Digital cinema - technology will change the way movies are watched
Ashwin Kotian
After the euphoria over the annual International Film Festival of India in Goa, it’s time to reflect upon a new disruptive technology that is sweeping the Indian film business and ushering in a mammoth revolution that will rule the future! Digital cinemas will change the face of the century-old cinema business just as Internet (e-mail) and mobile phones changed the face of communication; digital cameras changed the face of imaging; satellite & cable television changed the face of home entertainment; and MP3 technology changed the face of music. Digital cinema envisages providing a high definition cinematic experience using computer servers, telecom and satellite technology. And this is the need of the hour as films are the most perishable commodities after their release.
Spearheading this digital revolution is a new set of traditional film-making firms, real estate giants as well as tech-oriented service providing companies such as Shringar Films, Mukta Arts, Adlabs, Inox, Kanakia Builders and United Film Organizers (part of the Apollo Group) amongst others. In fact, United Film Organizers (UFO) Moviez, the digital cinema network launched by Valuable Media Pvt. Ltd. (a subsidiary of the Apollo International Ltd.) plans to create the largest chain of digital cinema houses (2,000 nos.) worldwide by 2007. The company plans to invest 500 digital movie halls by mid-2006 at an investment of Rs. 80 crore (Rs. 800 million) and scale it progressively to 2,000 cinema halls across India at a total investment of Rs. 300 crore (Rs. 3 billion). And technology companies such as DG2L Tech, Panasonic, Hughes Escorts Communication Ltd. and Famous Studios Ltd. (Mumbai) are partnering it. Here is a snapshot of the dynamics of the new-age digital cinema firms… The Indian film business needs more digital cinema screens.
More than 900 films per year made at an average of Rs. 4-6 crore (Rs 40-60 million) per film; in 30 different languages; 400 crore (4 billion) tickets sold every year leading to a domestic box-office collection of Rs. 4,650 crore (Rs 46.50 billion); but a pathetic cinema screen ratio of 12 screens for every 10 lakh (1 million) people (vis-à-vis 117 in the US). South Indian films contribute almost 50 per cent to the revenues. However, the Indian film business has earned a margin of merely 1 per cent as of 2004-05. India has 12,900 theatres and there is scope for an additional 10,000 screens.
According to FICCI reports, the Indian film business is merely 0.67 per cent of the GDP (gross domestic product) as compared to 1.3 per cent in Thailand; 2.7 per cent in the US; 2 per cent in Brazil; and 1.1 per cent in S. Africa. The film business is expected to grow by 18 per cent p.a. every year and increase to Rs. 12,900 crore (Rs 129 billion) by 2009. The share of the organised production houses will increase to 55 per cent (from 20 per cent now) in five years. However, technology will drive the business in the new millennium.
Producer-director Yash Chopra says, “The industry is changing at a phenomenal pace and so are the business dynamics. New avenues for obtaining revenues are emerging for the filmmakers while the earlier ones are declining. Four to five years before, music used to be biggest revenue earner for filmmakers but today it is merely used as a tool to promote the film.” Speaking about technology driving business dynamics, onkar S. Kanwar (President, FICCI) adds, “Earlier business was driving technological applications but now these applications are driving business models. The time is ripe for the Indian entertainment sector to reap the benefits of technology. Digital cinema is a prime example of how Indian technology whizkids have adopted technology to deliver the best of content even to the remote Indian towns and villages.” South Indian film business is a gold mine Usman Fayaz (CEO Martin Group) and an early investor in digital cinema companies, says, “More than 60 per cent of the film exhibition market is in South India. Andhra Pradesh has more than 2,800 cinema halls compared to 900 in Maharashtra and 1,100 in Uttar Pradesh. In 2004, there were around 250 Hindi films but 485 South Indian films. The entertainment taxes in South India are amongst the lowest with Karnataka having reduced it to less than 15 per cent. Tamil Nadu has made the Goonda Act applicable to piracy. I believe that 50 per cent of the conversion rate in digital cinema will come from the South and it will have the highest screen density.”
Benefits of digital cinema
In the traditional system, the cost of the print (Rs. 60,000 plus) is prohibitive and restrictive in terms of ensuring the penetration of the films into the hinterland (Class B and C towns). “Digital cinema has a lower cost per print. Through satellite technology, it can penetrate 100 cities and towns without additional incremental costs. It offers savings in handling and transportation. It can also factor in last minute exhibition orders. It has a longer virtual shelf life as physical prints wear out. It can curb piracy. It can help film marketers factor in bigger promotional budgets due to these reduced costs. It has a lower break even point. And more importantly, it can effect savings in the running costs - 25 per cent less,” says Rajaa Kanwar, Vice Chairman of the Apollo Group, which has recently made its foray into digital cinema. Digital cinema offers convenience and economic benefits, which even have social ramifications. “Even pure photo film companies such as Kodak realised the reality of digital cinema long back and are moving in that direction. After all, it’s better to be cannibalised than be annihilated. The advantages of digital cinema include: piracy control; empowering the Government to get additional entertainment tax revenues; professional MIS systems and a back up of strong professional management teams. Digital cinema technology consumes 60 per cent less electricity and facilitates savings of 40,000 Kva p.a.,” says Gaikwad. In fact, filmmaker Chopra adds, “Piracy eats away more than 50 per cent of the business. Also, astute filmmakers have stopped releasing their films in the hinterland and even in states such as Assam and Orissa as well as countries such as Morocco and North Africa. If 95 per cent of the Hindi films don’t make money, imagine how much piracy must be cannibalising... In the US, studios release 2,000 prints of each film and the opening weekends (not week) can earn more than $100 million.”
Modus operandi
In the case of UFO Moviez, the film release process entails: getting an authority letter from the producer; encoding and encryption in the UFO Moviez format; distributor release order; delivery of film to the theatre; delivery of licence to smart card; MIS for producers and distributors. Through digital cinema, each theatre can also schedule any film out of a possible eight to ten films at any point of time. “The early availability of films at zero investment combined with high quality images and scheduling flexibility has helped early migrants to UFO Moviez to register around 96 per cent increase in revenue collection. The demand has ensured that our technology partners have expressed their intention to increase capacity,” says Gaikwad.
The current digital cinema wave unlike the earlier one. However, earlier, the digital drive was hampered due to the higher initial investment. “The other reasons, which can hinder the growth of digital cinema include: lack of corporate finance in this capital intensive business; transition from creative business to professional set-ups in terms of expertise and resources; and inability to accept a radically different business model where the risks are shared,” says Kanwar. UFO Moviez plans to enter into franchisee agreement with theatre-owners on a revenue sharing basis as pure service providers without disturbing the existing business models operating in the industry between producers, distributors and exhibitors. The initial investment is merely Rs. 10-15 lakh (Rs. 1-1.5 million).
Digital is the way forward
Speaking about the phenomenal response obtained by digital cinemas, Kanwar says, “Worldwide, there is a tremendous excitement about this technology, which is being hailed as the next leap in film distribution and exhibition. We have already received business enquiries from Europe, Russia, Mauritius, the UAE and the Far East countries.” As compared to players such as Mukta-Adlabs venture, Shringar Films and Inox, the strategy of the newer players like UFO Moviez is different. “We offer MPEG 4 Technology whereas others have been offering MPEG 2. We are the first to offer satellite links and the server information is encrypted. Viewers in the metros and hinterland get to see the films simultaneously, get a better experience and value for money,” Gaikwad says. However, Chopra cautions that the digital cinema firms should first tap the A cities and towns and then spread their tentacles downwards towards the B and C class towns.
