DIGITAL.

When George Lucas and his team of technical magicians released "Star Wars: Episode I, The Phantom Menace" in June 1999, it seemed to presage the dawn of the digital age of theater projection.

"Episode I" was shown digitally on only a handful of screens nationwide, but the release ushered in a new standard of visual crispness and audio clarity that was well received by movie audiences. Equally important for Hollywood movie studios, digital projection represented the first step toward an electronic distribution system with the potential to save hundreds of millions of dollars a year in film printing and transportation costs.

But today, more than 18 months after that seminal release, the immediate future of digital projection is as grainy as a vintage eight-millimeter home movie. Although many industry insiders insist it's only a matter of time before digital machines are as ubiquitous in projection booths as popcorn at concession stands, the number of venues offering the enhanced delivery has remained basically static since "Episode I" made its digital debut.

In part, the inertia has to do with a technology that remains in its infancy. Various manufacturers such as Texas Instruments, JVC and IMAX are building digital projection and distribution systems, but the industry has yet to find a standard that everyone agrees on.

Ultimately, however, the main question revolves around money. Namely, who will put up the billions it will take to replace the film projectors on North America's 36,000-plus movie screens?

"Five years ago I thought we would have been at widespread digital projection today, but that hasn't happened," says Jim Hannafin, senior vice president of marketing for Crest National Digital Media Complex in Hollywood. "Who's going to put up the money? The theaters don't want to pay, because it's the studios who will benefit, and the studios don't want to buy new systems for theater owners."

Delays notwithstanding, the digital revolution, in both projection and image capture, can't be stopped, insists Lucasfilms Ltd. producer Rick McCallum, who is working on all three "Star Wars" prequels.

"It's not even a question of when they want it," McCallum says, referring to Hollywood studios. "It's bigger than the film business. The difference in quality is phenomenal. The change is as definitive as color and the introduction of sound."

DIGITAL DILEMMA 

There are a dozen screens in North America outfitted for digital projection and about 18 worldwide. Three of those screens are in the L.A. area, the AMC Theatre in Burbank, Laemmle's Sunset 5 and Pacific Theatre's Winnetka 20.

Theater companies say the enhanced quality of digital projection has been popular with audiences, and they are quick to cite the advantages of prints that never scratch or deteriorate in any way. Nevertheless, digital projection has not come close to justifying the costs.

Digital projectors go for $100,000 apiece, about 10 times more than film projectors. At a time when many American theater chains are struggling, and several have gone belly up, in part because of over-investment in new screens, the industry is ill-prepared to come up with the capital necessary to make the upgrade.

"It doesn't make sense to install a lot of digital projectors if we don't have assurances that films will be available in a digital format," says Rick King, senior vice president of corporate communications for AMC Theatres. "Our belief is that digital technology is the emerging technology of the future... We know it's coming, but we don't know when."

The studios, on the other hand, are reluctant to make more films available digitally until they can count on being able to show them to a wide audience.

The Walt Disney Co.'s "The Emperor's New Groove" is the most recent of about a dozen films -- about half made by Disney -- to be released in a digital format. With a few exceptions, those films have been shot at least in part on film and transferred to digital. Thus, even with widespread use of digital cameras and editing, few filmmakers have been able to see a project through from start to finish in a solely digital format.

McCallum, for one, says he looks forward to the day when he will be able to complete a movie -- from capture, to editing, to print, to projection, without using film at all.

"At the end of the day, that's the only way we as filmmakers can have people see a film exactly how we made it," McCallum says.

REVOLUTION IN FILMMAKING

Of course, there's an aesthetic argument as well when it comes to digital. Some filmmakers and fans -- not to mention film companies -- argue that an electronic process can never match the warm look and feel of celluloid, which is developed chemically.

"A lot of factions within the industry, cinematographers for example, who as a group are quite powerful, feel their art form will be affected, and that people with less skills will start making films," Hannafin says.

But McCallum and others argue that digital technology represents another tool in the filmmakers' work kit and will never completely take the place of film.

"We are not advocating the death of film," says McCallum. "We are advocating giving filmmakers a choice."

In an abandoned movie theater on Hollywood Boulevard, studio executives, filmmakers, post-production technicians, manufacturers and even representatives of the California Film Commission and the federal government's Institute of Creative Technology have been gathering from time to time over the past several months to help sort out some of the sticky questions involved in digital projection.

Under the aegis of the Digital Cinema Lab, an arm of USC's nonprofit Entertainment Technology Center, experts are testing and assessing digital projection and distribution systems in an objective setting to determine what works best and most economically.

"The distribution technology is progressing very quickly," says Thomas McCalla, chief operating officer of the center. "The technology companies have been very aggressive in trying to raise the bar."

Most agree that when the systems have been perfected in the coming years, all films, not just those shot with digital cameras, will be transferred to a digital format for distribution and projection.

"There's a possibility of saving $1 billion a year in transportation and making prints," says McCallum. "That's the wheel driving this. The huge price of distribution is one of the things that makes filmmaking so expensive.