THEATER OWNERS FACE DILEMMA WITH DIGITAL.

Byline: Marla Matzer Rose Staff Writer

LAS VEGAS - The line into the Jubilee Theater inside Bally's on the Las Vegas Strip snaked all the way around the bustling, smoky casino.

But it wasn't Wayne Newton or Rip Taylor people were waiting to see: It was a demonstration of digital film projection by Texas Instruments, which has emerged as a leading player in digital cinema technology. Three screenings showcasing the quality of digital vs. traditional analog film projection were jammed into the last day of the theater convention ShoWest on Thursday.

Suddenly, middle-aged men who entered the family business of projecting reels of film and selling popcorn are having to think about things like compression technology and microprocessor chips.

But what's really giving them a headache is what it will mean for their bottom line. Who will pay for the equipment, and will they be able to use it to generate more business?

``Sure, they're concerned,'' said Tim J. Butler, marketing manager for IMAX-owned Digital Projection Inc. ``But they're also very interested. They want to know how to get digital projectors into their theaters.'' The picture quality has been amply demonstrated, both at ShoWest and in theaters around the country.

Movies from ``Star Wars: Episode 1 - The Phantom Menace'' to ``Toy Story 2'' and now ``Mission to Mars'' have been shown in digital format in a few select theaters. The trained eye may still be able to see a slight difference, but digital means no more scratches, pops or jittery images on screen.

The real curiosity factor seems to be how digital will shake out for exhibitors, studios, and the companies vying to supply the equipment for the digital revolution.

Predicting just how things will turn out seems to be as much of a crapshoot as rolling the dice at the tables at Bally's.

``Nobody really knows what direction it's going to go,'' admitted Tim Rust, vice president of digital systems for Studio City-based Real Image Digital Cinema. Significantly, Real Image attracted a $23 million investment last year from Technicolor, a leader in traditional film processing.

Encino-based AndAction, in partnership with computer firm NEC, is offering theaters digital projection systems for virtually no up-front cost in exchange for being able to sell ads on lobby screens.

That's an attractive offer, but theater owners are still weighing their options.

Currently, a full digital system for a large theater can easily cost more than $150,000. This potential bill comes on the heels of a multimillion-dollar building boom by the theater industry over the past several years.

John Fithian, president of the National Association of Theater Owners, is concerned about the issue.

``Exhibitors have just undertaken the most expensive build-out of new theaters in the history of the industry,'' he said. ``With bottom lines strained, theater owners are ill-equipped to assume any new costly technological transitions.''

The studios stand to save more than $800 million annually in print costs alone by changing to digital transmission, he said.

So while there are still issues of technology and standards to be ironed out, the main thing holding back the widespread advent of digital cinema is the issue of cost and control. Ideally, theater owners hope having digital equipment will give them more revenue streams.

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Photo: (color) People attending ShoWest watch a digital cinema demonstration Thursday at Bally's in Las Vegas.

Laura Rauch/Associated Press