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Dan,

This was discussed a little on the CSCO board last week. Don't see you much there anymore, not that I can blame you...Most of the good people bailed months ago. Not sure what that says about me :-)

Anyway, the estimate for an all digital projection system, made by a poster ostensibly connected with the industry, is $100K per theatre. So for a 12 theatre cinema, you're looking at $1.2M. When you consider national firms like National Amusements (Showcase) or General Cinema, they would be talking in the billions of dollars to upgrade all their theatres.

I agree that digital movie delivery could open up a variety of new revenue options for theatre owners.

Examples are:

1) The ability to handle overflow demand - where I used to live, first run movies were routinely sold out at all the popular showings. Digital "film" will allow another theatre to be configured to run first run movies almost instantly, helping the owner capture the demand that might have left otherwise.

2) Reduction in personnel costs - maybe not a huge savings, given what they pay projectionists, but digital movies would allow you to use a single "projectionist" to operate several, possibly even all, of the movies in the cinema simultaneously.

3) On-demand Kiosks - This may be a stretch, but I could see a theatre offering mini-theatre booths that could accomodate 2 to 4 people using a small screen but offering viewing of any movie in the theatre whenever the customer wanted to see it. You could probably charge a premium for the convenience. The small screen might be a problem, but overall it could be a nice idea.

Anyway, as to the original point of the post, I think Qualcom might have a tough time gaining standard adoption of it's image processing methodology. I haven't seen anything specific about what benefits they might offer, but QCOM's approach would have to offer a significant advantage in quality or overall compression to displace MPEG as a standard for digital movies.

Even if they succeed, as interesting as this technology is, I would not anticipate any fundamental shifts that would create a gorilla market for QCOM or anybody else. Transferring movies digitally is a more efficient way to distribute them, but the technology to transfer very large files is there today. If QCOM's approach can replace MPEG as an industry standard, there might be the potential for large revenues from licensing, but probably not on a scale even close to that of their CDMA licensing.

The net as I see it is that the new venture between Technicolor and Qualcom has the opportunity to generate a lot of revenue with their end to end digital theatre system, but the potential market ($4B-$5B) just isn't big enough for the new company to merit and achieve Gorilla status.

Just my $.02

Steve
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