Putting the Tech In Technicolor

Jul 30 2001

LOS ANGELES - It's a beautiful, sunny Southern California afternoon, but here inside the hushed Technicolor labs there are no windows, and the lights are out in most of the rooms. In the near-darkness, a couple of 17-year film-processing veterans feed spools of negatives into high-speed machines. In another room, rows of crank-controlled cutting reels stand empty, awaiting the technicians who work at night preparing "dailies," raw footage of movies in midproduction.

Technicolor has changed surprisingly little since it opened its doors in 1915 and began courting Hollywood with its plans to add color to black-and-white film. Its traditional business - processing and distributing celluloid film for movie studios - still accounts for a significant part of its $1.6 billion in revenues.

But if Technicolor executives prevail, all this will soon be obsolete. Acquired by Brussels, Belgium-based Thompson Multimedia for just over $2 billion last December, the company is rushing to get to the front of cinema's digital revolution - before it gets trampled.

The industry's transformation is coming fast. Last spring, six studios formed NewCo, a venture that will finance digital projectors in the nation's multiplexes and set standards for delivery and business models. Meanwhile, filmmakers - led by Star Wars director George Lucas - are rushing to embrace all-digital movies, eliminating the need for Technicolor's film processing. And a handful of companies are testing various ways to distribute movies over satellite and high-speed cable lines, a grievous threat to Technicolor's bread-and-butter business of shipping reels of film by truck or plane. "Clearly, digital cinema is poised to transform the traditional landscape of the motion picture industry," says Lanny Raimondo, Technicolor's CEO.

The company is acting quickly. Last year, it teamed up with wireless company Qualcomm to form Technicolor Digital Cinema, in which Technicolor holds a 51 percent stake. The partners are building a headquarters in Burbank, Calif., to house executives, a digital processing center and screening rooms; it will open in the fall. "We want to lead the transition from analog to digital," says David Elliott, a 12-year Technicolor executive who was picked to run Technicolor Digital Cinema. The joint venture is supposed to marry Qualcomm's technologies with Technicolor's Hollywood connections.

But it's off to a bumpy start. At a splashy luncheon at movie-industry confab ShoWest in Las Vegas in March, Elliott alienated studio execs when he unveiled a plan that envisioned TDC handling all digital cinema services for the studios. They would give Technicolor their film or digital tape, and TDC's centralized system would do the rest - compress it, encrypt it and get it to theaters.

The plan made studio brass nervous. They worried that it gave too much control to Technicolor and didn't include enough security to protect against piracy. "The studios won't stand for a gatekeeper," says Rob Hummel, senior VP of digital cinema at Sony Corp. of America.

After ShoWest, TDC dropped another bomb, this time upsetting theater owners. The company's business model called for taking a small cut from every ticket sold for a digital presentation. Besides cutting into profits, the plan would be difficult to administer because of the complex formula governing the box-office haul split between studios and exhibitors.

For now, Elliott says, TDC has no plans to back down. But he hasn't ruled out shifting the company's business model. TDC's moves so far, he notes, are simply part of an effort to get the industry talking. "Understand what we are trying to do," he says. "We are trying to put a marker in place."

Meanwhile, Technicolor has competition. Kodak has opened a digital cinema center in Hollywood and has been courting the industry with special screenings, parties and luncheons in the hopes of wooing customers to its own digital processing and distribution plan. Boeing's digital cinema arm, thanks to its successful test of Bounce with Miramax, is also on the industry's radar. And a handful of other companies are trying to reshape the way entertainment is delivered to movie theaters. One notable example: InTheater Entertainment, a Tustin, Calif., company hoping to leverage the flexibility and low cost of delivering digital content to convince movie audiences to attend events from concerts to corporate videoconferences.

Conventional wisdom has it that it may take a decade to install all the equipment needed to make digital cinema work, so for the moment those jobs in the darkened labs in L.A.'s Studio City are safe. Audience demand could speed that timetable, though. Consider a recent night at the Loews E-Walk theater in Manhattan, where audiences were voting with their feet: Tickets consistently sold better for the digital screening of Shrek . Audiences prefer it because the digitally created images are sharper. This is good for digital cinema, but Technicolor didn't get a piece of the action; TDC lost out on the movie's contract to George Lucas' THX.