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Market Insight

Deluxe and Technicolor end long-standing duopoly

April 29, 2015  | Subscribers Only

David Hancock David Hancock Director – Research and Analysis, Cinema & Home Entertainment, IHS Markit
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Two long-standing rivals and leaders in the physical distribution of feature films, both in the 35mm age and in the newer digital era, are to set aside their differences and launch a joint venture. Based out of the USA, Deluxe Technicolor Digital Cinema will focus on theatrical digital cinema mastering, distribution and key management services. This follows the post-production process and gets the files ready for distribution into cinemas (made into a DCP), checks them (QC), gets them into cinemas (delivery, either physical or electronically) and makes sure that the security keys (KDM) are sent out and any problems dealt with. The two companies are not abandoning this area, but coming together to provide a single service, run out of Deluxe in Burbank. The companies will continue to operate separately in all other areas of business.

Our analysis

For some years, IHS has spoken about the time when digital cinema no longer exists, and we return to a cinema industry which happens to be digitised. This announcement seems to herald that time. The old certainties are gone and a new, more fragmented world with lower barriers to entry exists, at the same time as the overall revenue base has been drastically reduced. In the 35mm world, a film print cost around (£700) in the UK, slightly less for volume runs. The contracts with studios were fixed for a period of time, allowing certainty in planning and investment in machines, and the volumes needed ensured a decent revenue and profit margin. In today’s world, a film print (ie a DCP) can be generated and delivered to a cinema for less than £40 in the UK, a single DCP can serve a whole cinema, and a DCP can be used by more than one cinema once it is ingested into a local server. The revenue base is simply not there for the large teams working on the business of mastering, DCP generation, and delivery. There is new revenue in versioning and localisation (eg sub-titling, dubbing, different technical versions, adding local touches into a film image, 3D sub-titles...) but this doesn’t make up for the lost revenues in film prints. Additionally, there are tools that can be used for very low cost (and free) mastering and DCP generation and while these don’t comply with the quality control demands of the larger distributors, the whole sector is now commoditised and by joining forces Deluxe and Technicolor have recognised this.

The delivery element of the business is also going through much change, and the two companies are no longer leaders in that. New entities, such as Ymagis and Unique in Europe, as well as smaller players like digital cinema united (DCU), MPS, Gofilex, Flix, are highly active in providing electronic (and physical) delivery solutions for distributors and both Technicolor and Deluxe struggled to get their own solutions accepted by the market. In the US, the industry-launched Digital Cinema Distribution Coalition (DCDC) is effectively the sole player in delivering features to cinemas and acquired the assets of Deluxe Echostar last year in order to simplify the market and take out a potential competitor.

Technicolor closed a relatively new digital media facility in March 2015, presumably in recognition of the market limitations. Deluxe and Technicolor also joined forced to manage the decline of 35mm, with Deluxe effectively taking control of the business, as seems to be the case here. Technicolor as a group has a broader base of activity than Deluxe.

 

Geography
North America
Research by Market
Media & Advertising
Category
Cinema
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