THE INDUSTRY : Hollywood’s Brave New World : A revolution in entertainment technology is coming, and the Japanese electronics giants buying up Hollywood are leading it

In a scene from the Oscar-winning “Cinema Paradiso,” a young boy is frantically pedaling his bicycle between two small towns in pre-World War II Sicily carrying reels of film back and forth so audiences in the two villages can watch the same movie at about the same time.

The scene is one among many that writer-director Giuseppe Tornatore uses to create a nostalgia for old-time moviegoing, and while the era he re-creates is as musty as your grandfather’s stamp collection, the scene serves just as well to illustrate how little film exhibition has really changed.

Despite the historical milestones of “talkies,” color, wide-screen processes and stereo, surround and digital sound, films are essentially shown the same way as they were 70 years ago. Motion picture images are still imprinted on sprocket-holed celluloid strips, delivered to theaters in bulky canisters and run through projectors at 24 frames per second.

But, according to most experts, all that is about to change--dramatically.

By the year 2005, maybe sooner, movies will almost certainly be delivered to screens--in both theaters and at home-- electronically. Engineers’ eyes light up and spit sparks when they discuss the possibilities ahead: high-definition television, satellite transmissions, fiber optics and digital reproduction, and they swear on a stack of megabytes that the video revolution of the ‘80s is a molehill compared to the technological mountain to be scaled in the ‘90s.

Nobody knows exactly what the changes will be--or which will become the industry standards--but this much is clear: As Hollywood continues to make the kinds of movies the world loves, the companies in the best position to exploit the new technology will lead the global entertainment industry into the 21st Century.

Who best understands the coming revolution and what it means to the movie business? Well, the Japanese seem to understand it very, very well. They should, because they are the world leaders in coming up with the technology that’s going to change everything. That’s one reason Sony plopped down $3.4 billion to buy Columbia Pictures last year, and why Matsushita Electric Industrial Co. is now buying MCA, owner of Universal Studios, for a whopping $6.1 billion.

And there’s at least one company in Korea that seems to have an inkling about it: Samsung, one of the world’s largest corporations, apparently sized up Orion Pictures recently before deciding not to buy it.

Hollywood, whose dream merchants sleep through most revolutions, is beginning to recognize it, too. Technology committees have sprung up at several studios, and just last year, the industry at large agreed to fund and participate in an international group called the Technology Foundation of the Motion Picture/Television Industry.

But the studios lag woefully behind in both research and visionary leadership. The film business here has traditionally been run on short-term objectives, and though its dominance as the world’s supplier of filmed entertainment is unquestioned, its failure to seize the day when television and then video came along assured it a subsidiary role in the current high-stakes media shakeout.

“The Japanese, culturally, take a longer view of things, while America is young, rambunctious, short-sighted,” says special-effects wizard Richard Edlund, who is president of Marina del Rey-based Boss Film Studios. “Their arrival in Hollywood will force us to think.”

“Hardware,” “software” and “synergy” are the buzzwords of the Japanese-Hollywood story. The Japanese dominate the hardware market (TV sets, VCRs, stereo and other home-entertainment equipment) while Hollywood has the software (movies, TV programs, musical recordings). Owning both gives them the synergy--the corporate version of hybrid vigor--to add up to more than the sum of their parts.

Is that why the Japanese paid what looked like Neiman-Marcus prices for Columbia and MCA? In part, yes. By controlling movies and TV programming, experts say, the Japanese can better influence the direction of entertainment technology. (Matsushita, for example, could give laser-disc players a big boost by releasing Universal movies in that format.)

But that’s not the only reason behind the Japanese interest in Hollywood: Experts say that, with the coming entertainment revolution, the values of studio libraries will skyrocket, making the MCA and Columbia deals look like bargains in retrospect.

The technology driving that revolution won’t be cheap. To persuade consumers to buy the hardware, they have to make sure there are plenty of good things to put in them.

