After years of haggling, Hollywood’s movie studios and theater owners agreed in 2005 to replace old film projectors with new digital systems, but some say the equipment is not ready for prime time.

The battle involves potentially billions of dollars, pits industry players against each other, and will be a major topic next week at ShoWest, a key industry event in Las Vegas where the studios, theater owners and equipment vendors gather.

New digital cinema projection systems are expected to bring clearer images and three-dimensional movies to audiences, as well as new revenue opportunities to theater owners who can use them to screen live sports, concerts and teleconferences.

Many in the movie industry hope digital cinema will help revive theater attendance, which fell 9 percent in 2005 in the United States.

The studios stand to save about $1 billion a year in print distribution costs because they will be shipping digital movies via computer hard drives, satellite and broadband cable, versus old celluloid canisters.

But digital deployment is expensive at about $100,000 per screen, and while the studios agreed to foot most of the bill, current equipment does not meet all the technology standards set by the industry.

 

"Digital cinema isn’t ready for prime time," said Kurt Hall, president of National Cinemedia, a group of exhibitors led by the No. 1 U.S. chain, Regal Entertainment Group.

He said National Cinemedia would delay any full-scale adoption until at least 2007.

Exhibitors have been inching toward digital cinema since the late 1990s, but currently only about 300 of 36,000 U.S. movie screens have digital projection systems, according to the National Association of Theater Owners.

French media company Thomson and U.S.-based Access Integrated Technologies Inc, or AccessIT, are leading backers, albeit with different approaches. Thomson believes in testing now and deploying later. AccessIT thinks the launch time is now, and systems can be upgraded easily later.

Through its Technicolor Digital Cinema business, Thomson signed Century Theatres Inc. to install 90 to 120 screens in the second quarter of 2006, but those systems are built by various manufacturers and will be tested throughout the year.

John Fithian, president of the National Association of Theater Owners, said experimentation is needed to protect exhibitors. "We’ve had several years of prototype equipment," he said. "What we haven’t had is fully integrated systems. That’s what needs to be tested to make sure files can flow correctly and the pieces all work together."

Universal Studios, the nation’s No. 3 movie distributor, also is in a wait-and-see mode before making its first digital movies widely available, said Michael Joe, head of its digital conversion. "We want to support the real roll-out of DCI cinema," Joe said. "There are certain aspects that are not DCI ready, but will be within a number of months."

DCI is the acronym for a working group, Digital Cinema Initiatives, that was formed by the studios to set digital technology standards. It completed its work last year, but early systems don’t yet meet all the DCI recommendations.

Still, many companies like AccessIT say enough systems have been successfully deployed to prove the technology is ready, and the systems in use now can be upgraded in the future.

Julian Levin, president of digital cinema for News Corp’s Twentieth Century Fox studio, said the conversion has reached a stage where it should get rolling at a rate of 4,000 to 5,000 screens a year and finish in six to eight years.

"It’s been many, many years to get to the top of the hill and now we’re at the top," Levin said.

Texas Instruments Inc is set to announce next week that its computer chips have been deployed in 1,000 digital systems worldwide that are as reliable as film projectors.

"We have been in movie theaters … since 1999 showing movies to paying audiences," said TI’s Doug Darrow. "I think that’s a fairly good track record of technology."

Dolby Laboratories  has installed 150 systems, and while they do not use a DCI-approved decoding language now, they can be upgraded. Knowing that, the Walt Disney Co. put Dolby systems in 84 theaters last fall for a 3-D "Chicken Little," its first fully computer-animated film.

Moreover, Carmike Cinemas Inc., the No. 3 U.S. theater chain, began installing digital systems on all its 2,300 screens after receiving assurances from Christie/AIX, a venture of AccessIT and projector maker Christie Systems, that non-compliant components will be upgraded.