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I encourage everyone to read this excellent article from Popular Mechanics: Finally, Bring Home the Hollywood Classics in HD. Here are a few interesting excerpts:

To understand the mammoth effort it takes to transfer a classic film, Popular Mechanics visited the facilities where the Criterion Collection restores its movies. Criterion is legendary for its painstaking remastering jobs. These days, most of what we refer to as “film restoration” isn’t done on film. “There could be multiple copies of film elements, original negatives or duplicate negatives,” says Lee Kline, Criterion’s technical director. Criterion gathers the best it can find, then transfers those elements to the digital domain. Most are transferred using high-definition DataCine, where film is scanned in near real time (24 frames per second) directly to uncompressed data files. But in the case of fragile negatives, restorers often choose the more painstaking method of digitally scanning individual film frames using a scanner synchronized to sprocket holes at the edges of negatives. After it is scanned, each movie is sent to Criterion’s facility on HD CAM cassettes at full 1080p high-definition resolution and is uploaded in the company’s central machine room.

Then the fun begins. A technician in a small office sits in front of a computer monitor with a virtual pen and touchpad and goes through the movie frame by frame, fixing scratches, removing dirt and schmutz. Take, for instance, Criterion’s painstaking restoration of art-house favorite Wong Kar Wai’s Chungking Express. The film’s opening sequence is in slow motion, but rather than create that slow motion in camera, Wong Kar Wai did it in postproduction, duplicating each frame three times with an optical printer. Every single frame—the original and the three dupes—and its imperfections must be dealt with individually. There are automated methods of cleaning up digital transfers, after which technicians can assess the results and backtrack in case of error. But Express is getting an exclusively human touch, with hands-on techs making all the decisions on what stays, what goes and what replaces what goes. And that’s just the visuals: In another part of the facility, an audio technician goes through the film’s soundtrack, using Pro Tools and other software to remove extraneous pops and other forms of sonic distortion. The cleanup of the 1-hour 42-minute film will take 480 hours.

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By any measure, the transfer of Sleeping Beauty was an epic job. Lowry had access to the original negative from the Disney archives. The film was originally shot in the Vista Vision format, in which a single frame is the size of two 35 mm frames. The negative was also in what is called sequential color—first frame red, second green, third blue. Since each frame of film produced three scans, that meant three times the restoration work. As a result, the digital restoration of the film took eight months instead of the typical six. “You scan that kind of material carefully and you get incredible results,” Lowry says. “Beautiful color. Excellent resolution. And what little grain there is can be cleaned up, along with dirt and scratches, to create the ideal version of what the designers, animators and colorists intended.”

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Compression, though, introduces a whole new set of technical challenges. This process squeezes down the size of a film’s digital file by applying an algorithm that trims redundant picture information, hopefully with minimal distortion. Despite marketing claims to the contrary, there is no such a thing as “lossless” digital compression. Most video compression is “lossy”—that is, it loses information that the eye presumably can’t discern. The algorithms are incredibly flexible, and there is no standard for hi-def compression. Consider, for instance, that the uncompressed digital master of a typical Hollywood movie requires 5 to 15 terabytes of storage space. To fit it onto a Blu-ray disc, it is compressed by 100 times or more to 50 gigabytes. For distribution over an HD rental download service, it is reduced to 6 gigabytes or less. Yet all of these versions of the same movie are considered hi-def.

To save space, mastering engineers get creative. One trick is to apply a lot of compression to dark backgrounds—thereby reducing the bit rate (the amount of video data presented each second). But too much compression can create blacks that look like dark clumps instead of a natural part of the overall picture. Picture information with a lot of motion in it, such as flickering flames, needs to be handled carefully in compression, lest the result be a bleary, unrealistic rendition.