“The Japanese know that you can’t sell a $3,000 high-definition TV set unless there’s a sufficient number of movies, cassettes or laser discs available for the damn thing,” says Douglas Trumbull, president of Berkshire Motion Picture and the creator of visual effects for “2001: A Space Odyssey.” “The acquisition of Columbia and MCA creates a critical mass for them.”

The reactions to the Japanese landing in Hollywood has been either serious hand-wringing--over the export of profits and the fear of censorship--or a sanguine acceptance of economic one-upmanship in a free-enterprise system without boundaries. Yet few people have raised the questions of the long-term objectives of the Japanese and the potential impact of their control on consumers. Since the Hollywood Establishment is unskilled at looking ahead, this article examines those issues from the standpoint of the technology looming just ahead.

Technological sluggishness wasn’t always the American way in entertainment. It was the Americans, primarily through RCA, who introduced color TV to the world. The Japanese--specialists at refinement--took it and ran with it, becoming the acknowledged masters of the medium. Hollywood movie studios, too, were once in the forefront, with their own projection and camera departments in competition to introduce such improvements as Stereosound and Vistavision.

“Technology was once an integral part of studio competition,” says Trumbull, “but since the 1948 consent decree that forbade studios to own theaters, the focus has been on product, creating vehicles for talent. The question of what medium to put them in is of absolutely no consequence. The movie business has shot itself in the foot.”

The disbanding in the mid-’50s of the Motion Picture Research Council, a studio-funded committee that coordinated technological development, may have been the final cut that left Hollywood, in Richard Edlund’s words, “a technological headless horseman.”

Part of the problem, Edlund adds, is the lack of continuity here. “Running a studio has become a game of musical chairs. The Japanese companies are very conservative, they move very deliberately. But once they make up their minds, they really get on it.”

The sale of MCA-Universal, leaving four of the town’s seven major movie studios in foreign hands, has raised some non-technological issues as well. Reflecting a widespread wariness about having an occupying army in our cultural front yard, Variety blared a Japanese headline, translated “Buyer Beware.” Around town, filmmakers nervously assessed Matsushita president Akio Tanii’s reluctance to assure them he wouldn’t meddle in creative matters.

Those concerns are not unfounded. Two years ago, Bernardo Bertolucci’s “The Last Emperor” opened in Japanese theaters only after the portrayal of Japan’s bloody 1937 raid on Nanjing was excised. Other films critical of Japanese culture have never been seen there. As Patrick O’Heffernan, director of Georgia Institute for Technology’s Center for International Strategy, put it: “We revel in skewering our sacred cows. The Japanese honor their sacred cows. Will that lead to censorship? I don’t think so. But it will be one more step in the process where some movies don’t get made.”

O’Heffernan and others also express concern that the Japanese owners will be even more big-hit and bottom-line oriented than the Americans. But the larger issue, argues O’Heffernan, is that the U.S. is losing control of the exports--our media and culture--that have made the American way of life so influential overseas.

Some Hollywood insiders, however, don’t expect those exports to look any different under Japanese ownership. “The Japanese aren’t going to try to decide for people what pictures they should see,” says David Geffen, who became a leading stockholder in MCA when he sold Geffen Records to the studio last March, and who stands to make an additional $180 million when the Matsushita deal is completed. “David Puttnam was disastrously unsuccessful when he tried to do that at Columbia. If the Japanese try to affect things, they will have lost their investment because the talent will pick up its bags and go elsewhere. Hollywood is one of the few places (where) the assets go home at night.”

But the focus on what movies two Japanese-owned studios might or might not make obscures an even bigger story: Whatever shape the coming film technology revolution takes, it will be the people who build those black boxes in your home--as much as the people who produce TV shows and movies--who determine the range of options available to audiences.

For the vast majority of movie fans, the important question in all this is, what’s in it for us? When the new technologies are out of the lab, will there be more and better movies to choose from and more convenient ways to view them, or will Hollywood merely recycle the formula-blockbuster mentality of the ‘80s?

You can start a fight taking either position, but certainly, technology has the potential to increase choice by revolutionizing both the production and distribution of movies. On the production side, new technologies could give filmmakers outside the mainstream low-cost ways to make movies of sufficient technical quality to attract large audiences.

