Firm gains foothold in digital cinema through theater ads.

CHRISTIE Digital Systems Inc. is stradling two worlds of movies--film and digital.

For 70 years, the Cypress-based company has been making film projectors for Regal Entertainment Group and other exhibitors. More recently, Christie has started making digital projectors that finally have closed the gap with their clunky, mechanical cousins.

The stakes are high: When the movie industry swaps film for movies stored and projected digitally, the company could more than quadruple its business.

Last year, Christie counted $150 million in sales, up 40 percent from a year earlier, although much of the gain came from sales of digital projectors to show commercials before movies start.

Only 170 U.S. theaters are using digital projectors for movies--just a sliver of the 36,000 theaters nationwide. "We've got a long way to go," said Jack Kline, Christie's president.

More competition

Christie started in Los Angeles and moved to Cypress 10 years ago to be near to its parent, Japan's Ushio Inc., a maker of halogen lights that has its U.S. base just across the street. Ushio, which bought Christie in 1992, makes the bright xenon lamps that go inside Christie's projectors. In 1999, Christie itself bought Canada's ElectroHome Projection Systems to get into digital projection.

Christie said it has digital projectors in 108 of the theaters that show digital movies. Rivals include Belgium's Barco NV and Digital Projection Inc. of Kennesaw, Georgia.

Projectors from Christie and others use a Texas Instruments Inc. chip that reflects images on a screen. Christie makes about 70 film projectors and 930 digital projectors--including 250 3-D models. Many of the digital models are used for corporate presentations or home theater systems.

Christie now plans to start pitching its second generation of digital projectors. The company develops its own software that works with Texas Instruments' digital light processing chips, which have 1.2 million mirrors that move at 50,000 cycles a second.

Christie has an edge because it already is in the film projector business, said Michael Karagosian, digital cinema consultant with Karagosian MacCalla Partners in Calabasas, which tracks the industry. But digital is a new game, he explained, and more competitors are likely as the market heats up. Making, distributing and showing movies via computers has parallels to digital TV--it's here, but it isn't.

TV broadcasters are mandated to switch to digital signals in the coming years and consumers can buy digital sets and watch some digital shows today. But the changeover is proving drawn out, with TV stations balking at the high cost of digital conversion and slow sales of digital sets.

Investment question

There's disagreement on when movies might convert to digital. Estimates are anywhere from one to 10 years. "There's a lot of interest in making this happen," Karagosian said.

Like digital TV sets, digital projectors are two to three times more costly than film models. A digital system goes for about $150,000, versus $50,000 for a film projector.

The trick for the movie theaters--rebounding from overbuilding in the late 1990s--is to figure out how to invest in new technology without raising ticket prices.

Some bugs need to be worked out before digital takes over, according to Karagosian. Studios need to come up with a unified way to pass along digital movies without having them stolen and copied, he said. Several industry groups are working on security issues, he said.

The promise of digital is more than sharper images and pure colors. Because a digital movie is a big computer file, it can be shown thousands of times without getting scratched or faded.

Working with digital files also is more efficient and cheaper than dealing with reels of film--big plusses for movie studios. While theater owners have no incentive to replace their film projectors, they have been investing in cheaper digital projectors--going for $15,000--to show advertising before movies.

Screen ads offer added revenue for theater owners. The key is getting advertisers' ads to be played properly in every theater. "If there is a problem, they want someone out there right away," Kline said.

Digital projectors are more reliable than slide projectors now used for ads, and their images are sharper, although the resolution is much lower than with digital movie projectors.

Last year, Regal's advertising arm ordered 4,500 Christie digital ad projectors for the chain's theaters. About 3,000 have been installed. AMC Entertainment Inc., the second largest theater operator after Regal, has bought about 1,000 digital ad projectors from Christie.

The ad projectors are tied to a computer network dubbed ChristieNet and run by the company from Cypress. The network, which still is being built, is set to run around the clock and let Christie fix problems from afar.

"We can turn off a projector in Kansas," Kline said.