Satellite industry officials are hopeful 2006 will be the year when there finally is some significant movement toward the delivery of digital movies via satellite, though it may take until at least 2007 before a significant number of movie theaters embrace the technology.

“The industry right now is kind of at a crossroads,” said Curt Tilly, manager for digital cinema distribution for Raleigh, N.C.-based Microspace Communications Corp., a satellite broadband company that has been delivering movies via satellite since 2004, mostly to demonstrate the business model.

“Some have said that the digital deployment has already begun. Some say it is still in kind of a science-project mode, and some say nothing has been done that can be considered a rollout yet,” Tilly said.

Companies have been trying to use digital satellite technology to break into the film-distribution market for years but with little success. Chicago-based Boeing placed its bets on movies via satellite as early as 2000, eventually forming Boeing Digital Cinema , but had difficulty finding enough content to distribute and enough theaters willing to pay for the digital equipment. Boeing eventually sold the business to Access Integrated Technologies in March 2004.

But many of the issues that have plagued those in the digital cinema field are being ironed out, Tilly said.

Industry members were wary to invest in the market without a common standard on what kind of digital equipment will be used by theaters. But the Digital Cinema Initiative (DCI), a joint venture between the major studios including Disney, Fox, MGM, Paramount, Sony Pictures Entertainment, Universal Studios and Warner Brothers, formally released its standards for digital movie files in July after years of wrangling. Later in 2005, the National Association of Theatre Owners released an additional set of requirements, compatible with DCI’s list.

“Probably when we come back and look at the history of digital cinema and how it’s done, that will be the most important part of the whole process,” David Hancock, senior cinema analyst for Screen Digest, a research firm in London, said of the requirements. “Before that, the technical providers couldn’t really go to raise financing because no one really knew what would work in the market.”

Additionally, while studios and theater owners had struggled over the issue of who would pay for expensive new digital cinema equipment, studios in America are coming around to what is known as a virtual print-fee model, where studios bear the brunt of the cost of equipment because they are saving money by not developing prints, Tilly said.

Abroad, though, other pricing models are being explored, Hancock said. In Belgium and Germany, companies are looking at a system where an exhibitor pays a monthly rental fee for equipment.

Theaters are just beginning to buy and install the equipment needed to receive and play digital movies. According to figures developed by Screen Digest, the number of digital high-end screens in the world reached 335 in 2004, and jumped to 849 in 2005.

“To me, 2006 isn’t going to be the year of the rollout,” Hancock said. “To me, this is the year of negotiation, getting those contracts signed with the person you’re going to go to in order to [distribute the films].”

Russell Wintner, president and chief operating officer for Access Digital Media, a business unit of AccessIT, said the company hopes to have 2,000 screens installed by the end of 2006, and plans to have 4,000 by October 2007.

Hollywood interest in delivering digital content via satellite is not just relegated to pioneers such as director George Lucas anymore either, Tilly said. Studios are responding to demands for content. Microspace has deals in place with Paramount and Dreamworks, and is working to solidify a deal with Disney, with which it has teamed previously on pilot projects, he said.

“In terms of movies to support that rollout, virtually all the studios have committed products,” Wintner said.

Microspace reached its own milestone March 10, when it delivered the first digital film via satellite using the DCI-compliant JPEG 2000 format. In conjunction with Kodak Digital Cinema, it delivered Walt Disney’s “The Shaggy Dog” to screens at Cinemark Tinseltown Movie Theater in Rochester, N.Y.

But while Microspace has made inroads in delivering movies via satellite since 2004, Tilly said the majority of theaters broadcasting digital films still are using a hard drive to play the movie rather than broadcasting the film via satellite. Tilly believes there still is a misconception that thousands of sites must receive the movie at once for satellite to be an affordable mode of delivery.

“Depending on the file format, you only need somewhere from 50 to 1,000 sites to make it cost effective,” Tilly said.

Wintner called satellite the company’s “preferred option” for delivery, saying the company has delivered approximately 20 movies and videos by satellite.

“We expect to continue to use satellite whenever we can,” he said. “There’s still a concern at some of the studios because they haven’t used satellite; it’s new. They understand the physical, so they’re requesting duplications of services until they get more comfortable.”

AccessIT has its own satellite uplink station in Chatsworth, Calif., for transmitting files via satellite.

While Hancock said Microspace has the lion’s share of the digital cinema satellite market right now in the United States, Hughes Escorts Communications Ltd., a joint venture between Hughes Network Systems and Escorts Ltd., is distributing films via satellite in India.

Hancock expects theaters will use hard drives when showing digital films as the technology first takes hold, and then are likely to switch to satellite once they become more comfortable with the medium. He believes theaters still are reluctant to deal with such complications as having satellite dishes on their roof, and worrying about whether there is a backup system in place if there are issues with the broadcast.

“As a hunch, I do think satellite will be the most effective model and means for delivering film,” Hancock said. “I don’t think it will happen at the moment. Microspace has shown it can be done, but it’s a very different affair to deliver one film to one site than to do so on a regular basis to every site in the United States.”

Tilly acknowledged that there still is some work to be done.

“We see it obviously as a growth opportunity, but probably 2007 will be the year when we really see a large deployment,” Tilly said.

Microspace is working to make sure its system is compatible with as many equipment providers as possible. It also is working with organizations such as the International Cinema Equipment Association and the European Digital Cinema Forum.

“We’re working hard to make sure the solutions created in the U.S. also are accepted and embraced overseas,” Tilly said.