July 1999

BANDWIDTH - Hollywood's New Rising Star

BY CARLYN TAYLOR AND WILLIAM DENEBEIM

"The future of this industry is clearly in high bandwidth digital production. Service providers that best understand the customer and commit to delivering new technical and business solutions will be rewarded by an increasing share of Hollywood's rapidly growing spending on advanced telecommunications services."- John Mauldin, founder of I-Connect, a broadband company that will serve the entertainment industry.

Hollywood is undergoing a digital revolution, which is transforming the way films are shot, edited, and distributed. Because of this change to digital production, Hollywood directors and producers are hungry for bandwidth so they can collaborate in real-time with actors, effects artists, and marketing people around the globe. Hollywood is pushing telecommunications carriers to change the way they do business by providing new kinds of services and building sophisticated new networks. A key example of this impact is Hollywood?s unique need for "virtual collaboration."

An "A-List" director is working on three films simultaneously, which are at different levels of completion. MegaBlockbuster I is in the early phases, and the director wants to hold "virtual auditions" in several cities, while he stays in Los Angeles with his family. MegaBlockbuster II is being filmed simultaneously on location on three different continents, and the same director wants to ensure the cinematography is consistent and up to his standards. MegaBlockbuster III has been filmed, and now ten different post-production houses in five different cities are each adding digital and special effects, each of which he must approve.

In the old days, films were produced on physical celluloid, and the actual film was "serially" produced, with the film sent via traditional mail to the various players, who would then add their pieces to the movie. Today, movies are produced in "parallel" digital production, which means the film is stored and transported in digital form. The trend towards digital has occurred because of several factors, including mandatory digital TV transmissions starting in May 1999, digital entertainment convergence (CD-ROM music, CD-ROM games), and the increased versatility offered with digital post-production. For example, it is much easier to add special effects using digital editing equipment.

Now that movies are created digitally, it is crucial that data can be transmitted and shared by many different people in different locations. Post-production talent is sprouting in boutiques across the country and around the world due to reductions in the cost of digital editing equipment. Since many of these effects artists are not physically located in Los Angeles, New York, or London, they need access to broadband networks and services that allow them to collaborate and share digital media in real time and in any location.

A host of new telecom applications are emerging that enable digital collaboration and digital production - and further expand the need for bandwidth. Several examples include:

Very High Definition Video Conferencing: The players need to have cost-effective, very detailed video and audio transmissions, which allow for real-time, natural collaboration and the ability to observe changes to the content streams. For example, the players must be able to see and hear the film media, just as the audience will.

Store and Forward: The entire film and video production process is increasingly going "on-net," where the images and audio are distributed to each group involved in special effects, animation, editing, and post-production over managed and secure networks.

Server Farm Access: Many of the rendered digital effects produced today require large terabyte hard-disk capacities. There is an increasing demand to rent storage space from server farms. It takes high transfer rates to retrieve this stored media from the server farm.

This growing demand for bandwidth intensive applications is causing telecommunications carriers to radically change the way they sell and market service to Hollywood. Some of the key changes include:

Focus on solutions, not pipes: Traditionally, telecommunications carriers provided high bandwidth circuits that carried data or video from point A to point B. Now the carriers must focus on the integration of digital computer systems, storage, and applications with advanced data networks in order to meet customer needs.

Dynamically switched service: In-creasingly, the entertainment industry needs the ability to reach production teams and resources located dynamically around the globe. Telecommunications service needs to be provided as quickly as a voice call. These services need to use the new generation of advanced fiber optic networks to switch data and video to wherever the user desires.

It is yet to be seen which of these services and which of the new or existing competing telecommunications carriers will emerge as the winners in the race to capture this rapidly growing market, which may be worth more than a billion dollars by 2004.

Carlyn Taylor is a partner and William Denebeim is a director with PricewaterhouseCoopers’ Telecommunications Financial Advisory Services Practice. This practice specializes in litigation, strategy, and corporate restructuring consulting to the telecommunications industry. For more information, contact Bill at 415-369-1205, or visit the PricewaterhouseCoopers Web site at www.pwc-global.com.