BOM 7094: Operations Management

Digital Cinema – Changing the Supply Chain Management of the Movie Industry
BOM 7094 Term Paper
Dzulhafidz Bin Dzulkifli - 1091200147

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Table of Contents
Introduction ...................................................................................................................................... 2 Literature Reviews ........................................................................................................................... 4 Digital Cinema – The New Challenge for the Movie Industry ..................................................... 4 Security and Rights Management in Digital Cinema................................................................... 4 Digital Cinema Business Model – The Global Outlook ............................................................... 5 Summary of Literature Review ............................................................................................... 6 Operation Management: Supply Chain Management ..................................................................... 7 Motion Picture Supply Chain Management – The Conventional Way ............................................ 8 Ownership Chart: The Big Six ..................................................................................................... 9 The Management of the Chain of Supplies for Digital Cinema. .................................................... 10 Digital Cinema Process ............................................................................................................. 10 Telecine................................................................................................................................. 10 Preparation ........................................................................................................................... 11 Distribution ............................................................................................................................ 11 Projection .............................................................................................................................. 11 Analysis ......................................................................................................................................... 12 The Benefits .............................................................................................................................. 12 Creative ................................................................................................................................. 12 Distributors ............................................................................................................................ 13 Exhibitors .............................................................................................................................. 14 Audiences ............................................................................................................................. 14 The Issues ................................................................................................................................. 15 Security ................................................................................................................................. 15 Cost ....................................................................................................................................... 15 How Digital Cinema Impact the Supply-Chain Strategies of the Movie Industry ...................... 16 Conclusions and Recommendations ............................................................................................. 17 Cost ........................................................................................................................................... 17 Increase in Additional Incomes for Exhibitors ........................................................................... 17 Digital Contents ......................................................................................................................... 18 Funding and Support from the Government and Other Agencies ............................................ 18 Appendix ........................................................................................................................................ 19 Glossary......................................................................................................................................... 19 References .................................................................................................................................... 22

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Introduction
Ever since the turn of the Nineteenth century, celluloid film has been regarded as the soul of the movie industry. It has been used as the medium for recording, storing and projecting images. For more than 100 years this medium of entertainment has given us its capability of producing screen images of great beauty and expressive power. However, the supply chain management of distributing and exhibiting a motion picture has changed a little since the Lumiere brothers presented the first motion picture to an audience in 1895. Now, a new system could displace film as the medium of choice for film studios and cinemas completely. The “new system” is the result of the trends and issues that are affecting the movie industry globally. An example of the issues is the considerations for new revenues for the theatres. In the US, theatres are generally open from noon onward. When open, on average, only 11% of the seats are filled. A theatre is really an expensive real estate that can be more fully utilized. The scenarios can also be seen here in Malaysia, where theatres are not being utilized to their full potentials. Another issue that has been affecting the industry for years is the piracy. Some of this piracy involves high-quality bootleg copies of major films, but the majority of the theft of is made by very low-tech means. Better anti-piracy technology as well as earlier worldwide theatrical releases would greatly reduce this loss, estimated to exceed two billion American dollars per year. Among other current and future trends predicted for the motion picture industry: • • • • • • • Competition from HDTV, pay per view (PPV), DVD, Video Stores More screens, fewer numbers of seats per screen More prints per film More expensive motion pictures Digital postproduction 3D-Stereoscopic Images Industry Awareness of need for better quality control

All of these have been the contributing factors to develop a new system for the industry. The “new system” is known variously as Digital Cinema (D-Cinema). This system is slowly replacing the conventional 35mm film and projectors with computers workstations and high-resolution electronic video projectors. The D-Cinema system will ultimately influence and changed the management of the supply chain within the movie industry. One could agree that, by distributing digital files it would theoretically yield great benefits in terms of image clarity and quality, lower cost, greater security, and more flexibility in the cinema. BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

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Digital Cinema in its purest form is the process of mastering a motion picture in digital form, distributing the digital files to theatres by the means of digital fixed media (DVD), satellite, or over broadband connections, and displaying the motion picture using a digital projector.

