The motion picture "Pirates of the Caribbean-At the End of the World" set a new record when it was released in 2007: The largest distribution of a film that was not on film. It opened on 3,000 screens. On 1,000 of those, it played off of a hard disk drive instead of a film projector. So if you saw this movie in a theater, you probably were not watching a film at all. You were watching a digital projection off a disk drive. It's the biggest change in movies in a hundred years.

When silent film cameras were first manufactured, the industry had just settled on a standard for 35mm film, right down to the sprocket holes, that enabled any projector in the world to show the movie. That standard endured for 100 years.

Today, however, nearly 1 in 10 projectors in the US is already digital. Tim Partridge, Senior VP Dolby Laboratories explains why. The big breakthrough that made digital cinema possible, was the arrival of Texas Instruments’ DLP (Digital Light Projection). A DLP is a chip with an array of mirrors, like squares on a checkerboard, that flip up to reflect a pixel onto the screen and down to create a black dot. With that, the cost dropped immediately from $160,000 per projector to $60,000.

An entire feature film is delivered on a disk.

According to Partridge, it wasn’t worth it to the theater owners to pay $100,000 to convert every screen and projector to digital. So, the distributors agreed to front the money, if the theater owners would pay back at $10,000 a year. That figure was reached in part by calculating the "virtual print fee" of $1,000—the cost to print and ship each canister of a feature film.

Partridge acknowledges that of the 150,000 theaters worldwide, 60,000 (40%) do not play stereo sound, let alone play digital. Still, companies such as Dolby are pushing for 100 percent digital screens.