New technology in production

• To print an 80-minute feature film on 35mm can cost US$1,500 to $2,500 and has limited usage. • In contrast, at the maximum 250 megabit-per-second data rate (as defined by DCI for digital cinema), a feature-length movie can be stored on a 300gb hard drive for a minuscule fraction of the cost. • Hard drives can be returned to distributors for reuse. The industry could save billions of dollars. • The film industry has been dominated by a small number of distributors for many years due to a high barrier of entry for new competition. • This is caused by high costs and a lack of access to well-established production and distribution networks. • By replacing film prints with hard disks the barrier to entry is significantly reduced, opening the market to much stiffer competition. The Good • Greater protection for content • The possibility of greater protection against piracy. – With traditional film prints, distributors typically stagger the film's release in various markets, shipping the film prints around the globe. In the subsequent markets, pirated copies of a film may be available before the movie is released in that market. – A simultaneous worldwide release would mitigate this problem to some degree. Simultaneous worldwide releases on film have been used on The Da Vinci Code, Lord of the Rings: Return of the King, Star Wars Episode III: Revenge of the Sith, amongst others. – With digital distribution, a simultaneous worldwide release would not cost significantly more than a staggered release. 3D • 3D films cannot be shown on 35mm projectors. • Therefore bigger distribution companies are supporting the move to digital in the fact that they can showcase 3D films which cost more to make/edit – creating a USP. • How can smaller British companies take advantage? Costs • Costs for converting theaters to digital are high: up to $150,000 per screen or more. • Theaters have been reluctant to switch without a cost-sharing arrangement with film distributors. • This means a move to the Virtual Print License Fee New Information • As competition increases, market forces reduce an industry's profit margins and decrease the market share of individual companies. • The desire to retain market share is one reason established distributors are looking to other ways of digital cinema rollout. What is the VPF (Virtual Print Fee) Model? • The big question over digital cinema is who is going to pay for it? One proposed solution is what is known as the Virtual Print Fee model – which involves both exhibitors and distributors contributing towards the cost of the equipment. • The way it works is: – A third party pays up front for the digital equipment. – Distributors and exhibitors pay over time to recoup the cost. – Exhibitors sign up to agreed service & maintenance commitments, as well as paying a ‘usage fee’ to cover cost of lease. – Distributors save money every time a digital (rather than 35mm) print is shipped, therefore; – Every time a digital print is shipped, distributors pay a Virtual Print Fee towards recoupment of equipment. Approximately 80% of costs will be paid for by Hollywood studios. – When cost is recouped, the cinema will own the equipment. Also … • A theater can purchase a film projector for US$50,000 and expect an average life of 30–40 years • A digital cinema playback system including server/media block/and projector can cost 3–4 times as much, and is at higher risk for component failures and technological obsolescence. • Average economic lifetimes of digital systems can be only 5 years with some units lasting until about 10 years before they are replaced. Effects of Digital • As a result the net cost of film production increases and profit margins decrease for all distributors. • This works to the advantage of entrenched distributors by making it more difficult for new distributors to gain investors, raise enough capital to enter the market, and gain market share. Digital Distribution • Prior to the VPF model the digital cinema rollout was stalled (as can be seen by major equipment purchases and future commitments to new equipment during this time). • Exhibitors acknowledged that they would not purchase equipment to replace projectors since the savings would be seen not by themselves but by distribution companies. • Given that digital projectors make low volume distribution at last an economic possibility it is the studios' support of the VPF model that has accelerated the introduction of competition, both in terms of alternative distributors and also alternative content including cinematic series. In the UK • In February 2005, Arts Alliance Media was selected to roll out the UK Film Council’s Digital Screen Network (DSN), a $20M contract to install and operate Europe’s largest 2K digital cinema network. By March 2007, 230 of the 241 screens had been installed on schedule, with the remaining 11 to be installed later in 2007 when cinemas have completed building works or construction.