Film Distribution Offers Niche

One of the newest opportunities for entrepreneurial satellite companies is the distribution of feature films via satellite to movie theaters.

Movie studios incur huge costs to deliver new releases to theaters. Satellites potentially could provide the same service at a fraction of the expense. The challenge is to convince the movie studios and cost-conscious cinema owners to abandon 100-year-old celluloid technology and to invest in new digital equipment needed to make the transition possible.

Microspace and Boeing [NYSE: BA] are two of the intrepid companies that have been exploring the market niche, taking steps to demonstrate their capabilities and luring customers away from celluloid.

Movie studios unquestionably would be the biggest winners from using satellites to distribute films, since they spend a whopping $1.2 billion on U.S. distribution annually, said Sam Matheny, manager of digital cinema development at Microspace, a Raleigh, N.C.-based subsidiary of Capitol Broadcasting. The theaters could benefit by improving the quality of the films they show and avoiding the delays that sometimes occur in shipping film canisters, he added.

Boeing officials estimate that global film distribution costs studios more than $2 billion a year. In addition, analysts are forecasting that 75 percent of that cost could be saved by digital delivery, they added.

“We can do it at a fraction of the cost,” Matheny said. Satellites have the potential to become the medium of choice for delivering digital cinema efficiently and effectively, he added.

“This is an idea that Microspace has been looking at since the mid-90s,” Matheny said. Microspace showcased its capability for digital cinema in an Oct. 28 demonstration involving Entertainment Technology Consultants (ETC). The event was held at Digital Cinema Lab, a unit of ETC at the University of Southern California that is home to “the leading experts” in the digital cinema market, Matheny said.

“This industry has a need to move large amounts of audio, video and data content simultaneously — something that satellites can do both reliably and affordably,” Matheny said.

Charles S. Swartz, executive director and CEO of the ETC, said, “as the motion picture industry moves toward embracing digital cinema distribution and exhibition, satellite technology will undoubtedly play an important role.” Microspace is a pioneering company in developing digital cinema services, he added.

Founded in 1992, ETC is an international consulting firm with offices in Hollywood, California, and Toronto, Canada, that provides consulting services to corporations developing new technology and products for the entertainment industry. ETC has broad access to executives and professionals at studios, post-production facilities, and industry associations.

The path to acceptance has not been easy and movie studio executives, as well as theater owners, still need to be convinced of the idea’s merit. To that end, Microspace donated a complete satellite network package to the Digital Cinema Lab last May to distribute both live and stored content on a test basis. Microspace also has joined the International Theatre Equipment Association (ITEA).

In addition, Microspace is boosting its stature in the entertainment arena by participating in the Society of Motion Picture and Television Engineers’ (SMPTE’s) digital cinema committee. The company also has provided feedback to the Digital Cinema Initiative (DCI), a consortium of the seven major studios, on specifications for digital cinema standards.

DCI is looking into setting standards for transmission that the studios would be comfortable adopting. SMPTE formed a working group to set standards for digital cinema. A standards document is in the draft stage and DCI is soliciting feedback from companies that manufacture the projectors and other equipment.

Boeing Gets Going

While Boeing is working with U.S. theaters in delivering digital content, it recently decided to seek a buyer for its fledgling digital cinema operation. The prospective buyer would be an entertainment company that can put a capital structure in place for full-scale market implementation.

While in the short-term, the operation is losing money, in the long-term, a buyer could reap the rewards of the advantage satellite offers in transmitting one file to hundreds if not thousands of destinations simultaneously.

Boeing Digital Cinema transmits first-run films and other alternative media, such as sporting events, concerts, plays, and corporate events, directly to movie theatres via satellite, fiber-optic networks, or physical media. It provides secure, end-to-end transmission using encryption technology that has been endorsed by the National Institute of Standards and Technology (NIST) for protection of commercial and government information.

The open-architecture design of Boeing’s system allows its integration with any off-the-shelf hardware to compress, store, forward and project digital content. Boeing installs hardware and software at each location to support satellite delivery of films.

Satellite industry observers are intrigued by the opportunity to deliver films digitally but warn that high obstacles exist.

Fiber optics or other land-based infrastructures can augment Boeing’s satellite network to form a hybrid network. However, those other technologies also pose a threat to the use of satellites to distribute films, said Andrea Maleter, technical director at Bethesda, Md.-based consultancy Futron.

Satellites need to show that they can be more cost-effective than fiber, which is likely to be available as an alternative in many if not most markets, Maleter said. Another factor working against satellites is that the amount of capacity required for digital cinema distribution is “enormous,” she added.

Tim Logue, a consultant in the Washington office of the Coudert Brothers law firm, said “direct delivery of digital cinema to theaters is a great application for satellite communications because it plays to satellites’ great strength — the distance insensitivity of the cost of delivery. With digital satellite delivery, the cost is the same for a Hollywood studio to deliver the signal to a theater in Burbank as to a theater in Caribou, Maine. From Hollywood’s standpoint, it makes targeted or global openings, as we just saw with ‘Matrix Revolutions,’ that much more practical.”

Roger Rusch, president of the Palos Verdes, Calif.-based TelAstra consultancy, said using satellites to distribute film is a “great” idea. However, the movie industry has moved slowly into digital technology, Rusch said. Many cinematographers still think film is better.

“Cost is an issue for the thousands of movie houses that would require retrofitted projection equipment,” Rusch said. Even the cost of transport may not be as low as one might expect, he added.

The amount of data to transmit the high-resolution images could be large, Rusch warned. It would certainly be much higher than the high-definition TV standard that is currently being considered.

“Without compression, the data rate could be 1.5 to 15 gigabits per second and the total data for a film could be 1.4 to 14 megabytes of data,” Rusch said. “At one cent per megabyte, it would cost $14,000 to $140,000 just in transmission costs for a single movie. Compression might be able to reduce this by a factor of 100, so the cost would be $140 to $1,400 per movie.”

That amount of compression may not be appealing to the movie industry, Rusch said. Another issue is security.

“The bottom line is that satellite delivery of movies seems like a good idea for the long term, but I doubt that we are there yet,” Rusch said.

The companies interested in providing the service are undeterred.

Microspace’s Matheny pointed to his company’s additional capability of delivering live, high-definition video feeds. In addition, Microspace started delivering movies to hotels about three years ago.

“We know how to do store-and-forward video, as well as long-form content, such as full-length content,” Matheny said. “This business is going to evolve. It is not going to be an immediate deployment. This is going to be a slow rollout. There will be steps that go along with this. As a provider, we are committed to [the process].”

Matheny does not view Boeing as a direct competitor. Both companies will deliver digital content, but Boeing also operates servers in the movie houses.

“We have a lot of expertise in the delivery of content and that is where we are focusing our efforts,” Matheny said. “We are working with the server community to make sure all of our services work well together.”

Right now, most cinemas do not have the special projector and server that are needed to receive content via satellite, Matheny said. Less than 100 screens out of 35,000 in the United States have the capability, he estimated.

Much work is needed before theaters can take advantage of satellite delivery, Matheny said. “We are getting to know the players, their needs and their technology,” he explained.

The major investment by Microspace thus far has been in “building relationships,” he concluded.

–Paul Dykewicz

(Sam Matheny, Microspace, 919/850-4500; Fernando Vivanco, Boeing, 562/797-4582; Andrea Maleter, Futron, 301/347-3450; Tim Logue, Coudert Brothers, 202/736-1816; Roger Rusch, TelAstra, 310/373-1925)