It has been a busy year for Sanjay Gaikwad, CEO, United Film Organisers (UFO). Gaikwad heads the digital cinema arm of Valuable Media and he has been working overtime to woo single-screen theatre owners from small towns across India. Since last April, UFO has persuaded 140 theatres from West Bengal to Rajasthan to migrate from the traditional film reel to digital technology. By April, Gaikwad intends to take the number to 500, and then to 2000 by 2007. This will entail an investment of Rs 300 crore. “Digital cinema is trying to boost films in small towns. The money which was going to piracy is now coming back into the system,” says Gaikwad.

UFO is not the only service provider promoting digital cinema. Real Image of Chennai too has linked up 50 theatres in Tamil Nadu, and hopes to digitise 500 by March 2007. These companies use satellite links to transmit digitised movies to servers in theatres, where they are screened with digital projectors. UFO and Real Image are investing Rs 12 lakh to Rs 15 lakh in digital equipment (celluloid equipment costs are similar) in each theatre against a small deposit. And they hope to recover this through a per-screening fee.

Why should theatre owners adopt digital technology? The argument is that prints are costly at Rs 60,000 a head. And since most B-grade and C-grade theatres only get prints after three-four weeks, they lose out to piracy and word of mouth. With digital transmission, theatres can capture the first-day first-show audience. Also, quality is not a concern unlike film reels, which can deteriorate within a month.

However, these companies are offering a cost-effective Indianised version of digital cinema that doesn’t match up to the Hollywood studio-prescribed Digital Cinema Initiative (DCI) standard laid out last July. In fact, Sathyam Cinemas in Chennai is the only theatre in India to install DCI-standard 2k projectors (which cost Rs 40 lakh-Rs 50 lakh). Says managing director Kiran Reddy, “It’s not about cost savings. We opted for digital to enhance the customer’s movie-going experience.”

The digital cinema juggernaut may be rolling. But industry watchers caution that companies like UFO and Real Image may repeat the mistakes made by early entrant Mukta Adlabs Digital Exhibition. Mukta Adlabs, which began in 2003, managed to digitise around 90 cinemas but almost 65 have switched back to celluloid. That’s because quality hiccups apart, what the audience really needed was refurbished theatres. As Raj Tilak, consultant, Mukta Adlabs says, “Digital is only a delivery mechanism. If the film or theatre are not good, people will not come.”

Agrees Dr Sunil Patil, CEO of PVR Cinemas’ Digital division, “Cinemas have to be a family destination to succeed.” That’s why PVR is only deploying the technology in its low-cost Latur and Aurangabad multiplexes as these markets can’t support print costs. “If Latur can only collect Rs 50,000 at the box office, why should you invest in a print here. It doesn’t benefit any stakeholder,” he says.

The Essel group’s E-City Digital Cinemas too is deploying digital technology. The company recently acquired a 51 per cent stake in Shree Vijay Raj Entertainment & Software, which controls 90 theatres in the Bombay film territory. Now, E-City, which is taking on the theatres’ distribution risk, has started the task of digitising 50. “We have gone digital to ensure we get the films. But eventually we will upgrade the theatres,” says CEO Atul Goel. The company will invest Rs 10 crore initially and Rs 100 crore by March 2008 to take its digital screens to 500. Even Reliance Entertainment is considering deploying its large fibre optic network to serve up digital cinema. “We will look at it,” says chairman Amit Khanna.

India may have taken a lead over Hollywood in digital cinema but can the players sustain their indigenous service-provider model? “E-Cinema offers a huge economic advantage to the film industry,” says Senthil Kumar, director, Real Image Media Technologies. But while there is value in that, as Reddy says, “D-Cinema is about the customer and not cost savings while E-cinema is about cost savings and not the customer.”