THE FUTURE TRUST

Q&A

Understanding the Economics of Entertainment Creation and DistributionA Conversation with Timothy Dodd Senior Vice President, Corporate Development, Technicolor

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A Conversation with Timothy Dodd Senior Vice President, Corporate Development, Technicolor Technologies that introduce the new

generation of enhanced visual and audio entertainment experiences affect every player in the content value chain.

To get a sense of how content owners and creators will be affected by the introduction of 4K/Ultra-High Definition (UHD), High-Dynamic Range (HDR), Wide Color Gamut (WCG), High Frame Rate (HFR) and other technologies, we caught up with Tim Dodd, Senior Vice President of Corporate Development at Technicolor. Here is what he had to say: Q: Over the past few months, we have seen a significant amount of breaking news about technological developments that will define our entertainment experiences. Can you help us understand how content owners and developers – especially the studio community – is absorbing these new trends?

Tim: These new developments are setting up some very interesting decision points for executives in the studio community. As you know, making and distributing high-grade professional content has always, is now, and will probably forever be an expensive proposition. The fact that more casual content – those produced by consumers with increasingly capable technology that is increasingly affordable – only ups the ante on what people expect when they pay for content. So, to some extent, it goes without saying that studios are very interested in new technology developments in visual and audio quality and fidelity. Doubtlessly, they will be embraced.

The questions are when and how? And the answer to those questions revolves around the economics of entertainment creation and distribution. When we talk about technology, it is tempting to focus almost exclusively on the future, and how things will be created and distributed from this point onward. Studios, however, have to be just as cognizant about the past. They need to understand how they can integrate previous investments in content, and their existing library of assets with the way new titles are created and distributed. These are very subtle and complicated issues.

After all, moving to 4K/UHD, and embracing HDR, WCG and HFR have immense production implications. They not only introduce new investments that need to be made in very sophisticated technologies, they also affect the way content is created, stored, managed and distributed.

To offset the costs associated with investments that can be measured in many millions of dollars for creation and distribution of new content, the studios have to figure out how to monetize a large library of existing content that itself has been enhanced

A Conversation with Timothy Dodd Senior Vice President, Corporate Development, Technicolor

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for many, many years in response to several generations of technology development.

Q: Can you illustrate with an example?

Tim: Sure. A studio like Warner Brothers, for instance, has a 90-year-old heritage. This means that there are thousands and thousands of movies in its catalog that are still producing revenues. One of the big questions facing a studio like this is: How do you keep monetizing that content in the context of these new enhanced experiences?

A significant percentage of this content has already been converted from film to be optimized for video tapes, and later to DVD as well as Blu-Ray. These conversions have been expensive, but create a return on investment when the implementation of these conversions are tied to consumer expectations, and their willingness to pay for historical titles in new formats.

But now we are seeing the distribution channel itself undergoing through a serious and dramatic paradigm shift…especially when you consider that many of these titles are now available from over-the-top (OTT) providers. There are thousands of hours of television and film that are available over services like Netflix or broadcast TV stations and on a seemingly infinite variety of new platforms that are popping up on the market. The key question for studios is: How do you keep re-monetizing that content, and make it more attractive to consumers?

Q: What impact will UHD, HDR, WCG and other similar technologies that enhance fidelity and output have on content production and operations?

Tim: From a content point of view on the operations side, these immersive media affect quite a few elements in the workflow. Taken to their fullest, these immersive media can, for example, affect the creative process behind a piece of content. Because new options are introduced, creative people have a greater canvas to work on.

It will very definitely alter the way that content is shot. The director of photography will now have the ability to exploit and display a lot more color and brightness, and a lot more detail. And with detail come lots of other things; everything from the acuity and accuracy of digital shots and visual effects, to the lighting and photography of physical scenes is altered by the introduction of these technologies. These create new decision points for creative people when setting scenes and telling stories using these new immersive media.

Another example – I believe you’ll also see a change in the way that colorists work. Their work will be greatly enhanced by these new technologies. As new technologies are deployed to truly deliver a ‘what you see is what you get’ across theatrical, home and mobile consumption experienced, it will have a huge impact on the editing world. The edit bay will be transformed. You’ll have a much broader dynamic range of color and content and brightness that you can show viewers.

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A Conversation with Timothy Dodd Senior Vice President, Corporate Development, Technicolor

Lastly, the whole content operations flow will change. Studios are already storing and transferring petabytes of data internally from edit bays to mastering studios and other operations that are critical to delivering the final experience. As a result, the whole notion of capture and control will need to be revisited; we are talking about moving huge amount of content around. How this affects the production process will be very interesting and more intensive. The computing cycles required to handle this kind of content will be increased, and files sizes will be increased. The studio will start to look a lot more like an MIT laboratory than in the past, when content was moved around by guys who drove in golf carts with tapes in the back. Now you’ll just have networks carrying vast amounts of data around to different facilities on the lot –and to places like Technicolor – for processing.

Q: How are studios looking at the evolution of standards for these new technologies?

Tim: This question, to me, represents an area with a lot of risk. In the trade press, there are many who love the idea of a format war. It introduces controversy and uncertainty. But the inability to come together around standards for the next generation of enhanced experiences is not good for the industry…nor is it good for consumers. In the final analysis, consumer uptake is the determining driver that will generate the demand necessary to provide the whole value-chain with returns on their investments. So in my view, it’s pretty important to get this figured out – and do it in a way that provides the ultimate satisfaction and confidence of choice to consumers.

From our point of view at Technicolor, we are working with every key player in each stage of the value-chain to ensure that we can end up with a standards environment that fosters innovation, while preserving and protecting consumer investments in technology to deliver the best possible entertainment experience.

ABOUT TECHNICOLOR With more than 99 years of experience in entertainment innovation, Technicolor serves an international base of entertainment, software, and gaming customers. The company is a leading provider of production, postproduction, and distribution services to content creators and distributors. Technicolor is one of the world’s largest film processors; the largest independent manufacturer and distributor of DVDs (including Blu-ray Disc); and a leading global supplier of set-top boxes and gateways. The company also operates an Intellectual Property and Licensing business unit.

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