Anyone who has attended an industry trade show this year or has taken even a cursory look at international box office grosses has undoubtedly noticed the increase in revenue being generated in two countries; China and Russia. It’s no secret that the cinema market in both of these territories is on the rise as each goes through their own multiplex boom. While researching a piece on international box office for the July issue of Boxoffice Magazine I was told by Veronika Kwan-Rubinek, President of International Distribution for Warner Bros., “Russia has been the single biggest growth story in the last decade, and China will be the biggest growth market looking ahead.”

I wouldn’t be surprised if Russia continued to be a growth story for some time to come. That’s precisely the subject of a recent IHS Screen Digest report authored by David Hancock. Some of the highlights from the report include:

• Record box office in Russia surpassing the USD $1 billion in 2010
• The market has 2,430 screens of which 297 were added in 2010 – the strongest growth in the last five years
• Over 30% of all the screens in Russia are in Moscow and St. Petersburg
• Of the 941 digital screens in Russia, 95% are capable of showing 3D

Of course, the IHS Screen Digest report contains enough facts and figures to prove the point ten times over, certainly more than can be recounted here. Suffice to say, Russia is now a market that is so important that Paramount held the world premiere of “Transformers 3: Dark of the Moon” in Moscow on June 23rd.

If there is any doubt over the rise of the Russian cinema market, check out some of these figures:

• In late April “Fast Five” opened to USD $11.7 million the same weekend “Thor” opened to USD $5 million.
• “Rio” opened to USD $9.27 million.
• “Pirates of the Caribbean: On Stranger Tides” has taken in USD $60 million, barely finishing second to Japan as that film’s top international territory.
• “Kung Fu Panda 2” opened to USD $15 million.

When one remembers that there are only 2,430 screens in the entire country, those grosses become even more impressive, or as they say in Russia, ????????????.

Cinema Digitaal, the organization overseeing the rollout of digital cinema in the Netherlands, has selected Arts Alliance Media to as their integrator to convert more than 500 screens throughout the country to digital.

Under the exclusive arrangement AAM will install and maintain digital cinema equipment and technology in a wide range of cinemas encompassing large exhibition chains and smaller art house venues. Circuits not participating in the rollout include Pathe, Euroscoop and Utopolis, as they will be handling their own conversions.

AAM will also provide their VPF deals with five Hollywood studios and is in the process of finalizing similar deals with the 14 local distributors that make up the NVF.

Cinema Digitaal was founded by the Dutch Association of Cinema Operators (Nederlandse Vereniging van Bioscoopexploitanten, NVB), the Dutch Film Distributors’ Association (Nederlandse Vereniging van Filmdistributeurs, NVF) and the EYE Film Institute. The Dutch government is funding 14 percent of the project with additional funds coming from the Netherlands Film Fund (Nederlands Fonds voor de Film) and bank financing.

With no VPF deals of their own, Cinema Digitaal needed to partner with an entity that had such agreements covering the Netherlands. Thus, it was really a choice between AAM, XDC and Ymagis.

The unique relationships that make up the Cinema Digtaal cooperative was highlighted by Giovanni Dolci, Arts Alliance Media’s Strategy & Business Development Executive, in his press release statement:

“It’s very exciting to see distributors and exhibitors cooperating to achieve a joint solution, which will allow the whole country to benefit from digital cinema. The NVB and NVF have both worked hard to reach this agreement and we’re thrilled that they have chosen AAM to implement the rollout. This will be a great real-life example of how the VPF model can be viable for many different exhibitors.”

AAM will commence the rollout this spring.

At the outset of CinemaCon this past Monday Steve Perrin gave an interesting presentation titled “Harnessing The Power of the VPF”. As the Chief Executive of Digital Funding Partnership (DFP) Perrin is in a position to know a thing or two about virtual print fees. He’ll have some help in this department now that DFP has entered into an agreement with XDC for the deployment of digital cinema in theatres throughout the United Kingdom.

The Cinema Exhibitors’ Association created DFP in 2009 to help small and mid-sized theatre owners in the UK secure funding for digital cinema conversions. The group is a legal entity consisting of approximately 400 screens at 130 mainstream and specialized cinemas operated by more than 100 theatre owners.

Perrin spent more than a year studying the country’s booking patterns, box office receipts and endless market data in an attempt to determine whether VPF deals would work for independent cinemas in the UK. In doing so he confirmed that VPFs work best for large theatre circuits which play mostly mainstream content. Smaller cinemas showing less mainstream content at varying turn rates are not as attractive to local or international distributors, making it difficult, if not impossible, for theatre owners to gain access to VPF deals.

DFP’s solution combines independent and smaller cinemas into a strategic group whose average turn rate (digital releases per year) is high enough to garner VPF deals comparable to those offered to larger circuits. It also helps interest third-party integrators.