“Technology in most other areas has lowered the barriers to producing product,” says Jonathan Seybold, a pioneer in desktop publishing whose Malibu company publishes high-tech newsletters and sponsors seminars. “It happened in printing, and now it’s happening in music very clearly. My neighbor is an Oscar-winning composer who can put together digitally (on his home computer) a whole film score. He has more artistic control at a fraction of the cost.

“Those tendencies are the best counterbalance I can think of to the increasing concentration of media companies. I would hope the same thing would happen in movies, too. I would love to have more Wayne Wangs and Spike Lees doing interesting, low-budget films.”

But the real revolution, many say, will come not in the production of films but in their distribution. Movie theaters will be swept along on the tide of change, but by all accounts, the focus of the new technological race will be the home--transformed into a multimedia, interactive entertainment center through the marriage of computers and film. People will be able to pick up the fiber-optic phone line, access any listing, say, in the Paramount or ABC libraries, punch in a code and, within minutes, have “Singin’ in the Rain” or a documentary on civil-rights violations flash across a wall-sized, high-definition screen.

The multimedia possibilities are unlimited. “Your 10-year-old son is doing a paper on Martin Luther King,” says Scott Ross, general manager of LucasArts’ Industrial Light & Magic. “(With this technology) he dials the NBC library to pull film of King’s ‘I Have a Dream’ speech. Once you can complete the relationship of the computer and the TV set, it will blow apart the (conventional) concept of entertainment and media.”

All for a fee, of course. Billing will also be streamlined, with the charges reflected on your telephone statements. The phone companies stand to make a mint carrying all this new information over their wires. (Some experts believe that is one motive behind AT&T;’s recent bid for NCR Corp., the nation’s fifth-largest computer maker.)

“The video, feature film, and computer industries have traditionally been very separate,” says Robert Greenberg, president of R/Greenberg Associates, which specializes in special effects and computer-generated imagery, “but now they’re talking the same language as it relates to images and sound. The common denominator is digital control.”

“Digital”--the conversion of sounds and images to electronic bits--will open the door to interactive TV, to mass data storage, to the duplication of sound and images without loss of quality from one generation to the next. One expert foresees a vending machine that would stamp out films on videodiscs while you wait.

Digital processing is also the key to compressing information into fiber optic phone lines, which will bring the movie into the home. The American fiber-optics system, though nowhere near as far along as the Japanese equivalent, is under way. Though the main branches are in place, home hookups--slowed down by the breakup of AT&T--are; 15 or 20 years down the road. “Laying the lines to deal with this volume of information,” says Greenberg, “is like trying to build a mass transit system in L.A.--a pretty difficult feat.”

Still, the incentive is there, for creators as well as consumers. “Independent film producers could buy space on the fiber-optic cable,” says Trumbull, “and get their film to millions in one night. That provides them with an instant return on their investment.”

Andrew Lippman, associate director of MIT’s Media Laboratory, notes that the use of computers will enable studios to tailor their movies to different audiences. “You can individualize things: changing content, transferring it to different languages, even changing gestures to suit individual countries,” he says. “You could produce 10 versions of a movie with options built in to broaden interest.”

More and more, the studios will also be using computers to generate special effects, landscapes, even people and animals such as the digitally created water snake that appeared in last year’s underwater adventure movie “The Abyss.” And the days of cut-and-paste editing of 35mm film are almost surely coming to an end.

“We’ll be able to capture information in front of the lens and put it on a digital record,” says Marty Katz, Disney’s executive vice president of motion picture and television production and founder of its two-year-old Technology Committee. “The camera will electronically indicate which takes are good and transmit them to the lab. Film can then be edited electronically and the finished picture beamed via satellite into the home. It will revolutionize the way film is processed, edited and distributed.”

These changes in both production and viewing are bringing the computer and consumer electronics industries closer together, raising this question: Does your TV become your computer, or does your computer become your TV? The answer has huge implications for global competition, because the Americans dominate the computer arena while the Japanese drive the consumer electronics industry, particularly in the area of HDTV. By multiplying the number of lines of resolution on your TV picture, HDTV boasts a theater-quality image and couples it with CD-quality stereo sound.