(Source: http://www.ufomoviez.com/digi_cinema_sys.htm)

The Digital Cinema system appears to offer the movie industry it’s significant benefits on: • • • Reduction for distribution cost Increase revenues for exhibitors Improve audience satisfaction

According to Texas Instruments, a leading provider of DLP Projectors technology; as of June, 2010, there are close to 16,000 digital cinema screens, with over 5000 of them being 3D-stereoscopic setups. (DLP cinema faqs, 2010)

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Literature Reviews
Digital Cinema – The New Challenge for the Movie Industry
Year: 2001 Researcher: Christiana Perschon This research has absolutely set me on the path of researching for the issues that was raised by this report. This report was initially conducted in search of the answer of why Digital Cinema technology has not been fully embraced throughout the movie Industry yet. Besides dealing with the technology issues, this research also deals with four other major questions regarding the commercial introduction of Digital Cinema, which are: 1. 2. 3. 4. Who benefits from Digital Cinema commercial rollout? Who pays for Digital Cinema implementation? Who controls the Digital Cinema process and business? What is the impact Digital Cinema has on the movie business?

Security and Rights Management in Digital Cinema
Year: 2003 Author: Jeffery A Bloom International Conference on Multimedia & Expo (ICME 2003) This paper looks at the consideration and proposed ideas in managing the security threat within the Digital Cinema System. The author explained briefly about the concept of digital cinema as compared to the conventional method of distributing and exhibiting the movies in theater. The author then breaks down several methods in protecting the distributed digital contents are well monitored and secured. Among the methods that are mentioned in the paper are: • • • • Encryption – Protecting the data while in transit from one processing stage to the next. General DRM Tools – Encrypt an object and only allowing the decrypting with keys; when a set of rules has been satisfied. Watermarking – To be used as forensic tracking tool in the event of theft, piracy or bootlegging Camcorder jamming – a feature that is being developed to prevent the recording of the movies through camcorders. 4

BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Digital Cinema Business Model – The Global Outlook
Year: 2003 Researcher: Patrick von Sychowski and Susan Furniss Screen Digest Limited This report is another line of researchers that Screen Digest has analyzed within the scope of Digital Cinema. Digital Cinema Business Models examines every aspect of the new technology and change in business practices to establish who will benefit from the transition and where there is new money to be made or savings to be had, as well as the opportunities for new players and new forms of large screen entertainment and content. This report is the essential tool for understanding the greatest challenge to face the cinema industry in its 100-year history. Among the key points that was analyzed by the team are: • What will be the dominant technologies and which manufacturers have the best chance to cash in on the digital cinema conversion process. • The role of digital advertising: What impact has the 2750 digital ‘pre-show’ has over the 160+ Digital Cinema projectors in Europe, Asia, and North America. • The early trials in Brazil, China and Sweden, where it could re-write the rules for how films get screened in both existing multiplexes as well as new screening sites New entertainment: Alternative content is maturing as a business proposition and 2003 promises to be a breakthrough year for new forms of large screen entertainment. Film analysis: Detailed breakdown of ALL films screened in digital cinemas in US and internationally gives explanation of hidden costs and problems of digital releasing. Driving factors: Key factors in driving conversion to digital cinema, including changing release patterns, growth of day-and-date international releases and ultra-wide releases are weighed up against $1.36bn annual saving from eliminating making and handling of film prints.