The organization’s model is based on sharing the turn rate across all of DFP’s participating theatres. Integrators will finance upwards of 75% of the rollout, with exhibitors contributing the remaining 25% of the bill. Based on average turn rates, the cost of digital cinema equipment should be recouped in about 8 years. DFP will not be receiving any government subsidies for their rollout, which allows for theatre owners in the group to maintain their autonomy in regards to content programming. While this model will work in the UK, Perrin is uncertain whether it can be exported to other territories or countries.

When speaking to CinemaCon attendees, Perrin reported that DFP’s financing is in place and that the group’s 12 to 18 month rollout should begin in the second quarter of this year. By the end of the conference it was revealed XDC had been selected as the third-party integrator tasked with implementing the rollout. In the press release announcing the agreement, Perrin stated:

“XDC offered us an extremely competitive VPF financing solution and were very receptive to the individual needs of our members, offering them the widest possible choice of systems and complete freedom of choice of local integrator. Now the priority is to start the deployment as soon as possible, and we have agreed an aggressive schedule of 100 systems in the first 6 months.”

Besides providing d-cinema expertise and the VPF, XDC will deploy a content delivery network enabling distributors to deliver films and live content to each cinema. The company will support and monitor DFP’s digital cinema installations through their network operations centre.

Less than a year after the formation of The Foundation for Digitizing Dutch Cinema (Stitchting Digitalisering Nederandse Cinema), the group has found some of the financing required to convert Netherlands’ cinemas to digital. The organization was formed in July of this year by the Dutch Association of Cinema Operators (Nederlandse Vereniging van Bioscoopexploitanten, NVB), the Dutch Film Distributors’ Association (Nederlandse Vereniging van Filmdistributeurs, NVF) and the EYE Film Institute, which is the Netherlands new film center.

In July the three groups announced a €38 million (USD $50.6 million or GBP £32 million) plan to rollout digital cinema in 520 of the Netherlands’ 755 screens (243 venues) by the middle of 2012. The largest Dutch theatre chain, Pathé, is not participating in the plan because their French parent company, EuroPalaces, is handling its own conversion.

The foundation has established CinemaDigitaal, a new organization to oversee and supervise the rollout. The Dutch government will fund 14 percent of the project with the remainder coming from an undisclosed contribution from the Netherlands Film Fund (Nederlands Fonds voor de Film) and bank financing which CinemaDigitaal is in the process of securing.

Though there has been some debate in the industry over whether national funding will be allowed by the European Union, the Dutch Ministry of Education, Culture and Science has had ongoing discussions with EU officials regarding the proposed model. The Dutch government’s participation falls below the de-minimus limit for state aid and is being made possible through an ongoing national information technology initiative (Programma Implementatie Agenda ICT-Beleid, PRIMA). As well, the government’s support is earmarked for non-commercial theatres.

Like most other digital cinema deployment financing schemes, the model created by the foundation employs virtual print fees (VPFs). Cinemadigitaal will partner with an established deployment entity that already has VPFs in place with studios. They are currently in the midst of a bidding process to select an appropriate partner. Independent and Dutch distributors, no matter how large or small, will sign up with the selected deployment entity to contribute VPFs.

CinemaDigitaal will be responsible for the financing and will effectively act as a buying group for participating theatres. By consolidating the procurement of equipment purchases and support services the organization should be able to negotiate better prices and terms with vendors. CinemaDigitaal will purchase and own the d-cinema equipment and exhibitors will make monthly payments until its cost is fully recouped. The VPF will account for 64 percent of recoupment, exhibitors will contribute 22 percent and the remaining 14 percent will come from the Dutch government. Ultimately, ownership of the equipment be turned over to individual exhibitors.

In an unusual moment of industry solidarity, Dutch exhibitors and distributors spent over a year working together on a solid solution for the conversion which would suit cinemas of all sizes. To help avoid the legal obstacles that killed a similar plan devised by the Centre National de la Cinématographie (CNC) in France last year, the foundation has been consulting with specialists in competition law. The Dutch Competition Authority has already conducted a preliminary review of the proposed plan and their initial assessment found no obvious concerns or threats to competition.

This should allow CinemaDigitaal to commence with a rollout in January of next year as expected.

North America wasn’t the only territory to break box office records in 2009. In reviewing the backlog of posts I’ve been wanting to get to, I came across an announcement from the Asociace Producentu V Audiovizi a.k.a. Czech Audiovisual Producer’s Association (APA) which reported the country reached record box office and attendance during 2009.

Attendance reached 12.4 million moviegoers generating CZK 1.25 billion crowns (EUR €50.4 million or USD $70.32 million) in ticket sales according to the APA. The final box office was up CZK 31 million crowns over 2008 when grosses amounted to CZK 1.20 K? billion crowns (EUR €46.3 million or USD $64.60 million). What’s impressive about this figure is that the average ticket price in the Czech Republic is only CZK 100.3 crowns (EUR €4.1 or USD $5.72).

