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Market Insight

North American satellite distribution venture moves step closer to launch

March 14, 2013

David Hancock David Hancock Director – Research and Analysis, Cinema & Home Entertainment, IHS Markit
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Several years after first announcing it, and one year after re-activating the project at Cinemacon 2012, the Digital Cinema Distribution Coalition (DCDC) has announced three new distributor partners on top of the original founding partners (Warner Bros and Universal along with leading exhibitors Regal, AMC and Cinemark with over 15,500 screens between them). In March 2013, Disney, Lionsgate and Paramount joined up, and Sony and Fox are negotiating to get involved. Initial rollout is planned before the end of 2013, with a launch this summer on up to 300 sites. There are around 6,300 cinema sites in North America, 90 per cent of them in USA. There is a rump of screens that are struggling to convert in USA, and the last 15 per cent is taking time and effort to find the right tweaks for the business model. By contrast, Canada is almost fully digitised.

In April 2012, DCDC chose Deluxe Echostar (a joint venture established in September 2010 for movie delivery by satellite) as the main provider for satellite transmission system and operations. Kencast, a specialist video delivery company founded in 1994, will be handling the content delivery system installed in theatres. Kencast offers a product called EdgeSpan 3U Cinema Pro Appliance, which can accept multiple satellite feeds or fiber-delivered content, and can also accept and play out live content (and time-shift it if necessary) to multiple screens. The system will be used for movies, in-theatre advertising and alternative content.

North America is one of the few regions where satellite distribution makes clear economic sense: being largely a mono-lingual territory keeps the number of versions down, and a high number of sites provide the necessary volume for satellite viability. However, even in such a market, competition is difficult as the potential market is still relatively small in satellite terms, and high start-up investment costs makes the viability of two operators difficult. In addition, when satellite was first envisaged as a delivery method, file sizes were expected to come down, but in reality the opposite is happening, with 3D, 4K, HFR all having an impact on the file size to be delivered which increases delivery costs.

In other countries and regions (somewhere like Asia), where satellite coverage is relatively low and the region is highly fragmented (linguistic and cultural differences makes the logistics of versioning complicated), the chances of establishing a viable regional system are much lower. That doesn't mean it won't happen, and several operators have announced plans in this space but for the moment the major labs (outside US and major European markets) seem to be focusing on making the hard drive replication and distribution system more efficient. This makes the physical distribution network currently in place even more entrenched, and makes it that much harder for any electronic system to get off the ground, let alone compete on price. If alternative content continues to grow, then any distribution system that is not based on satellite may also need to run a satellite delivery network alongside it for screening live events.

The target of DCDC is to effectively remove all or most of the distribution costs for users of the system. If the remaining studios come on board, the client base will account for nearly all of the movie delivery requirements in North America by volume, thereby making any competition pretty much redundant. It is an example of a managed system for the benefit of all, in the same way that some countries digitised their cinemas. However, the client list so far is limited to the studios and mini-majors, which may use the majority of prints but there is a long tail of movies that receive far more limited releases. In 2012, of the 650+ films released theatrically, only 136 of them were released on over 1,000 screens (20.7 per cent). DCDC states that the system is open to all and the likelihood is that even low volume usage will be cheaper than delivering film reels or hard drives. This would mean that there is little economic reason not to use the system, but there may be those that prefer not to, so what is the outlook for them?

One possible solution was released earlier this year, by the company that drove digital acquisition of movies, RED. The REDRAY 4K Cinema Player is a media output system, for 4K content only, that can be used in the home (with the necessary accompanying equipment so more likely affluent consumers, technophiles, DI and post-production suites) or in professional venues (such as cinemas). The technical specs claim it can output 4K stereo 3D video at up to 60 fps per eye, and costs just under $1500. The system requires a 4K display or a projector (see below).This is expensive for a home user but is relatively cheap for professional usage. The distribution element comes in a deal with a start-up called Odemax, which has set up a cloud-based content video delivery network and leased bandwidth on a US fiber network. Red and Odemax offer content creators and exhibitors access to distributor-free content, as long as it is 4K. Content is encoded using a codec known as .RED and it can also be optionally encrypted. The revenue split as proposed by RED will be Odemax 30 per cent, the exhibitor 20 per cent and the producer will take 50 per cent of the revenues. RED managed to disrupt the movie camera market in the last decade, producing portable, high quality (The Hobbit was shot on 48 RED cameras) and comparatively low price equipment.

RED is also developing a 4K laser projector for cinema use (known as Crimson and for screens up to 80 feet) as well as a smaller version for the home (up to 15 feet and costing around $10K). It seems that RED is seeking to have the Crimson projector certified under DCI, although there is little hard information on that, but they will need it otherwise the discussion becomes redundant. The RED projector is not fully on the industry radar yet, and it is difficult to see how the company can offer a low-cost fully functional laser projector now when the established projector companies are in the development phase, with high costs and the consensus estimating three years to market for competitive products. However, RED has done the unexpected before with movie cameras, effectively disrupting the existing value chain and changing the dynamics of the whole sector. There are a number of issues (such as speckle, costs, regulation) with laser projectors and testing to be undertaken, which led to the creation of the Laser Illuminated Projector Association (LIPA) in May 2011.

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