But getting HDTV into American homes will require massive investment in equipment by broadcasters and a consumer changeover at home. Though Sony has already sold the first HDTV sets in Japan, for about $18,000 each, the U.S. is faced with a Catch-22: Broadcasters don’t want to convert to HDTV until consumers have the sets, and consumers won’t want to buy sets until there is plenty of HDTV programming to receive.

There are other problems. For one, many U.S. companies and lawmakers see the potential HDTV market as the linchpin of American competitiveness and are loath to hand it over to Japan. Several legislators have called for federal funding of research efforts. Others believe that the U.S. should sit out HDTV--where the Japanese have the clear advantage--and await the development of fully digital television, which many experts believe is the next technology of choice.

While the HDTV debate continues in Congress, the Federal Communications Commission is going forward with a testing program and says it will adopt an American HDTV standard in 1993, creating, in all probability, three different standards worldwide--ours, Japan’s and Europe’s.

“Fortunately for us, HDTV is blessed with a few major problems,” says Jeorg Agin, general manager of Kodak’s motion picture and television markets division, which is developing its own high-resolution system with nearly twice the lines offered by HDTV. “The world has yet to settle on a standard. There’s little library of software available. CBS isn’t about to put out material in that format if there’s no one out there to receive it. And who’s going to advertise in such a limited system or invest in a technology that may soon be obsolete?”

Sony, meanwhile, is quietly pushing HDTV through its Hollywood toehold. At Sony’s Columbia Pictures headquarters in Culver City, John Galt, a director at Sony High Definition Facilities, is researching ways to use “high-definition processes” (he cringes at the word video ) in film production, often combining the technology with computers and animation techniques. On a screen in a chilly, computer-laden room, a camera pans across a room full of toys, past a long-haired cat who looks like he could fall off the screen and into your lap, landing on . . . John Galt. Zip! Galt shrinks. Zap! He’s in a Lego helicopter and flying across the room, a miniature pilot in a room full of life-size Teddy bears. This technology, Galt says, would have made Disney’s “Honey, I Shrunk the Kids” almost a snap to produce. (Disney has expressed keen interest in the technology.)

No one expects filmmakers in the near term to shoot feature films in high-definition video; it still lacks the rich texture and clarity of 35mm film. A couple of feature films have been made in high-definition video, including one (“Julia and Julia”) that starred Kathleen Turner. But watching them, even after they’ve been transferred to film and projected on a normal screen, is more like watching a daytime TV drama than a movie. Few people believe that “look” is the future of motion pictures.

Sony has stopped talking about the advantages of shooting movies on high-definition video and instead is peddling the technology for use in post-production, insisting it will save time and money and actually aid in optical and special-effects work. Observers say Sony is betting that if it can get filmmakers to accept HDTV at any level, it will have a leg up on its hardware competitors.

Sony and Matsushita can push their own HDTV technologies another way, some analysts say. By converting the films in their libraries to high-definition video, they can sell HDTV sets on which to play those films, thus providing competition to broadcasters reluctant to adopt HDTV programming.

In addition, says MIT’s Lippman, the value of the movies themselves will skyrocket given the privatization of European broadcast stations, greater at-home access and the possibility of packing more and more programming on satellites through digital compression. “The studio library is of tremendous value in itself,” he says. “It ain’t an HDTV issue.”

Despite the advantages of all these new technologies, most experts say it’s unlikely that they will reduce budgets on major studio movies (the average now costs about $25 million) or call the dominance of the studios into question. It takes lots of capital to pay superstar salaries and to fund the large-scale marketing essential to a hit. Decentralization or not, insiders insist, Hollywood is unlikely to change its ways.

“In the end, technology doesn’t matter,” says Tom Pollock, chairman of MCA-Universal’s motion picture group. “You have to make films people want to see. The business will always be hit-driven. It won’t change--ever, ever, ever.”