• • •

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Summary of Literature Review Digital Cinema will no doubt change the way we portray the motion pictures industry. It will be the same revolution as adding sound to pictures and as adding color to pictures. There are even some observers who think that Digital Cinema is not a revolution but rather an evolution of the motion picture technology as well as the industry. Like everything else which has evolved to adjust to it’s surrounding, the same principles also applies to the motion picture industry. Towards the end of the last millennium, digital technology has made its mark on our daily life. The personal computers, the mobile phone, the Internet, the digital camera, and the DVD are some of the endless list of digital appliances which we have become so well adjusted to. However one thing has always remains the same throughout the hundred year of its existence - the cinema industry. More than a hundred years film has been the primary media of delivering quality motion picture presentation to the audience. Digital technology will soon change the main feature that has kept cinema industry under the analog banner. Cinemas will have to evolve to adapt to the new digital surrounding and also to other trends that are happening within the industry. These trends that have also contribute to the development of Digital Cinema system are competition from HDTV, the increasing number in digital film production and the growing rate of piracy. A shift to Digital Cinema is not actually a process which can happen overnight. It requires agreement within the industry especially between the studios, distributors and exhibitors. There are several hurdles that require everybody consideration are the standards, security and cost issues. Most exhibitors do not want to invest in equipment where they have to purchase from different developers and are not interoperable between one machine to another. Standards must be agreed by all developing technology providers before any major rollout can be done. Security issues have long plagued the entertainment industry. With the development in digital cinema, such as the encryption and watermarking; the threat of piracy, bootlegging or even DVD-ripping would eventually be kept under control. These technologies can act as the tools for the movie producers to protect their intellectual property to be transferred around in this digital age. The third issue is economics. Exhibitors are more concern on the cost issues. They are not willing to invest in digital projectors which are not only uninteroperable but cost 5 times as much as their conventional 35mm projectors. To them the economic does not make any sense to switch to something that is only have the same life span as the average home computers.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Operation Management: Supply Chain Management
Supply Chain Management is one f the Operation Management Strategy decisions. According to Heizer and Render (2004), the strategy is the management of activities that procure materials and services, transforming them into intermediate goods and final products, and delivering the products through a distribution system. It is the whole sets of activities through the business networks in delivering the raw products up until the finished products. This sets of strategies must also adds values to the firm through cost leadership, response strategy and differentiation. To put it simply, a product or service has to be delivered to a potential customer via a unique, fast and the cheapest way. There are three (3) types of supply-chain economics when developing the strategies. The management must decide whether to make, buy a product or service, and outsourcing the activities of the firm. Each decision must take in consideration the three values of the operation management which are the cost leadership, response and differentiation. For example, MMU Creativista Sdn. Bhd. (MMUCV) is a subsidiary of Multimedia University has outsourced its Human Resource and Legal department to MMU Cnergy Sdn. Bhd. to undertake the responsibilities of the personnel and legal issues. MMUCV will in turn pays a fee to Cnergy for providing its services each year. The result is, MMUCV will have low overhead, remains flexible and can respond rapidly to the demand of the market and Multimedia University. Another important aspect of SCM is the strategies that a firm should develop in order to obtain certain products, goods or services from outside source. There are several strategies that a firm can undertook such as; many suppliers, few suppliers, vertical integration, joint ventures, Keiretsu Networks and virtual companies. The vertical integration strategy can be mostly found within the motion picture industry, which I will explain more on it in the following sub-topics. Another way in which the movie industry normally strategies their SCM is through the joint ventures approach, where smaller companies will team up with the big conglomerate studios to produce, market and distribute their movies. “Another way in which the majors proceed is to work with smaller production companies, where the latter assume primary responsibility for organizing overall production tasks.” (Scott, 2002) Managing the supply chain and understanding the issues and opportunity in a integrated supply-chain network, are all part of strategizing a well balance SCM. Apart from that vendor selection, logistics management and benchmarking the overall supply-chain activities should also be taken into consideration by the operation manager in developing those strategies.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Motion Picture Supply Chain Management – The Conventional Way
A typical supply chain of a motion picture starts with the pre-production stage where all of the ideas, scripts are prepared and converted into storyboards and screenplays. During this stage is also where the actors are selected and auditioned for the right part in the movie. Next comes the production process where they shoot the movie according to the storylines in the scripts and storyboards. The duration of the filming is determined during the pre-production stage. The supply chain will then moved on the post-production stage. The process will involve producing visual effects, sound design, editing and so on. The movie will then be mastered and delivered to the studios who financed the movie in the first place. The studios will then find a distribution company to distribute the movie. The distribution agreement between the studios and the distributor will determine how many prints (copies) to be made as well as whether to lease or share on the profit (profit-sharing) of the feature film. The distribution company will then screen the movie to the buyers who are actually representing the exhibitors (theaters). The negotiation between these two parties will lead onto a leasing agreement to determine which movies the buyers should lease from the distributor. After the agreement has been reached, the distributor will send the prints to the theater a few days before the opening via a physical transportation. The exhibitors will show the movie in their cinema for a specified numbers of weeks and at the end of the showing will send back the prints to the distributor. Traditionally, the American motion picture industry is controlled the “Big Six” major companies. They are; Warner Bros. Pictures, 20th Century Fox, Paramount Pictures, Columbia Pictures, Walt Disney Pictures/Touchstone Pictures and Universal Studios. These majors will produced, distribute and exhibit the movies at themselves through their subsidiaries, divisions and brands. This supply chain strategy is called a vertical integration. “The majors as currently constituted engage in feature-film production with varying degrees of vertical integration and disintegration of relevant tasks. One way in which the proceed entails integrated in-house development, shooting and editing using their won creative staffs and equipment as basic resources.” (Scott, 2002) 8

BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Ownership Chart: The Big Six

Production: NBC Universal (80% ownership): Universal Pictures, Focus Features, Rogue Pictures. Universal has production agreements with Imagine Entertainment, Jersey Films, Tribeca Films, Shady Acres, the Kennedy/Marshall Company, Playtone Company, Strike Entertainment, Type A Films, Depth of Field, Stephen Sommers and Working Title Films (Europe). Distribution: Universal Studios Home Entertainment.

Production and Distribution: Walt Disney Pictures (includes Walt Disney Feature Animation and DisneyToon Studios), Touchstone Pictures, Miramax Films, Pixar Animation Studios, Hollywood Pictures, Buena Vista International, Buena Vista Home Entertainment, Buena Vista Home Entertainment International, Disney Theatrical Group, Marvel Studios, A&E IndieFilms (42% equity).

Production and Distribution: Fox Film Entertainment: 20th Century Fox Film Corporation, Fox 2000 Pictures, 20th Century Fox Espanol, 20th Century Fox Home Entertainment, 20th Century Fox Licensing and Merchandising, 20th Century Fox International, Fox Atomic, Blue Sky Studios, Fox Searchlight Pictures, Fox Music, Fox Studios Australia, Fox Studios Baja (Latin America), Canal Fox (Latin America), Balaji Telefilms (26%, Asia), 20th Century Fox Animation.

Production: Subsidiary The Warner Bros. Entertainment Group owns: Warner Bros. Pictures, New Line Cinema, Castle Rock, Warner Premiere, Picturehouse, Warner Bros. International Cinemas, Warner Independent Pictures, a joint venture with Village Roadshow Pictures, and a joint venture with Alcon Entertainment. Distribution: Distribution to more than 125 international territories.

Paramount Pictures (includes Dreamworks, Paramount Vantage, Paramount Classics, MTV Films, Nickelodeon Movies and Paramount Home Entertainment), Viacom 18 (50%) (India).

Production: Sony Pictures, Columbia Pictures, TriStar Pictures, Sony Pictures Animation, Destination Films, Triumph Films, Stage 6 Films Distribution: Sony Pictures Classics, Screen Gems

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Sources: http://www.freepress.net/ownership/chart/main

BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

The Management of the Chain of Supplies for Digital Cinema.
Digital cinema is simply a new approach in the supply chain management of producing and exhibiting movies. The basic idea is to make use of the digital domain of bits and bytes to shoot, distribute and exhibit images, rather than using the conventional method which is employing the usage of chemicals on film. The main advantage of digital technology is that it can store, transmit and retrieve a huge amount of information exactly as it was originally recorded. “The vastly reduced cost of digital prints versus the cost of 35mm prints means that there is less restriction on how many prints can be made and distributed. Ultimately this leads to easier access for exhibitors to a wider range of content.” (Benefits of Digital Cinema, 2010) Furthermore, the global film industry spends at least $1 Billion annually manufacturing and shipping prints.

(Huske & Vallieres, 2003)

