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Digital Cinema: Global and European Roll-out, Business Models and Forecasts to 2012
Screen Digest, Dec 2007, Pages: 176
Cinema is in the process of converting all the world's screens to digital projection equipment. However, since the development began in earnest in 1999, numerous problems have been encountered in replacing its longstanding analogue forerunner, not least who is going to pay for this conversion and how and by whom will it be undertaken.
The publication of technical specifications by a joint US studio led grouping in 2005 proved a catalyst for a US-wide first phase roll-out and this territory has taken a significant advance over much of the world. We are now at a stage where the foundations have been laid for a European-wide mainstream deployment to begin, and this report analyses the business models being developed, the value proposition for both exhibitors and distributors, the remaining challenges for deployment companies, the forecasted speeds of adoption by all territories and key driver territories and companies.
'Digital Cinema: Global and European roll-out, business models and forecasts to 2012', argues that Europe has reached a tipping point for digital cinema development and is ready for a wide-scale roll-out. As David Hancock, the report's lead author argues 'The insurmountable obstacle of exhibitor access to key content has been removed with four studios now backing a roll-out programme and the building blocks for a mainstream market deployment are in place.'
Digital cinema installation has reached an impasse in the past year in Europe outside the government-led growth in UK and some digital 3D installations, as exhibitors and distributors come to terms with the financial and business implications of digitising the screen base. There are signs that commercial progress is faster in the UK than elsewhere, and this is underlined by beta-tests carried out by Odeon and Empire Cinemas and Odeon's recently stated intention to install 500 digital 3D screens once their deployment is underway. We predict that over three-quarters of this market will be digitised by 2012.
In France, which has been lagging behind, Circuit Georges Raymond (400 screens) is the first exhibitor to join Arts Alliance's VPF-funded European roll-out and this will serve to focus the industry on this issue and change the framework of the debate. In Germany, the government is aiming to build a consensus on deployment and is exploring business models for the conversion. Germany has the highest number of commercial digital screens in Europe (132). Norway has chosen to study and undertake a fully managed consensual digital transition, currently in the second phase of an industry-wide best-test and the whole market to be converted by 2010.
As Hancock explains in the report, 'The key building blocks for the European market are moving into place and the CGR deal indicates that a viable model has been found. However, it would be naïve to suggest that the conversion to digital is proving easy, and the key issue that continues to tax people in Europe is how to pay for it for all levels of the market. The US market has evolved along commercial lines and the second phase of the digital conversion is just about to begin, led by AccessIT. The situation in Europe has the added elements of market complexity, differing cinema cultures and governments, all of which are keen to ensure that no players are left behind in the switch. This implies that a number of business models will be made available to European exhibitors and distributors, with the element of competition offering a choice of viable alternatives.'
For distributors, the financial benefit is clear cut, in print cost savings of around $1.5bn a year and this explains the emphasis on distributor savings in the financial models being built to finance the digital conversion. While the value proposition for the exhibitor needs to become clearer, digital 3D, theatre management and alternative content are beginning to offer a valid economic incentive to convert. Going further, digital cinema offers independent exhibitors the chance to adapt their business model to offer a much wider range of content to a broader range of customers, and this could ultimately be exploited by exhibitors to fund digital conversion themselves.
Globally there are 5,500 high-end digital cinemas at the end of 2007 (5.5 per cent of global modern screens), up from 2,996 last year, with 78 per cent of those in the USA. We forecast that 30 per cent of the world's modern screens will be digitised by 2010.
Key findings:
-At the end of 2007, 5.5 per cent of the world's modern screens are converted to digital and we predict that by 2012 this will rise to 48 per cent.
-The dominant business model for digital conversion is the Virtual Print Fee, but there may be other models entering the market
-The driver market is the USA, but significant government involvement is pushing other countries, such as China, UK and Norway.
-Despite almost full digital provision of studio movies in the USA, a key obstacle to overcome in Europe, outside of the business model, is the provision of arthouse and European content.
-The main financial beneficiaries, certainly in the short-term, are distributors but digital 3D and alternative content are forming the beginnings of a persuasive business case for the exhibitor
-The digital conversion will cost an approximate $10bn worldwide over the next ten years
In the report:
-Forecasts of digital cinema screen growth by territory to 2012 Overview of the current state of the market; globally, regionally and for key driver territories
-Analysis of the current business models, focusing on the Virtual Print Fee but also exploring others in the global and European market
-Analysis of the European digital cinema market and the obstacles blocking growth
-The digital cinema value proposition for the distributor, including an evaluation of print costs and distributor benefits
-The digital cinema value proposition for the exhibitor, including digital 3D, alternative content, and theatre management systems
-Full datasets for digital screen growth and penetration, projector manufacturer sales and market shares, projector market sizes, server manufacturer market shares and digital content.
-Analysis of the key challenges remaining to resolve before full market roll-out can be achieved
-Analysis of the progress made towards the digital delivery of movies by satellite or other means
-Analysis of the role that Hollywood has played in the move towards digital conversion
-Full company profiles for all key digital cinema players (exhibitors, projector manufacturers, server manufacturers, third-party facilitators, digital 3D system manufacturers
-Digital cinema progress timeline from 1999 to 2007
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