Will people stop going to movie theaters when all these electronic marvels are in their homes? No one can say for sure--in 10 years, you might be able to punch a button on your remote control and fill your TV room with holographic buddies--but the urge to get out and see a movie with strangers has survived every other technological convenience.

But to withstand the next wave, theaters will undergo their own revolution. Last week, Jameson Entertainment Group and Ikegami Electronics unveiled plans to build theater multiplexes that will project movies from high-definition laser discs. The multiplexes also will be equipped to screen television programming, sporting events, business conferences and educational seminars via satellite--moving Hollywood one step closer to the day when feature films, too, can be bounced off satellites and into theaters.

“What I foresee is a differentiation emerging between what you see at home and what you see in the theaters,” predicts Trumbull, “a line drawn between special-effects spectacles that use wide screens and stereo sound, and the more intimate films such as ‘sex, lies and videotape’ (which people will watch at home). The market will dwindle to fewer but larger screens showing spectacular epics to justify the $8, $10, $12 ticket prices.”

Whatever improvements are made, they will most likely come at the nudging of the studios rather than on the initiative of the notoriously cost-conscious theater owners. Trumbull, whose 65mm Showscan high-speed photographic and projection system met with opposition from those unwilling to foot the cost of new equipment, says he’s not holding his breath.

“I poured $35 million into Showscan and showed it to every theater chain, every studio head, all the unions,” he says. “The response was uniformly positive. I had hoped it would restore some of the grandeur to a movie business that had been multiplexed to death. The rub was that no one was willing to use it. I left the industry four years ago in abject disappointment . . . This business doesn’t take technology seriously.”

“The problem is that filmmaking is a collaborative art form,” says Greenberg. “You can’t throw in a new technology and expect it to be immediately embraced.”

Still, strides are being made. Disney recently introduced digital, CD-quality sound on 15 of its “Dick Tracy” prints, and would have done more if more theaters were equipped to use it. And the studio is experimenting with a “3-D” sound system, which could provide the chug of a train, for instance, passing behind the viewer and out the theater doors. Also in development are motion simulators like those used in Disneyland’s Star Tours attraction, which would make it possible for viewers to sit in a theater seat and feel as if they’re on the speed bike with Luke and Leia during the forest scene in “Return of the Jedi.”

The potential technology out there is raising a variety of questions at home. Will industry players move in concert with the best systems, or will they get into a winner-take-all battle, like the one Sony and Matsushita had over videocassette standards? With interactive TV, will the industry push even harder on market research? “Studios will know not just who’s watching a movie, but how old they are and where they live,” says ILM’s Ross. “The business will undoubtedly become even more demographically oriented.”

Analysts worry that the cost of starting up the new technology and converting libraries may exceed potential revenues, and that the public will tune out on hype that may sound like a technological Tower of Babel. Still, the revolution will come, and people with the vision to look ahead are seeing green.

“The ultimate dream machine for all studios is the same: A mechanism by which any individual, at the time of his choosing, can order a film without leaving home,” says one high-powered studio executive. “That’s the ultimate dream for the film owner--to market material to the consumer without a middleman.”

For all the talk of East-West rivalry, there’s general agreement that cooperation is the only practical road, long-term. The Japanese are financing Edlund’s upcoming feature “Solar Crisis,” for which he is developing new digital techniques; Disney has a $600-million line of credit with the Japanese; and JVC has invested $100 million in equity and credit advances in producer Lawrence Gordon’s Largo Entertainment.

“It’s ‘old-think’ to have a U.S. vs. Japan attitude,” says MIT’s Lippman. “Without international cooperation, it will be impossible to distribute a program worldwide.”

Still, some analysts continue to worry that the U.S. is ceding Japan power not only over ephemeral cultural resources but over concrete decisions on which technologies will dominate the lucrative entertainment industry over the next decades, and the pace at which they will be introduced.

“Until now the global media revolution has been a U.S. revolution,” says Georgia Tech’s O’Heffernan. “Global media is U.S.-based. We had the opportunity to set the course. Instead, we’re selling it.”