Digital Cinema Business Models

40. 50. 60. 1990. 1992. 1994. 1996. 1998. 2000. Advertising. Print Negative cost ... Bruce. Almighty. 2 Fast. 2 Furious. Hulk. Pirates of. Caribbean. T3. American.
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Digital Cinema Business Models: The Global Outlook

Patrick von Sychowski

www.screendigest.com

global media intelligence

Digital Cinema Reports in 2003 • ‘Digital Cinema: Audience & User Preference Study’ March ’03 – Larry Cervantes (FWP) • ‘Digital Cinema Business Models: Global Outlook’ June ’03 – Patrick von Sychowski (SD) • ‘Broadening the Perspective on Cinema Entertainment: New revenue through alt. content and use of cinemas’ Sept ’03 – Daniel Schmitt (SD) • E-Cinema Alert: weekly, free, 116 issues, >1,500 subscribers

www.screendigest.com

global media intelligence

Fields of Coverage Community centres Town Halls Churches Schools Malls

Alt. Cont.

HDTV

www.screendigest.com

Alt. Venue

SDTV

Alt. Use

Business Education Gaming

./ a .S m .D e O C in E-

Adverts Music Sports Stage Live

D -C 1st in Run Features em a D-35mm

PC

global media intelligence

Audience and User Preference FINDINGS Screening of “Harry Potter 2” at UltraStar Cinema in San Diego, California AUDIENCES: • 85 % rate it ‘much better’ or ‘better’ than 35mm film • 70 % were aware that film shown was digital • 72 % would travel further to see digital movie PROJECTIONISTS: • 82 % found DLP Cinema ‘much easier’ to use than 35mm • 67 % found DLP Cinema ‘much more relaible’ than 35mm ABOVE ALL: • Revenues were 20 % higher than screens showing 35mm copy www.screendigest.com

global media intelligence

Digital Cinema Business Models: situation today • One projector technology (TI’s DLP Cinema), many servers • 162 digital screens / 149 sites world wide (8/’03) • 82 films released in DLP Cinema network • Search for standards (SMPTE DC28, ITU, EDCF) • 2003: – Digital Cinema Initiative (DCI) + NATO talk biz “Roll-out can begin in 2004.” John Fithian, NATO • But rest of the world is not waiting: FHP, T-Joy, TeleImage, CFB, UK Film Council, others

www.screendigest.com

global media intelligence

Digital Screen Growth 300

112

250 200 150 100 50

19 12

0 1999

19

31

50

2000

2001 Total

www.screendigest.com

162

162

2002

2003

New

global media intelligence

Digital Screens World-Wide 90 80 70 60 50 40 30 20 10 0

80

70 51

54

17

17

10

10

1 N. America

Asia

Europe Sites

www.screendigest.com

L. America

1

Australia

Screens

global media intelligence

Digital Cinema Driving Forces •

Prints savings ($1,360m/year WW) not in itself driver – Neg cost: $58.8m, Adv: $27.3, Print: $3.3m (3.7% of total cost of MPA film)

60 50 40 30 20 10 0

1990

1992

1994

Advertising www.screendigest.com

1996 Print

1998

2000

Negative cost global media intelligence

Digital Cinema Driving Forces • Prints savings ($1,360m/year WW) not in itself driver – Neg cost: $58.8m, Adv: $27.3, Print: $3.3m (3.7% of total cost of MPA film)

• Changing release patterns

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global media intelligence

US 2003 ‘Blockbuster’ summer 100

2

Bruce Almighty

2

80 60

53

40

50

2 FastHulk 2 Furious 70

63

56

63

56

34

X2

Finding Matrix 2 Nemo Week 1

www.screendigest.com

53

42

54 50.2

27

20 0

American Pie 3

Pirates of Caribbean

Charlie's T3 Angels 2 Week 2

Bad Boys Spy SWAT Kids 2 3-D

-% Change global media intelligence

US 2002 ‘Blockbuster’ summer Spider-Man

Austin Powers 3

120 100 2 2 2 1 1 1 1 2 1 1 2 2 80 Sum of xXx MIB 2 Minority 60 57 51 all Fears 55 Report 50 53 50 50 39 40 38 38 30 25 20 0 Scorpion Star ScoobyMr. Road to Signs King Wars: Doo Deeds Perdition Episode II Week 1 www.screendigest.com

