Thomson said on Thursday it has reached agreements with a quartet of major Hollywood studios—DreamWorks, Sony Pictures, Universal Pictures, and Warner Brothers—to use its digital cinema technology.

The movie studios plan to shift from analog to digital cinema technologies with the help of the Paris-based company, which manufactures RCA and Thomson-branded electronics products and also develops Technicolor technology.

The studios signed separate, long-term agreements to distribute their content digitally throughout the United States and Canada. They will pay Thomson a virtual print fee for any screens equipped with Thomson’s Technicolor Digital Cinema systems beginning in the first quarter of 2006.

Thomson anticipates that 5,000 digital projection systems will be rolled out in the next three to four years. The company also hopes to have 15,000 digitally equipped screens available in the U.S. and Canada within 10 years.

Shares of Thomson were down $0.08 to $19.37 in recent trading.

In addition, Thomson is negotiating with other movie studios as well as regional and national theater chains over deploying the digital technology by early 2006.

Thomson hopes to play the role of managing the rollout of the digital projection systems, along with handling post-production and network services, distribution, and equipment supply. The company also sees itself offering content management software and security systems.

“We believe that managing this transition requires a technology shift for the entire industry,” said Thomson Chairman Frank Dangeard.

Twentieth Century Fox, New Line Cinema, and the Weinstein Company, which also expressed support, are in negotiations with Thomson on their own deals.

Creative Flexibility

Miramax founders and brothers Bob and Harvey Weinstein, co-chairmen of the Weinstein Company, said in a joint statement, “The development of digital cinema and the broad-based industry support for the Technicolor Digital Cinema plan is good news for filmmakers as it will expand our creative flexibility and exhibition options.”

Under the business model envisioned by Thomson, the studios will continue to book films with distributors. If a theater is equipped with a Technicolor Digital Cinema system, the studio will pay Thomson a virtual print fee to use the equipment on that screen. The systems are estimated to cost from $90,000 to $100,000 per screen.

The rollout will be financed from a variety of sources, including equipment vendors and Thomson’s financial partners. Now that it has the initial agreements in place with the major studios, Thomson intends to focus on obtaining the optimal financing structure to support the rollout.

Thomson Multimedia acquired Technicolor in 2001 from Carlton Communications as part of a gradual transition away from the consumer electronics field but has been experimenting with digital cinema technology for the past six years. The company has released over 100 movies in digital form that have been presented in about 300,000 total screenings.

acquired Technicolor in 2001 from Carlton Communications as part of a gradual transition away from the consumer electronics field but has been experimenting with digital cinema technology for the past six years. The company has released over 100 movies in digital form that have been presented in about 300,000 total screenings.

The technology for the current rollout is based on a set of open standards published in July by Digital Cinema Initiatives (DCI), a joint venture among the major studios defining various specifications for compression, security, picture quality, and other technical issues.

The digital systems will include a server and projector at every screen, along with a centralized server and satellite dish at every complex that will receive the movies and distribute them to the screens.

Joe Berchtold, president of Technicolor electronic digital distribution services at Thomson, estimates that there are already about 60 or 70 projectors currently deployed in the U.S. from Thomson and other equipment makers, but they are using older, proprietary technologies and not the open DCI-compliant technology.

U.S.

Satellite will be the main mode of delivery for the films, since it is the most efficient and secure. But for a handful of locations that can’t get a clean “line of sight” between the satellite transmitter and receiver, the films will need to be distributed over an Internet-based connection or shipped to the theater on a hard drive.

Battling the Pirates

In any case, a major priority for the studios and distributors will be maintaining security. Mr. Berchtold said all the files will be protected with sophisticated forms of encryption technology.

In addition, all of the digital movies will have a date, time, and location watermark, so if they’re filmed with a camcorder in a theater or otherwise captured, the studios will be able to determine where that occurred.

However, even with the increased security, Mr. Berchtold does not expect that the digital format will eliminate piracy altogether.

“Piracy will always be a cat-and-mouse game between the thieves and the studios,” he said. “We put in place the next round by making it harder to steal the content, but will the pirates keep up the game? Undoubtedly. Will the studios have to continue to fight the trench warfare? Undoubtedly. We’re on the side of the studios and exhibitors to keep their content from being pirated.”

The digital format also offers a higher consistent quality that does not degrade when the movie is replayed. Another advantage is flexibility.

“You can follow consumer demand,” said Mr. Berchtold. “If a movie is a surprise hit on Friday night, you’ve got the ability to add more screens on Saturday. You don’t have that ability today.”

However, he expects the transition will take a long time, given the fact that there are 36,000 screens in the U.S., between 5,000 and 6,000 in Canada, and almost 30,000 screens in Europe.

U.S.Europe

“It will take some extended period for the whole world to convert over to digital,” he said. “We will have 35-millimeter around for a while.”

One aspect of flexibility that digital cinema won’t offer will be the ability of individual theater chains or owners to edit or censor the films themselves.

“One of the things we did is we kept the business model and business relationship consistent with what they have today,” said Mr. Berchtold. “Today with 35 millimeter, they don’t go in and make changes to the physical reels, nor would they do it with digital reels.”

He also expects movie previews and ads to be stored and projected in digital format so screening rooms don’t have to switch between two different types of projectors. That part will be handled by the businesses, such as Screenvision, that specialize in ads.

However, theaters may have the ability to show extra content that can be packaged with the digital movies, such as the featurettes that show up as DVD extras, or different versions or alternate endings of movies.

Thomson is working on agreements with other Hollywood studios and expects to make further announcements over the next few weeks when the deals are in place.