Digital Movies Not Quite Yet Coming to a Theater Near You

A funny thing happened to the digital revolution on the way to your local movie megaplex: It ran out of money.

Scarcely a year ago, industry experts were predicting that the nationwide conversion of movie theaters to digital projection would be well underway by 2002, in time for the release of George Lucas’ all-digital “Star Wars: Episode II.”

The transformation, perhaps the most important technological change in cinema since the introduction of the talkie in 1927, would allow movie audiences to view pristine, razor-sharp images throughout the length of a film’s run. But expectations for an early commercial roll-out have been sabotaged by the theater industry’s worst financial crisis in decades.

At least five major chains that operate about one-third of the nation’s 36,000 screens have filed for bankruptcy protection this year, including Newport Beach-based Edwards Cinemas. Others are operating in the red. Those problems have emptied the pockets of theater owners, who were already reluctant to foot the more than $100,000 per screen to install digital projecting systems.

Says David Londoner, entertainment industry analyst for the investment bank ABN AMRO: “In the near term, digital is not going to be a focus for anybody [in the theater industry].”

Fans of the technology say digital movies would save the studios hundreds of millions of dollars in distribution costs, while providing theater owners untold new ways to make money. Nevertheless, the theater industry has continued doubts about the financial potential and the technology itself.

“We’re still in testing mode,” says John Fithian, president of the National Assn. of Theater Owners. “And the jury’s still out about the success of the test run.”

About 30 theaters around the world are equipped with pilot digital screen systems, Fithian said. Three Southern California theaters are equipped for digital screenings: Disney’s El Capitan in Hollywood, theaters at AMC’s Media Center North complex in Burbank and Edwards’ Irvine Spectrum complex, all of which are running Disney’s “The Emperor’s New Groove.”

All three use a process developed by Texas Instruments Inc. in which moving images are produced by computer chips made up of 750,000 microscopic mirrors. These switch on and off thousands of times per second, sending reflected light through color filters and onto a screen.

There is no physical contact between the projector and the image medium, as there is with film, which degrades as continued showings add scratches, dirt and breaks to the celluloid strip. Digital images remain as sharp on the thousandth showing as on the first, and their superiority is readily appreciated by audiences, proponents say.

“We’ve surveyed audiences and found overwhelmingly positive reactions to the picture quality,” says Richard J. King, a spokesman for AMC Entertainment, a 2,790-screen chain that has nine theaters equipped with digital projection.

Other professionals say the advantages of digital projection are less pronounced with live-action films than with animated features and those laden with special effects that are produced digitally. Some viewers of live-action films, critics say, notice a certain loss of image detail and miss the “warmth” of film color.

In any event, the real allure of digital cinema for the movie studios is economic. Instead of striking thousands of prints of a first-run film at $1,500 to $2,500 each, studios could beam a digital file to thousands of theaters at once and save more than $800 million a year on distribution costs.

Theater operators are understandably loath to help finance this windfall for the studios, particularly if the rapidly changing state of the technology means that costly new equipment could be rendered obsolete in short order.

The cinema chains’ woes have led some in the movie business to think of new methods to help finance the digital conversion. Walt Disney Co., an enthusiastic backer of digital technology, has suggested the studios create an intermediary to guarantee exhibitors’ leases of high-tech equipment, defraying the cost from a combination of distribution savings and higher rental charges from theaters.

“We know it’s going to be a rough transition period,” acknowledges Phil Barlow, executive vice president of Walt Disney Motion Picture Group. He says Disney has not discussed the plan with other studios or with theater owners.

Theater operators also fear that the claimed advantages of digital projection will not be enough to sell more tickets. Studio executives say that concern is groundless.

“All indications are that people choose digital screenings in preference to film,” Barlow says. Digital theaters in Europe, he says, have consistently outdrawn competitors and retain higher percentages of the audience after the opening week.

Although digital exhibitions have generally drawn healthy crowds--pilot screenings last year of “Star Wars: Episode I The Phantom Menace,” the animated feature “Tarzan” and the drawing-room comedy “An Ideal Husband” took place on both coasts--some exhibitors believe the draw was the technology’s novelty rather than its quality. Even AMC, King says, does not think audiences will pay a higher price simply to see a digital screening.

Indeed, the financial benefits of digital conversion for theater owners are largely conjectural. Digitally equipped theaters could show rock concerts and sporting events such as boxing matches, as well as broadcast corporate sales meetings. Theater industry experts doubt this will be enough extra business to finance the conversion.

“Digital cinema is not something we see happening in the next five years,” said Suzanne Brown, a spokeswoman for Carmike Cinemas, a Columbus, Ga., chain that is one of the largest in the U.S.

Even chains in the larger markets are skeptical.

“There isn’t enough alternative programming in the world to make up for the difference [in equipment costs],” Fithian says. “If it’s up for the exhibitors alone to pay, it’s not going to happen.”

Add to that the exhibitors’ continuing worry that digital projection is still too immature to bet on as a technology.

“Obsolescence is a big concern of ours,” says Jurgen Zahn, director of projection and sound at United Artists Theater Circuit, a large chain operating under bankruptcy projection.

Theater owners are determined to avoid the costly fiasco they experienced with digital sound systems, which has produced so many incompatible formats that some theaters have had to install four different systems at more than $10,000 each.

Most theater operators are waiting for the theater owners and the Society of Motion Picture and Television Engineers to promulgate technical standards for digital projection before moving ahead. “I don’t see a lot of people [in the theater industry] on the bandwagon right now,” says Zahn, who serves on a task force on digital cinema.

Still, it is the cloudy financial picture that poses the biggest obstacle for digital cinema.

Theater operators are currently suffering through the morning-after of a record economic expansion.

In the last few years, cinema chains embarked on a historic building spree, with the number of indoor screens rising 18% to 36,448 in 1999 from 30,825 two years earlier. That taxed the financial resources of even the largest chains. Because the new megaplexes offer more comfortable seating, better amenities such as concession stands and attractive locations within expansive new shopping complexes, they have sharply reduced attendance at the chains’ older theaters, many of which have had to shut down.

Even so, the country still has too many movie screens. Entertainment experts generally agree that the nation probably needs no more than 25,000 screens--30% fewer than are operating.

Until business picked up for the holiday season, domestic movie attendance was flat this year compared with 1999. The higher revenues produced by higher ticket prices have largely been consumed by the higher costs of operating large complexes, according to a government filing by Carmike Cinemas.

Disney’s Barlow says the exhibitors’ crisis has not changed his expectations that digital screening will soon be a commercial reality. He is confident that some program to help pay for the transition will appear.

“I’ll be surprised and disappointed if there are not 500 to 1,000 [digital theaters] out there one year from today,” he says. “And it will explode from there.”

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Digital Movies

These local theaters are showing “The Emperor’s New Groove” in a digital format:

Disney’s El Capitan Theatre, 6838 Hollywood Blvd., Hollywood. (800) 347-6396.

AMC’s Media Center North 6, 770 N. First Street. (818) 953-9800.

Edwards’ Irvine Spectrum 21 Megaplex, 8001 Irvine Center Dr., Irvine. (949) 450-4900.