Digital Cinema Process
However digital cinema is more than just a projection system; it requires a change in technology throughout the process. According to Huskey and Vallieres (2002), the key elements in digital cinema technology are as follows. Telecine With the vast majority of movies are shot on origination film, the master film print has to be digitized to create videos using a telecine. However the number of production using digital cameras are slowly increasing, which will eventually diminished this stage.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Preparation When a film is digitized, it creates an enormous file that must be compressed. For example, a typical two-hour movie would result in a 1,000-gigabyte file, or 1-terabyte files, uncompressed. Even compressed, a feature length movie could result in a 60-80 gigabyte file resulting in significant storage requirements at the cinema. Once the file is compressed, it must also be encrypted. This step is critical to prevent a digital file from being intercepted and distributed via the Internet and other means. There are multiple encryption technologies that have been proposed. To limit piracy, a file would need to be encrypted at every stage until it reached the projector. Distribution There are several options for delivering the digital file to the cinema. At the infant stage of this technology, DVDs would be delivered to theaters using the existing delivery system. At a later point, the system could evolve to one in which files are transferred using T1 lines or fiber optic networks. The most interesting approach involves satellite transmission, which has benefits particularly in emerging markets. Satellite delivery enables new capability to transmit and present ‘live events’ in ‘real time’ as they happen, resulting in incremental revenue opportunities for exhibitors. Projection This is the final piece of the technology which controls how the movie actually looks at the end of the line. This is where the audiences could see the difference between film and digital format. Pretty much everybody agrees that a good film projector loaded with a pristine film print produces a fantastic, vibrant picture. However over time and repetition of playbacks the film quality drops a little due to the dust, sprocket wear and mechanical movement.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Analysis
The Benefits
The process to go digital will involve an inevitable multi-billion dollar conversion. Therefore Digital Cinema system should meet the needs and desires of everyone involved in the industry by convincing them to consider such massive conversion. The benefits should go far beyond the capabilities of the current conventional system. There are four main areas where Digital Cinema can play a major role and provide the benefits. 1. 2. 3. 4. Creative (Directors, Producers, and Cinematographers) Studios/Distributors Exhibitors Audiences

Creative Let us start with where it all begins: the directors, producers and the cinematographers. Movies are about story telling. No matter what distribution and exhibition technology is used, it should provide the “storytellers” with new and enhanced capabilities to tell their stories in the most entertaining and impacting ways. Digital Cinema should provide the directors and the post-production community with all the tools to help them in making a better and enhanced story telling with its great flexibility. “It’s well documented in interviews and on the behind the scenes DVD featurettes that many of the scenes were ad-libbed. In a film shoot, this is a costly production decision where each second of improvisation equates to a very real and tangible amount of film churning through the camera. With digital, however, if you have the storage space, the most you give up is time (which, admittedly, is far more valuable than film).” (Luzi, 2010) Attack of the Clones was shot in Sydney, Australia in its truest form where George Lucas has shot in digital format throughout the production. Once again digital projectors played an important role in the production of the movie. Lucasfilm brought a Christie projector to Australia for reviewing daily footage. Lucas himself has nothing but praise for the new digital technology that saved a week of shooting and millions of dollars.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

The possibilities of Digital Cinema technologies have also opened a wide opportunity for independent and low-budget filmmakers. With the high quality and low price of today’s digital video camcorders, Digital Cinema has provided a more accessible access for them. The Blair Witch project was a good example, where the production was shot using digital video cameras. Digital copies will guarantee perfect duplication offering consistent quality over multiple locations and time. With Digital Cinema technology the quality picture and sound filmmakers experience in their screening rooms will be the same as seen by audiences in their local theatres. It allows every viewer to see the movie just as the creative team made it to be.

Distributors One main aspect of the economics of the current distribution system is the high cost of printing, duplicating and delivering film to theatres. According to the Australian Bureau of Statistic, the film and video distribution industry spends an average of $61.1m in film print and other duplicating cost, and the rates are increasing by the year. With Digital Cinema, these costs will be reduced as the use of film is eliminated in favor of digital processes. Clark & Burns (2000) states that, approximately $700 million was annually spent on movie distribution in the United States. A reduction of up to 10 times of the distribution and printing cost if the industry change the supply chain management approach to the digital format. This is one driving force that will motivate the conversion of theaters to digital over time. Another advantage that Digital Cinema hold over film is that it can reduce the risk of too many or too few copies of motion picture release. Morley (1998) states that with Digital Cinema the cost to support copies to 100 or 10000 theatres is the same. There is no need of rushing to make copies if a blockbuster opens on too few screens on the opening night. One of distributors’ largest nightmares is the growing rate of piracy throughout the world. The current film distribution system is more prone to theft and unauthorized duplication. With the end-to-end encryption, digital fingerprinting of screen programs and the ability to simultaneously release of motion pictures worldwide will take a large bite out of the 2 billion dollar per year piracy problems. “Digital movies can be protected with encryption so that even if a pirate gains access to a digital movie and is successful in making a copy, that copy has no value without the appropriate decryption key.” (Bloom, 2003)