Week 2

-% Change global media intelligence

US 2001 ‘Blockbuster’ summer 80 70 60 50 40 30 20 10 0

2

1

1

1

1

59 50.5

Mummy Returns

50

50

1 58

1 55

1 59

55

2 54

A.I. Jurassic Planet of Rush American Fast & Park III the Apes Hour Pie 2 Pearl Furious Harbour Week 1 Week 2 -% Change

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Tomb Raider

global media intelligence

Digital Cinema Driving Forces • Prints savings ($1,360m/year WW) not in itself driver – Neg cost: $58.8m, Adv: $27.3, Print: $3.3m (3.7% of total cost of MPA film)

• Changing release patterns from: – Growth of Ultra-wide releases* • 32 UWRs in 2002 vs. 22 UWRs in ’01 = +45%)

– Take-opening-WE-box-office-and-run release strategy • Drop off 1st to 2nd WE BO grew 41% ~> 43% (Hulk 70% drop 2nd w/e)

– Shorter International window – Pressure from home theatrical (parallel import)

• Problem of int’l digital piracy (P2P & disk-based) • Digital Source Mastering (DSM) and Digital Intermediate (DI) * +3,000 screens opening weekend www.screendigest.com

global media intelligence

Who Deploys Digital Cinema?

34

46

35

11 7 29 www.screendigest.com

China FB TDC U CI Boeing Teleimage T-JOY others

6

global media intelligence

Role for any Third-Party Operator in DC • Early 3rd Party D-Cinema Proponents lack success – AndAction (gone), Technicolor DC (sacked), Boeing DC (for sale?), Kodak DC (focus on advertising)

• Emergence of new third party service players: – Dolby (US)

• Integrated operators in non-US territories: – T-Joy (Japan), TeleImage (Brazil), FHP (Sweden), CFB (China)

• Still need for 3rd party player for: • Installation • Training/re-training • Certification & QC • Monitoring

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• Transport & network play-out • Data handling (film, adv, trail, alt.cont • Contract ‘policing’/neutral auditor • 24/7 service support

global media intelligence

Digital Cinema Hurdles to Roll-out ‰ TECHNOLOGY TI’s DLP Cinema 2K (m25) projector: this fall ‰ STANDARDS SMPTE DC28 and DCI coming to fruition: end ‘03 ‰ BUSINESS MODEL DCI and NATO+others in discussion: late ’03/early ‘04 ‰ CONTENT (FILMS) No signs of studios increasing output: latent potential?

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global media intelligence

Digital Cinema Releases

35 30 25

14

20 15 10 5

5

10 3

8 1

0 1999

8

4 2000

2001 1st half

www.screendigest.com

16 2002

12 2003

2nd half global media intelligence

Digital Cinema Time-line 1989-1999

Proof of concept (projector + compression)

1999-2001

Technical field trials

2001-now

Business propositions (third-party players)

2000-2004

Standards (SMPTE, EDCF, NewCo)

2002-2005

Real hardware competition

2003/2004

Meaningful business agreement

2004/2005

Start of large scale deployment

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global media intelligence

Notable “digital cinema” trials and deployments ‘03 • DCS (Microsoft) & Landmark – 177 screens, 53 sites (25 previous) • Folkets Hus & Parket (Swe) – 7 screens/sites, set for growth • Digital Test Bed @ BFI’s National Film Theatre – 17 June 2003 • Planed Euro1080 launch – 1 January 2004 • UK Film Council - £12m-£20m for 200-250 digital screens - Promoting ‘specialised film’ through digital www.screendigest.com

global media intelligence

Advertising is cinemas’ digital Trojan Horse! Dsd

Dsites

Name

Territory

Dsld

DRS

Deliv. Deliv.

CAPA

Norway

Y

Y

Satellite

72

0

255

255

2000

Cinemark

South Africa

No

Y

Satellite

20

0

52

56

midmid-2001

CSA

UK/Europe/USA

No

No

n/a

9

0

110

110

2002

NCN Inc.

