Elpub buttonEl.pub Analytic Issue Number 3


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El.pub Analytic No. 3 "Celluloid or Silicon?"

Page 4

Contents: Introduction | Celluloid or Silicon? | E-cinema Technology | Display technology | Data distribution | New Applications | Infrastructure for cultural minorities | The not-so-big screen | Business issues | Reducing distribution costs | New revenue streams | Installation costs | Middle men | IPR | Support | Conclusion


Business issues

It is well known that technology-driven solutions invariably suffer from infant mortality, especially those that are solutions searching for a problem. E-cinema is different in this regard in that the technology is more-or-less available and take-up will begin to occur once coherent business plans start to emerge. Part of the mission of the Celluloid or Silicon? roadshow is to promote activity in this arena.

There are strong arguments in favour of e-cinema. The cost of distributing general release films is very high, whereas the cost of electronic distribution could be much lower. Each new e-cinema application opens up a new market opportunity and a new revenue stream. The missing ingredient is a business plan.

Reducing distribution costs

People speak of the quality of celluloid over silicon, but silicon doesn't get torn, scratched and damaged with use. Film has a relatively short lifetime; it cannot be used indefinitely. E-cinema stores material in electronic format - an enduring medium.

The cost of distributing celluloid films is astronomical. The material is costly, and cumbersome to store and distribute. A print of a feature-length general release film costs around $1,000. In the US, it costs around $3.5m to release a typical film. It is estimated that in the US alone, if celluloid ceased to be used for distribution and presentation, the saving would be $2bn annually. Celluloid incurs a multitude of other costs, such as transportation, storage, insurance, disposal, which amount to $5bn globally. It is estimated that e-cinema would reduce the overall cost by as much as 90%.

New revenue streams

E-cinemas will be used for a mixture of films and new applications. It is estimated that half of all 'new content' revenue will come from premium, pay-per-view and free-to-air sports broadcasts on the large screen. Other possibilities include live events, concerts, special interest groups and various corporate activities.

E-cinema will tend to promote tightly sectored market niches, and the advertising industry will doubtless be very swift to colonise these new territories. Estimates indicate that e-cinema will increase advertising revenue by as much as ?250m annually in Europe alone.

Installation costs

What will e-cinemas cost? An e-cinema projector will cost, initially, around $200k. Add to this the cost of the file servers and network systems, and the total comes to around $250k per cinema. This does not compare so well to the cost of a conventional 35mm projector, which is somewhere in the region of $30k-40k.

The cost of converting 100,000 screens around the world would be more than $25bn, and this won't happen overnight but incrementally over a number of years. In fact, it has already started to happen thanks to a few brave souls who want to invest in the future and move the technology and techniques forward. There are at least six digital cinemas operating in the UK alone.

Middle men

It would seem that there is potential for an excellent business case. Savings are there to be made, new markets will be created and a reasonable return on infrastructure investment seems assured. The question is, who will bring this together into a business plan? A clearing house could be set up to share out the costs and revenues fairly.

Another option is to allow a third-party middleman to devise a business plan and take the risk. A major fear is that the middleman could start to exert undue influence on the market, maybe even contrive a monopoly. One wonders how well the infrastructure for cultural minorities would develop within this kind of worst-case scenario.

IPR

It is interesting to see that one of the main motivations for e-cinema in the US (they call it Digital Cinema) is to put an end to piracy. A thriving industry exists for pirating films and selling them without paying royalties. E-cinema will have provision for mechanisms to preserve intellectual property rights (IPR), using encryption technology. Such measures are especially important since the quality of material in electronic format will not degrade and quality would be maintained through multiple generations of copying.

In the UK, arrangements are already in place for material supplied on DVD. 'Film Bank UK already has arrangements where clubs and societies can rent material on DVD with the copyright situation sorted out specifically for group viewing. Under current copyright agreements, it is not permitted to show videos rented from a video shop to be shown to groups. Celluloid or Silicon? is the reality of what is actually here today and the potential that could serve by opening a few more doors and minds to some of the concepts', said Snell.

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