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

With satellite delivery, the new technology should be able to support rapid worldwide deployment of a movie. The distribution patterns might see global simultaneous releases of movies and reducing the distribution costs. Distributors will have complete control to distribute a feature film globally or by region at the push of a button. Exhibitors While studios will benefit first of all from cost saving of print cots, exhibitors will face new opportunities of increasing their revenues through new streams, flexible programming, and also an improve reliability of the digital prints. These advantages will absolutely provide an enhanced theatre-going experience for the public. With satellite or even fiber optic delivery format, special showings of live events and other programming will open up many new entertainment venues for the theatre owners. Exhibitors can generate additional revenue by utilizing the possibilities being offered by Digital Cinema. “Digital advertising means more adverts can be stored on a server and easily selected and played. Advertising can be targeted to a particular audience, depending on the feature, and different ad reels can be played at different times of day. Time sensitive advertising can be easily programmed, and digital advertising can be interleaved with trailers and house ads.” (Benefits of Digital Cinema, 2010) A simple graphical computer interface will makes screen scheduling easy, accurate, and flexible. For example according to Barda (2002), a successful film could be screened simultaneously on many screens. Smaller cinemas would not have to wait to get copies of a film, and indeed, all cinemas could synchronize their screenings with national publicity campaigns. Country operators would make significant savings on shipping fees. Audiences With the increasing competition from DVD, digital and high definition television, today’s movie audiences wanted their movie-going experience to be a memorable one. One of the key benefits of the Digital Cinema system is that the last showing is as good as the first. The better quality of both the image and sound might temp more people to the movies and will result in higher box office gross. DLP Technology reports that 85 percent of viewers tested since 1999 over 50000 shows described the image quality they experienced as "excellent," and no fewer than 80 percent of audiences decided that, given the choice, they would prefer to see a movie digitally rather than on film. BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry 14

With digital data, new special tracks are just becoming available to assist hearing impaired and sight impaired moviegoers. This information is just one more data stream to be time synchronized to the movie and will enhance the movie experience for millions of sight impaired and hearing impaired viewers.

The Issues
There are no doubts about the benefits that Digital Cinema is providing to the filmmakers, studios, exhibitors and also us the consumers. However, before the full conversion from 35mm film can be realize, there are also some issues that need to be addressed. These issues are some of the obstacles that have been slowing down the process of implementing Digital Cinema globally. Security The first issue regarding the supply-chain management of d-cinema is concerning on the security and piracy. Some critics argue that with movies being converted to digital data, it should provide more access to unauthorized copying and distribution within the realm of the Internet. “Digital cinema represents a serious threat to the industry—but also a tremendous opportunity. The threat is film piracy, because the digital file is of the ultimate quality. Were it stolen, then the copies on the streets or the Internet would be identical to the director’s master—at which point all value vanishes. Furthermore, as the files move from the studio to the distributor to the exhibitor, and are eventually stored in the cinema, the chain has many potential weak spots.” (Digital Cinema: Observations, 2004) The security issue also has led the skeptics to question the authority of the Digital Rights Management concept. This Concept requires many electronic keys which are supplied to the exhibitor and the distributor to unlock the encrypted data on a movie. However, if such control information is put into distribution copies, will distributors start asserting even more control over exhibitors? Well, as is so often the case with new technologies, no one really knows. Cost Finally, the major issues of them all: the cost factor. Who is going to pay for the Digital Cinema conversion? According to Barda (2002) one immediate concern to cinemas is the question of who will meet the expenses associated with buying, installing, maintaining, and upgrading the new machines. The projectors and related infrastructure are relatively new, and many cinema operators are skeptical about investing in an unproven technology.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

It has been suggested that if distributors or producers were able to offer digital prints at a lower price to cinemas, this might make it worth their while to make an investment estimated at between US$75,000 and US$150,000. However, without a regular supply of top quality content, it would be extremely risky. Furthermore, if studios or distributors were to subsidize the cost of these projectors, what would they demand in return?