USA

Y

No

Satellite

7

160

0

160

1999

Ovation Interactive

USA

Y

No

CDCD-Rom

14

78

0

78

OctOct-01

Pearl & Dean

UK & Ireland

No

No

n/a

1

0

8

8

JanJan-03

Regal CineMedia

USA

No

Y

Satellite

158

0

2,100

2,100

2002

Screenvision Europe (formerly RMB Int'l)

Belgium/Europe

No

No

n/a

0

0

0

0

1010-OctOct01

Screenvision USA

USA

Y

Y

T1

9

0

117

117

MarMar-02

Val Morgan

Australia, USA, South America, UAE

Y

no

CDCD-Rom

6

64

0

64

0505-JulJul-00

302

2,646

2,948

TOTAL

www.screendigest.com

D-RS

D-screens

Trial

global media intelligence

‘Alternative Content’ report - definition • Any form of large-screen content other than a feature film – – – – – –

Soccer Extreme sports Pop/classical music Stage events, e.g. musicals Television content Gaming…

• Increasingly enabled by use of (low-end) digital projectors

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global media intelligence

Alternative Content: History and Current Status • Long tradition of alternative content on 35mm film – Horse racing originally shown in 1932

• First serious ventures using electronic cinema technology in the mid-90s Today • We came across 40 exhibitors worldwide that have screened alternative content yet… • …only 7 have screened more than 5 different events

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global media intelligence

Europe: Alternative Content Screenings to Date

Soccer Other Sports Extreme Sports Pop Music Television Gaming Stage Classical Music

www.screendigest.com

global media intelligence

USA/Canada: Alternative Content Screenings to Date

Other Sports Extreme Sports Pop Music Television Gaming Stage Soccer

www.screendigest.com

global media intelligence

Charging Audiences: Most Popular Content •

Europe: Soccer – 2002 World Cup final matches: Average of 600 patrons per screening in UCI Kinowelt’s Hamburg multiplex



USA/Canada: Wrestling – Very good audience figures for monthly screenings since 1999



Worldwide: Pop music – Exclusively screened live concerts – Pre-release screenings of concert/music DVDs

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global media intelligence

Generating Revenues: Different Business Models • Direct ticketing • Indirect charging – e.g. minimum spending on concessions

• • • •

Sponsorship and promotion Auditorium/theatre rental Members/passes Micro-payments – using mobile phones

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global media intelligence

Promotional Screenings: Suitable Content • Pop music – Promotion of new albums/concert DVDs – 10,000 fans in 25 theatres across Europe attended live-relay of Bon Jovi concert in UCI cinemas in September 2002 – David Bowie ‘global’ e-cinema concert 8 September/15 September

• Gaming – Big-screen experience perfect to launch and promote new PC and console games – Ultimate Gamer competition in UCI UK cinemas to promote new Hulk game from May - July 2003

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global media intelligence

Alternative Use: Corporate Events & Education • Auditorium rental • Various events – Conferences and meetings, product launches, AGMs, employee training

• Very attractive to exhibitors – Use of theatres during ‘dark hours’ (Kinepolis: 600 events per year)

• More corporate clients through digital distribution networks • Education – Enabled by digital distribution networks: ‘Virtual lecture hall’ – No viable business model yet

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global media intelligence

Critical Factors: (I): Rights Issues Difficulties for exhibitors to secure screening rights No substantial market for rights holders Low-end projectors & digi dist networks will create a market (II): Marketing and Advertising Irregularity and one-off nature of screenings Shift of competence: Exhibitors have to advertise events (III): Providing ‘added value’ Correlation between screenings’ level of exclusivity and added value that has to be provided www.screendigest.com

global media intelligence

Perspectives • Alternative content alone will not fund the large-scale conversion to digital • Alternative content will piggyback on digital cinema advertising • Proliferation of digital networks will create market for rights holders and solve current rights problems • Promotional events and auditorium rental for corporate events will be the most important sources of revenue • Sports events and live-concerts are most likely to attract paying audiences • Gradual transformation of traditional movie houses to entertainment complexes www.screendigest.com

global media intelligence

Thank You www.screendigest.com Patrick von Sychowski

www.screendigest.com

global media intelligence