$8 billion Digital Cinema Market Beckons: Half of
All Screens Will Be Digital by 2013
November 13, 2007
Source: Dodona Research
Buy The Report
The conversion of
the world’s cinema screens to digital technology is at
last under way, opening up a potential $8 billion equipment
market at today’s prices. As soon as 2013 half of all
cinema screens worldwide could employ digital technology in
place of traditional 35 mm projectors, according to the latest
Digital Cinema Report by analysts Dodona Research.
After more than a decade in development,
digital cinema took off in 2007 with 4,627 screens converted
by September, approaching 5% of the global total. The beginnings
of widespread adoption of the new technology has been facilitated
by the emergence of third parties willing to finance the huge
conversion costs. These so-called integrators typically finance
purchase of the equipment, seeking to repay loans by levying
an array of usage charges. While the cost of installation,
maintenance contracts and sometimes content delivery charges
are paid by exhibitors, the main source of revenues to support
conversion comes from so-called virtual print fees. These
are paid by film distributors out of their notional savings
from not having to strike 35 mm film prints.
The report observes that, while most of
the debate about digital cinema has revolved around film distributors
and exhibitors, in practice these businesses will be relatively
little affected compared to film processing laboratories and
the film transport business. In particular, the $1.5 billion
market for release printing will, the report predicts, all
but disappear, while in the long run the film transport business
will be superseded by delivery by satellite or over other
digital networks.
With one provider, Access Integrated Technologies,
responsible for 80% of digital cinema installations to date,
it would be premature to judge how robust current business
models will prove. In essence most participants in this market
are seeking to develop networks of digital cinemas and then
build revenues from providing a range of services such as
mastering and delivering digital films, supplying alternative
content, screen advertising services, and upgrades and maintenance
of software and equipment.
After Access, the three leading companies
in this area are XDC, Arts Alliance Media and Technicolor,
each with a market share in the region of 6-7%. Equipment
markets are also dominated by a small number of companies.
Christie has a 77% share of the 2K and 4K digital projector
market, followed by Barco with 14% and NEC with a little under
8%; in servers Doremi has a near 80% share of 2k and 4k installations,
followed by Dolby with 9% and XDC, with 5%.
Digital cinema primarily makes sense in
terms of networks, so installations tend to be concentrated
in clusters. 78% of all digital cinema screens are in the
United States, and 40% in the cinemas of a single circuit,
Carmike Cinemas. The second largest number of screens is in
the United Kingdom, thanks to the UK Film Council’s initiative
in establishing the Digital Screen Network, while South Korea,
where three exhibitors, Megabox, Lotte and CJ CGV, are committing
to digital cinema to serve one of the world’s most tech-savvy
audiences, is third.
The countries where the progress of the
technology is most advanced, however, are Luxembourg, Singapore
and Belgium. Half of Luxembourg’s screens are already
digital due to the rapid embrace of the new technology by
its leading exhibitor, Utopia. In Singapore the Eng Wah circuit
was supported in converting to digital as long ago as 2004
by the city state’s development agencies, as part of
a strategy to establish Singapore as a digital hub in the
region. In Belgium, another initiative by a leading exhibitor,
the Kinepolis Group, saw 10% of the country’s screens
converted by September 2007 with plans to convert most of
its circuit by the end of the year.
With more than 50% of the market soon to
be digital in Belgium and Luxembourg, it is likely that there
will soon be pressures to complete the conversion process,
due to the high costs of so called dual-running of digital
and 35 mm distribution systems. This could become a highly
politicized process if, as is widely feared in Europe, smaller
exhibitors are not able to access equipment at an affordable
cost.
The main factor slowing further adoption,
according to the report, has been the absence of any obvious
source of extra revenues from installing the new technology.
While cinema exhibitors have been quick to note the benefits
to distributors of much lower print costs, they have been
sceptical about the potential impact of alternative or non-traditional
content, for example sports events or concerts, on their bottom
lines. Although Dodona believes this scepticism is misplaced,
seeing classic movies as a particularly promising source of
higher revenues, instead there is a consensus building up
that 3D will be the driver that takes the market to the next
level.
Two rival systems from Real-D and Dolby
have different advantages and disadvantages but Real-D, which
was earlier to market, dominates in installations, with 423
in place by September 2007 and more than 1,000 expected for
the North American release of Beowulf, compared to perhaps
75 to 80 Dolby systems by the same date. Barring mishaps,
these numbers are expected to grow exponentially to 2009,
when a number of high profile films, made explicitly to exploit
the 3D medium, are due to be released, including Avatar from
James Cameron, Monsters vs Aliens and the first film in a
series featuring TinTin.
With at least 5,000 3D systems expected
to be in place by 2009, this will clearly provide a considerable
impetus to the digital conversion process, as these 3D systems
need a digital projector to bolt onto. The Odeon UCI circuit,
for example, has announced its intention to install 500 3D
systems despite today having fewer than 100 screens converted
to digital.
The consultants counsel against over-confidence
in this market. Financing the equipment is complex and difficult
conditions in financial markets could derail progress by making
money more expensive and leading financiers to question future
revenue assumptions more stringently. The report’s author,
Karsten-Peter Grummitt notes the importance of game theory
in understanding this market. The equipment manufacturers
want to defray their R&D costs; the distributors want
to make the minimum financial contribution possible to conversion;
exhibitors wonder whether potential new revenue sources will
justify the investment. “Nevertheless,” says Grummitt,
“the next step in the market’s evolution is probably
going to need a fall in the price of equipment, or higher
virtual print fees, or bigger exhibitor contributions, or
all of these. Strategies in this market need to move on from
the ‘who pays?’ face-off of the last few years to
focus on how to get this done.”
 Buy The Report
Submit a Company
Submit News
Submit a Job
Submit an Event
|