How Digital Cinema Impact the Supply-Chain Strategies of the Movie Industry
Low-Cost Strategy Eliminate film printing cost Response Strategy Shorten the delivery time of feature movies Simultaneous showing of movies around the world Differentiation Strategy Enhance the storytelling tools for the studios Consistent quality throughout the showing in the theater Reduce piracy

Eliminate/minimize distribution cost

Eliminate storage cost for film reel Reduce the risk/cost of printing too many/few copies of film Additional income for the exhibitors for showing alternative digital contents

Better viewing experience for the audience

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Conclusions and Recommendations
After analyzing the cause and effect of documents and papers; the conclusions to the issues within the supply chain management of d-cinema can be summarize into the following: • • • • The high cost of the system must come down. Additional revenues from digital screen advertising, theatre hire and alternative contents screening must be increase to cover the cost for system installation. Lack of digital contents for screening and distribution. Funding and support from the Government and other agencies should motivate and accelerate the conversion process.

Cost
The cost of the system must come down to a more reasonable range. Currently the cost to convert one screen in would be around the range of US$75k to US$150k. There would not be any major rollout as long as the cost is out of the exhibitors range. However, since the system would theoretically bring more benefits to studios and distributors in terms of savings in film prints cost, there are suggestions that studios and distributors should be the ones who have to pay more for the cost of installations. Alternatively, a third party company or consortium or even the Governments should provide the initial funds for the installation of the digital system in theatres. This however should be followed with an agreement between the exhibitors, distributors and the third party players for providing the funds in return with substantial fees from the exhibitors and distributors. Several business models of such nature have been proposed by companies like Technicolor, Kodak and Boeing.

Increase in Additional Incomes for Exhibitors
To cover for the cost of the conversion, there must be a significant increase in the exhibitors’ additional revenue streams. The sale from the digital screen advertising, theatre hires and alternative contents screening must be increase in proportion with the additional cost that the exhibitors have to pay for the purchase of the equipment. Exhibitors must maximize the potentials that Digital Cinema could bring to their economy. Alternative contents such as the FIFA World Cup Finals could generate substantial revenues for the theatre owners. 17

BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Digital Contents
Another reason behind the challenges and issues of Digital Cinema is the lack of digital contents for screening in theatres. The industry could help out the issues and speeding up the conversion process by producing more digitally mastered movies and other digital contents. Creative contents are vital in any entertainment industry. Even with the advancement in broadband technology throughout the world, without any content the infrastructures that are being laid out are deemed to be useless.

Funding and Support from the Government and Other Agencies
The lack in digital content could be resolve by strategic intervention by the Government and other agencies such as Australian Film Commission (AFC) to support the costs of creating Digital Cinema-ready masters of Australian films. Funding such as the Digital Media Fund and Broadband Production Initiative Fund could encourage the industry to move towards the conversion. This move could provide the significant long-term benefits for the industry as a whole. The Government could also provide the support through schemes to promote the industry awareness thru trials involving government-industry trials as well as consultation with financial institutions. These financial institutions could help by developing suitable financial models for Digital Cinema investment for the industry.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Appendix Glossary

Alternative Content

Programming such as major concerts, Broadway shows and world-class sporting events that are transmitted to theatres. Events can be stored by the exhibitor and shown as audience demand and exhibitor business allows. An electrical signal that is continuously variable. Single unit of digital data - value 0 or 1. 8 bits are needed to store a single letter: 3 groups of 8 or 10 bits are used to store colour values of a single pixel in an image. Group of 8 digital bits, together representing one alphabetical character or one colour value in a pixel. Kilobyte - 1,000 bytes. Megabyte - 1 million bytes. A single frame at the lowest resolution in non-linear editing systems occupies roughly 20 Kilobytes; at PAL resolution occupies about 1 Megabyte: at digital film resolution, up to 55 Megabytes. The digital conversion and reduction in the volume of data from any given process (in this case, a motion picture) so that more data can be stored in a smaller space such as a DVD. Data stored or transmitted as a string of numbers in computer style. Digital images are capable of very fast and powerful processing, and digital reproduction is theoretically loss-free. Digital Light Processor. DLP is the key ingredient in the digital projectors. DLP technology uses an optical semiconductor to recreate source material with a fidelity analog systems cannot match. Manufactured by Texas Instruments. 19

Analog Bit

Byte

Compression

Digital

DLP

BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Encryption

The process by which content is secured. Encryption is the use of a special mathematic code that is so difficult to solve that it is nearly impossible to do without a "key." For digital cinema, this process is done to help secure and protect motion picture content delivered via a digital distribution means such as DVD, satellite or broadband. All of the stages for taking a motion picture from a studio master to a theatre's digital projection system. Speed of projection measurement. 24 fps is standard for 35mm film

