D-day in the developing world

There’s no doubt that DCI-compliant digital cinema (known as D-cinema) is becoming the dominant screening technology across the world and that we are fast approaching an era when the US studios will stop shipping prints.

And although it’s the industry standard determined by Hollywood, D-cinema is also taking root in territories that are dominated by local content – which in Asia means most of the biggest markets including China, India, South Korea and Japan.

But in some territories e-cinema – its lower-cost cousin which is not DCI-compliant and therefore can’t be used to screen Hollywood films – does not seem to be going away any time soon. India currently has around 4,000 e-cinema screens, out of a total of 9,000, while the number of D-cinema screens stands at around 300.

Although the e-cinema screens can’t be used for US studio films, they can show Bollywood and foreign movies, along with English-language indie product which they can even screen in 3D. It doesn’t matter to UFO Moviez, India’s leading e-cinema integrator, that it can’t screen the latest Disney 3D extravaganza as the company feels it already supplies plenty of product.

Indeed, UFO’s business model is strong enough to attract the attention of global private equity firm Providence Equity Partners, which recently pumped $58m into the company. It intends to use the funds to expand internationally – exporting its low-cost digital cinema solutions to territories such as Malaysia, Indonesia, Russia, China and Latin America.

The company believes its proprietary system of satellite delivery could propel growth in markets such as Indonesia and the Philippines – home to a combined 348 million people scattered across thousands of islands – as physical delivery has been hampered by difficult terrain.

However, it’s consumer economics rather than delivery techniques that will enable e-cinema to continue to flourish. Beyond the issue of whether cinemas can afford the higher costs of D-cinema servers and projectors, in most cases Asian multiplex operators are focusing on middle-class consumers and the real cost is passed on to cinema-goers.

With all the hoopla around economic growth in China, it’s tempting to think that Asia is now home to four billion Gucci-wielding middle class consumers. But the truth is that the vast majority of Asians have a huge appetite for entertainment but still can’t afford a multiplex ticket.

In India for example, multiplexes charge 150 rupees a ticket, while the single screens charge 30-40 rupees. The single screen customers are more than happy to bypass a US tentpole for a local movie or StreetDance 3D, especially if they can watch it at the same time as the multiplex release. The quality isn’t the same as the D-cinema platform, but cost-conscious consumers vastly outnumber those who put quality before price. And they can always catch the Hollywood movies, minus the 3D element, on pirate DVD.

Rajesh Mishra, UFO’s head of Indian operations, says he believes that the US studios have “painted themselves into a corner” over the DCI standard in emerging markets, and that the local offices of the US studios secretly wish they could release films on the e-cinema platform which allows for a 1,000-plus screen release. But as that is unlikely to happen, we may see some interesting content divisions in territories such as India and Indonesia, especially as these local industries are now starting to experiment with 3D.

Over in the D-cinema corner, advocates support the virtual print fee (VPF) model as a way for exhibitors to affordably install DCI-compliant equipment. But even if this kept ticket prices down for consumers, which it rarely does, this model can create headaches for smaller, local distributors who along with the US studios are also expected to pay the virtual print fee.

For those handling specialist films, either local or foreign, the cost saving from not striking prints is quickly eradicated by paying a VPF of up to $500 per screening. In contrast, the VPF for e-cinema can be as low as $7 per screening.

However, it’s also true that the number of middle class consumers, and therefore D-cinema penetration, is also expanding rapidly in many parts of Asia. It’s likely that in some territories, D-cinema and e-cinema will co-exist side-by-side for many years to come. In fact, rather than democratising cinema, digital delivery could end up splitting the audience along content lines between audiences that have legal access to Hollywood movies and those who don’t.

But in this case, the have-nots will still have Shah Rukh Khan, Chinese kung-fu, Japanese anime, European cinema, the Twilight franchise, The Expendables and StreetDance 3D. And for consumers in emerging markets, that’s still quite a lot of choice.