NAB: 75 Percent of Theaters Are Digital Worldwide; Final Quarter Face Challenges

LAS VEGAS--Thousands of theater owners could have trouble keeping their doors open, squeezed by the cost of digital conversion and rapidly vanishing film stock.

This was the warning of Michael Karagosian, president of MKPE Consulting, speaking Saturday at the NAB Technology Summit on Cinema.

At of the end of 2012, 90,000 or 75 percent of the world's cinema screens had been converted to digital projection but converting the remaining 25 percent presented a real challenge, reported the analyst.

In North America 85 percent of auditoriums (36,000 screens) are now digital; in Europe 67 percent (25,000 screens).

STORY: NAB: 5 Can't-Miss Show Highlights

Emphasis is on converting Latin America where just 4900 screens—slightly less than half of the total number--are digital. Integrators now working in these markets include Arts Alliance Media, DGT, GDC, Scrabble, Sony Digital Cinema and Telem.

“Converting the first 75 percent was low hanging fruit,” said Karagosian. “Sales of DCI-compliant projection equipment has been phenomenal. The bad news is that we are now at the edge of a sales cliff.”

He predicted that 20,000 digital screens would be installed this year after which sales will be reduced radically driven by completion of the Virtual Print Fee deals (a model of funding the digital cinema conversion through which studios contribute to an exhibitors costs.)

But the urgency to go digital is also based on film’s uncertain future. Part of the promise of digital cinema was that studios would enjoy distribution savings when film prints no longer would be needed. However, now the schedule to phase out of film distribution could be beyond the studio’s control.

“Fujifilm delivered its last film print stock at the end of last month,” warned Karagosian. “What's left is Kodak which, as it emerges from bankruptcy protection, will be operating at 10-15 percent of its former total capacity. We don't yet know what that means in terms of film stock production."

Karagosian also addressed manufacturers interested in selling new technologies to exhibitors such as new sound systems or laser projection.

“Ticket prices are as high as they can go and audiences are not willing to pay more for new technologies,” he said. “Meanwhile exhibitors are over-burdened with conversion debt. Their credit lines are tapped out. Digital conversion equates to a $5 billion investment which is sitting on their books. They are not ready to write more checks, which makes it challenging to bring more technology into this business.

STORY: NAB Preview: Get Ready to Junk Your HDTV

“The sad truth for technology vendors is that money spent on luxury leather seats and waiter service of drinks to your seat is a lot higher ROI for exhibitors than buying a 4K projector.”

He estimated that 20,000 of the 90,000 digital screens were 4K capable but that “4K is a bad match for cinema” and growing that market will be a challenge.

“If you have 4K content with a compelling image that complements your story then that value is only conveyed to the front rows of an auditoria,” he said. “Those are rows that the audience appreciates the very least. You can't put more money on those seats.”

The market for laser projection, which is being developed as a way to throw more light onto screens, addressing complaints that 3D movies are too dark, will be similarly challenged, he said.

PHOTOS: 3D Movie Rereleases: The Hits and Misses

“If a filmmaker the caliber of James Cameron declared that the only way you could see Avatar 2 was on screens with laser projection then that could help a lot,” he said. “Other than that, we will see only a limited number of screens with laser projection.”

Projector maker Christie’s laser technology is currently being used to screen Paramount’s G.I. Joe: Retaliation at AMC’s Burbank 16 ETX theater. The test, which began with the film’s opening on March 28, is expected to last two weeks.

There are other technologies being developed to project more light for 3D screenings, one of which will be unveiled by RealD next week at theaters owners confab CinemaCon.