End-to-end distribution Frames-persecond

Hard Disk/Drive

Computer data storage unit. Normal hard disk used for software, editing data etc.: images & sound are usually stored on higher-capacity removable hard disks or magneto-optical disks. (Drive tends to be a Macintosh term). High definition Television. Television format and technology for displaying higher resolution than standard PAL (625 lines) or NTSC (525 lines) analogue TV standards. National Television Standards Committee: Committee that established the color transmission system used in the U.S. and some other countries. Also used to indicate the system itself, consisting of 525 lines of information, scanned at approximately 30 frames per second. Single element of an image: one dot in one row represented by one brightness value

HDTV

NTSC

Pixel

Post Production Picture and sound editing, music, optical and digital effects, mixing, colour grading, printing. All work carried out on a film after principal photography and prior to completion of show prints. SMPTE Society of Motion Picture & Television Engineers. Sometimes used to refer to timecode which runs to standards and conventions defined by the society. Area of print film that carries the sound information 20

Soundtrack

BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

Synchronization Two picture records or a picture record and a sound record are said to be "in sync" when they are placed relative to each other on a release print so they can be projected in correct temporal or spacial relationship. When this condition is not met, the two records are said to be "out of sync." Telecine Work Print Device for transferring motion picture film to videotape. In a motion picture studio or processing laboratory, a rough print of a motion picture film used for editing and study of action and continuity.

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry

References
Barda, D. (2002, August). The inevitability of digital cinema. Inside Film Magazine. Features: Behind the Camera, Inside the Scene., Benefits of Digital Cinema. (2010). Arts Alliance Media 2010. Retrieved from http://www.artsalliancemedia.com/benifits/ Blaxter, L., Hughes, C., & Tight, M. (1996). How to research. Open University Press Bloom, J.A. (2003). Security and rights management in digital cinema. Proceedings of the International Conference on Multimedia and Expo (ICME 2003), http://videotechresearch.com/Jeffrey_Bloom/research/bloom03-ICME.pdf Booth, W.C., Colomb, J.M., & Williams, J.M. (1995).The craft of research. University of Chicago Press. Bouma, G.D. (2000). The research process. New York: Oxford University Press. Cisco Systems, 2000, Digital Cinema: Delivered in Internet Style, Cisco Systems Inc. Clark, J., Bruns, M., 2001, Practical Digital Cinema Distribution in an Evolving Technology Environment, Retrieved October 8, 2010, from http:// http://www.broadcastpapers.com/whitepapers/GVGPracticalDigitalCinema.pdf?CFID=19 462168&CFTOKEN=97a3d95dd57f6a93-895564 Digital Cinema: Observations and Considerations. (2004). Dolby. Retrieved October 8, 2010, from http://www.dolby.com/uploadedFiles/zz-_Shared../1_DCinemaPhilosophy.pdf Glasson, S., Williams, P., Selwyn, M., Perschon, C., Mason, A., 2003, Digital Cinema Panel: Show me the Money, paper presented to the SMPTE 2003 Conference, Sydney, 1 July 2003. Heizer, J., & Render, B. (2004). Operations management. New Jersey: Pearson Prentice Hall. Huskey, G., & Vallieres, R. (2002). Digital Cinema: episode II. Retrieved from http://hostanje.net/~transfer/uforadio/CreativeManagement/International/Digital.Cinema.E pisode.II.pdf Luzi, E. (2010, March 30). Top 5 directors doing digital cinema filmmaking the right way [Web log message]. Retrieved from http://www.theblackandblue.com/2010/03/30/top-5-directorsdoing-digital-cinema-filmmaking-the-right-way/ Morley, S. (1998). Making digital cinema actually happen—what it takes and who's doing it. (pp. 17). QUALCOMM, Incorporated Scott, A.J. (2002). A new map of hollywood: the production and distribution of american motion pictures. Regional Studies, 36.9, 957-975. Sullivan, L. (2005, Octiber 3). 3-d movies piggyback on digital-cinema supply chain. Retrieved from http://www.informationweek.com/news/globalcio/showArticle.jhtml?articleID=17120263

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BOM 7094 | Digital Cinema: Changing the Supply Chain Management of the Movie Industry