories, including the UK, there is now an exploration of buying groups, bringing together small independent theatres into partnerships that can offer more attractive economies of scale.

But the merest mention of public subsidy supporting those cinemas left behind already skews the market. Who is going to jump into a deal if government might leap in with the cash'

Politicians around Europe who are showing an interest in the issue are aware that they are entering the lion's den of what counts as a legal subsidy under European law. The European Commission has explicitly ruled out supporting the transition to digital itself, and the rules under which national governments can intervene may be subject to as tough a scrutiny as tax breaks for production have been in recent years.

MEP Ignasi Guardans, a member of the European Parliament committee on education and culture (and one of the most vocal and active politicians on film issues) and vice-president of the committee on international trade, says there needs to be a concerted approach from industry and government.

'There are social issues at stake since, for example, these changes could put every projectionist on the street,' says Guardans.

'There must be help based on public policy and cultural diversity, without replacing private initiative. Otherwise, I don't see how cinema will survive in small cities and towns, or what the channels for distribution of foreign independent cinema will be if those sometimes small theatres were to close.'

Private vs public

But the fact remains that there is no mechanism yet in place in Europe to find that private-public balance.

'Most governments will not want to be burdened with the costs of digital transition,' says David Hancock, head of film and cinema at analyst Screen Digest. 'But it may come down to a classic commerce versus culture debate where government has to decide how important the smaller cinemas are to their communities.'

Hancock, one of the most seasoned observers of the digital cinema market is concerned by a confusing, fragmented market: 'Different European countries will deal with it in different ways but there's a lot of confusion now.'

The outlook may of course change as the benefits of digital cinema start to be realised and the reality of a market actually working concentrates minds.

'Maybe this will come more into focus as bigger groups start to sign up,' says John Graham, general secretary of the European Digital Cinema Forum.

He suggests that, despite the warnings, the industry and government are only now waking up to the implications of a digital transition: 'Whatever is happening in the market, the fundamental problem still remains that 50% of cinemas are at risk.'

And while studios and aggregators do not have responsibility for the social consequences of the loss of small theatres, there is a common understanding that the interests of the stragglers will certainly have an impact on the forerunners.

In the most practical way, a company such as Arts Alliance Media is not only an aggregator but is also involved in providing live opera links to theatres - and that business is strongest in the independent sector.

At a broader level, there is an understanding that cinema's diversity is important for the perception of the whole business. The customer needs to feel they are seeing a cinematic renaissance, not a collapse.

(One of the images that may exercise government minds here is the image of closed theatres in the 1970s and 1980s that seemed synonymous with recession.)

In those countries that have put in place some kind of network of cinemas, there have been signs of real progress. That progress has not been universal despite a large amount of hype - indeed there has been a collective managing of expectation.

'Exhibitors have a sense of realism,' says the CEA's Clapp, 'Clarity of picture or the reduction in degradation does not get bums on seats.'

The answer from the manufacturers, supported to a greater of lesser extent by the studios, has been to up the ante with regular enhancements of the offerings. If 2K projectors do not get them in, perhaps 4K will. Research suggests that customers do indeed notice the difference, although how much that difference is worth in ticket costs has yet to be tested in the mass market.

3D comes to the rescue

The one area that has really changed over the last year is the one where a digital image can clearly be differentiated - 3D - as witnessed by the deserved excitement surrounding the 3D Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour in the US.

But in all the above cases, the business model is difficult to prove. There is a classic chicken-and-egg scenario - the more digital cinemas, the greater the economies of scale to reduce costs, and the easier it is to prove demand. However, there is a reluctance to make the investment until the willingness to pay is proved.

The case studies so far have not always been absolutely convincing.

Producer-director Ben Stassen's 3D Fly Me To The Moon was a hit on his home screens in Belgium, which is ahead of the European curve in deployment. But success in the US was limited because it only showed on around 430 screens - far fewer than the 900-plus screens Stassen had originally hoped for, and been promised.

Considerable, perhaps too much, hope is being pinned on a breakthrough film with James Cameron's science-fiction epic Avatar for 20th Century Fox frequently filling the role of the Jazz Singer for the 3D age.

Even given the success in the rarified environment of Imax, the 'if they build it they will come' constituency remains too much to the forefront. The same to an extent is true of the other much-vaunted benefit of the D-cinema age - the ability to offer a wider range of choices to different demographic groups.

Happily there have been some unequivocal successes in alternative content. Cinemas which have been able to programme live music - notably opera - have found that they have been able to charge a premium rate for tickets, often at off-peak times.

Unhappily the case for film is not so clear, despite a relatively successful experiment through the UK's Digital Screen Network in programming classic British films.

There are a few very interesting experiments elsewhere in the world. One to watch is the recently launched Brazilian project MovieMobz, which has launched something close to cinema on demand.

The dream of demand-driven cinema has not gone away and the promises of renewal still hold true, in theory. Some of the scepticism may disappear as a critical mass of businesses make the leap and so bring down costs. Equally, cinemas will begin to take responsibility, recognising that the gains will come when they match their screenings to their audiences.

But there are now serious questions that have to be faced sooner rather than later about how many theatres will be there to see dreams become reality.

Screen International's 2008 Digital Cinema Conference brings together some of the leading names in the development of D-cinema.

Delegates to the event in London's Vue West End will hear contributions from a range of speakers including John Fithian, president of the US National Association of Theatre Owners; Stewart Till, chairman of the UK Film Council; and Tim Richards, CEO of Vue Cinemas.

The subjects include financing the transition to D-cinema, 3D and accessing public finance.

To find out more or register, visit www.d-cinemaconference.com.