Goodmorning. I don’t know about you, but I am still recovering from Saturday’s defeat to the Russians.

Anyway: a few weeks ago Antoine Virenque, the French Distributors’ Association’s General Secretary and EDCF-boardmember, asked me if I could fill in his spot for this mornings essay on the question : D-Cinema in Europe – Stalled ?

My return question to him was : what do you want me to say ? Because there is so much to say on the D-Cinema subject. Well, his answer was, the EDCF-board would like to have a neutral view from the distribution-side on this mornings question, and, by the way, you have 5 minutes at the most. Then I thought how neutral can someone in my position be, when you represent the interests of both major and independent distributors, when it looks like major and independent distributors and exhibitors seem to approach the subject very differently and the outcome of all these approaches and discussions seem so uncertain.

But after some consideration I decided that indeed I could share some thoughts with you in an ultimate effort to shed some light on what is happening in our industry. At least in my opinion, which is not necessarily the same as the opinion of the Dutch Film Distributors’ Association.

So here we go:

Once upon a time, it must have been somewhere around 1810 the first steam-engine was installed on a ship; it took a transition period of another 60 years before ocean going sailing ships were also equipped with an engine with a propellor.

Ships had been of course always entirely dependent on one crucial source of energy : wind. Without it, ships couldn’t sail, the upside however was that wind is for free, so ship owners did not need to invest in this unlimited free energy-source.

With the new possibility of installing an engine in a ship the perception of ship owners in the 19th century of their business changed entirely. You could see different approaches : ship owners that welcomed this new technology and at once decided to go the new direction, ship owners that for a transition period maintained ships with both sail and engine power, and those ship owners who thought this new technology was not going to do them any good. They thought no investments in machines could compete with free wind, thus keeping costs for their customers low.

Installing engines in ships could only make transportation far more expensive for their customers. Ships would be more expensive to build and to operate. Prices for customers could only go up as a result of higher operating costs and therefore profits would go down.

What these kind of ship owners couldn’t forsee was that the engine could shorten the time needed to go from harbour A to harbour B drastically. That one great advantage alone would make up for the higher price customers would have to pay. And indeed it did.

So the result was that ship owners that adapted immediately and those who adapted later, while at the same time maintaining the older but still very profitable wind-energy, won the market over those who choose not to adapt at all to these changed market circumstances. It is one of the many examples of technological developments entirely changing the way an industry works.

The analogy with what is happening in our industry seems obvious.

Distributors and exhibitors that adapt to the technical changes in the market will win that market if not entirely, then at least for the bigger part, and they will stay in business. Distributors and exhibitors that do not adapt to the changed market circumstances will either go out of business, or will enter a very small league of National Film Museums, where you can occasionally see a movie projected in the old fashioned way.

So is this the answer to this mornings question: D-Cinema in Europe - Stalled ?

Not yet, but I am coming to that.

New technologies open the way for suppliers of films to distribute cheaper, safer and easier, while maintaining the original technical quality of the product. That is a huge step forward compared to the analogue way of production and distribution. Digitalisation of cinema’s is something producers and distributors really want to happen in the whole chain.

European exhibitors are not unwilling to enter the digital age, but they fail to see where their benefits are. They feel -rightly or wrongly- that they do not benefit from this technical development in the same way as producers and distributors do, meaning that costs will go down. It is clear that costs for exhibitors will go up if they have to finance their investments entirely on their own. So it is an economic matter of supply-and-demand that will determine in what way and how fast exhibitors will be able to adapt to the new digital era, in dialogue or negociation if you like, with their suppliers.

From a technological matter in first instance, it has now become a purely economic matter: Technically speaking there are no major obstacles; on the economical side it is the supply-and-demand question that has to be answered and that answer can come only from the market itself.

Looking at the European situation it looks like the major distributors and big circuits are stepping up their efforts to come to a solution soon. It is expected that within 6 to 12 months a number of big European theatre chaines will have come to an agreement with almost all major distributors and third party facilitators. This means that in the nearby future, majors will gradually stop supplying 35 mil film prints once a critical mass of digital theatres in Europe has been reached. From that moment independent theatres, specialised theatres and so-called arthouses that cannot project digitally, can’t show features from majors anymore.

However, this concerns only the US-releases which are approx. 50% of all the releases in Europe.

What about the other 50% of releases that mainly originate from Europe and Asia, how will these titles be distributed and projected ?

Well, the transition on the independent side is going much slower. That is understandable if you consider that theatrical distribution of non-US-films in Europe is hardly a profitable undertaking for distributors. Theatrical profits on non-US-films are almost non-existing and profits can only be realised in combination with DVD-release and other forms of exploitation. Independent theatrical distributors will carefully consider for each non-US-filmrelease whether or not a digital release is worth while. Releases of small films in 5 prints or even less might not be cheaper in digital form at all.

I think it is in the interest of small distributors and exhibitors to have dual projection-systems, analogue and digital, if and when possible and as long as possible. This would enable them to show all films from all origines during a stretched out transition period thus also preserving cultural diversity in film exhibition in the whole of Europe. As it is clear that digitalisation of independent or specialised theatres can not be financed by these theatres themselves, not even with the virtual help of independent or specialised distributors, it is necessary that European and local governments to step in and help European distribution and exhibition to finance their transition to D-Cinema. This has already taken place in the UK as you know, but not in any other European country.

Technological developments dictate how films will be produced, distributed and exhibited in the future.

That calls for investments by all links in the chain : producers will have to invest in order to deliver finished product in digital forms and formats that, in turn, enables distribution to do a proper job. Distributors will have to invest in digital distribution – disc multiplication, fiber channels and/or satellite channels, and exhibitors will have to invest in new theatre-equipment one way or the other. Each party in this chain must play its role according to the laws of supply-and-demand.

So my answer to the question at this moment is : Yes and No.

Yes, indeed D-Cinema is stalled in the sense that in Europe there will be no quick big bang or general roll-out for the whole European market place at the same time for everybody. This is economically and practically impossible.

And, no, D-cinema is not stalled, at least not for everyone : major distributors and independent distributors with mainly US-films and big circuits are going ahead as soon is possible, according to the announcements of equipment manufacturors and facilitators.

However, independents distributors and exhibitors with mainly non-US, European, Asian and third country films will take much more time to come up with an economic model that fits everyone. Promising local initiatives in Germany and Holland have, for various reasons, so far not led to one or more business models that work. Whereby it seems that any of these models can’t even be established without the help of funding by local governments or the European Media Program.

Generally speaking: the market will decide the speed of transition. However, different players will take a faster or slower pace, according to their economic strength.

What do companies do when they are in a strong economic position ? They go ahead as fast as possible in order to beat the competition and not to miss opportunities. That is how the major distributors and big circuits will come to an agreement soon with the help of third party facilitators.

And what should companies do, when they think they are in a weak economic position ? They join forces and start talking to the other side in a joint effort to establish a business model that fits all, in order to stay alive in a very competitive marketplace. That is the pathway that the FIAD and UNIC (the European Distributors’ and Exhibitors’ Federations) have agreed upon in a joint meeting in Cannes last month. However, it is up to the member companies of each of the European trade-associations to decide whether or not a joint approach is required and what role their respective trade-association can play, or that member companies still choose to go their own individual way and wait-and-see in order to adapt only when they judge the right circumstances have been established. But these “right circumstances” may never be established when you have not participated in their conception. That attitude will certainly stall D-Cinema, although it will not take as long as the 60 years in the shipping-industry.

OK, my 5 minutes are up, thank you for your time, I wish you a great Cine-Expo with great new product and lots of new insights of how to run your business. Thank you.

- 3 -