Most of the Czech box office (87 percent) came from multiplexes were moviegoers favored homegrown content over foreign productions. Four Czech films were among top 10 grossers of 2009. They include the most successful title of the year “Líbáš jako Buh” (“You Kiss Like A God”) by director Marie Polednáková which earned CZK 90 million (€3.6 million or USD $5 million) from more than one million viewers. It should come as no surprise to find 3D Hollywood blockbusters such as “Avatar” and “Ice Age 3″ among the top finishers as well.

Pavel Strnad, a Czech producer and Chariman of the APA was happy to see that the world’s financial woes didn’t affect the countries box office or attendance:

“Although we counted on the global economic crisis and the possibility that Czech film fans would save their money instead of spend it on entertainment in cinema, the reality is fortunately different.”

Click here to view the embedded video.

Last night I had the privilege of attending the opening night of the Director’s Fortnight at the Cannes Film Festival. The film being shown was “Benda Bilili” a fantastic documentary about a Congolese band made up of homeless parapelgics who go on to win international acclaim. Before the lights dimmed however the audience was addressed by the head of the Société des réalisateurs de films, the French Director’s Guild which organizes the Cannes sidebar.

After handing filmmaker Agnès Varda a lifetime achievement award, Malik Chibane (at least I believe it was him) turned to the audience with a serious word of caution. He was speaking in French and between what I understood and what was translated by the person standing next to Chibane I figured it was worth repeating here.

Keeping in mind, I’m paraphrasing, Chibane told the audience that “Benda Bilili” was being shown in 35mm and a film projector, which is how films had been shown for the past 100 years. However, this won’t always be the case. Very soon cinemas throughout France will undergo a digital conversion and films will be delivered on hard drives. He warned that such technology will actually decrease the diversity of films being shown in theatres, especially for French films. He stated that small theatres wouldn’t be able to convert to digital cinema, just those showing big blockbuster films.

Then as the film started a short 20 second promo put together by the SFR was shown. Again it was in French so I’m paraphrasing, but effectively the message of the animated spot was that a lack of diversity undermines the movies and that digital cinema threatened French culture. The trailer is embedded at the head of this post.

This lead me to do a little research into Chibane’s statements and the creation of the trailer. It’s not news that certain European territories such as France believe smaller cinemas will be shut out of the digital cinema conversion since they do not show big Hollywood movies. In fact, SFR made three different trailers “dealing with the consequences of the current policy of digitization of cinemas” all of which can be seen on YouTube.

The themes of the other two trailers roughly translate to “the rapid turnover of film prints seriously affects the cinema” and “the hour is grave for the cinema”. The SFR’s statement on the subject both on their website and YouTube channel reads:

Digital cinema prevents the circulation of films and thus their distribution in the long term: it must be paid for by the distributor of a movie and third-party investors. Each screen (or theatre) will choose one or the other of these third-party investors. A distributor that wants to place his film into the national network of cinemas for an extended period of time will be forced to pay several digital cinema fees – one to each of the third-party investors.

Of course, the third-party investors being referred to are integrators such as Arts Alliance or XDC which operate in Europe and the distributors are most likely small, regional distributors. On Sunday afternoon the European Audiovisual Observatory will hold a conference in Cannes titled Digital Cinema Tango to discuss the issue.

There is a slight irony here in that “Benda Bilili” was actually shot on digital video cameras and was transfered to 35mm. That aside, what do you think of Chibane’s comments and what are your thoughts on the matter of digital cinema decreasing the diversity of content being shown in certain territories?

This past week the digital cinema pipeline into movie theatres in India became a little more narrow – figuratively, not literally or technically. On Thursday Reliance MediaWorks (formerly Adlabs), one of India’s largest entertainment services companies announced a “strategic alliance” with UFO Moviez, a company billed as the world’s largest digital cinema network in the press release.

This is the kind of business news that usually doesn’t make a huge impact whether in trade papers or in the mainstream media. However, it’s actually a significant announcement. What it means is that a most digital content mastering being done for the Indian market will now be conducted under one roof. Besides being the film lab which handles 80% of all Bollywood releases, RMW is also home to one of India’s largest digital intermediate facilities. Previous digital mastering for pan-Indian films was split between the two companies with RMW handling JPEG200 DCI content and UFO taking care of non-DCI e-cinema content.

Real Image is another company offering digital mastering in India, handling both d-cinema and e-cinema to support the sale of its servers for both markets. What the alliance between RMW and UFO does is swing the balance of digital mastering work squarely in RMW’s favor while leaving a question mark over the future of Real Image’s mastering efforts.

Under the agreement UFO will set up an additional encoding and encryption facility on RMW’s premises and effectively turn over the work to their new partner.  Producers and distributors will work directly with RMW moving forward. Meanwhile, UFO will shift to being more of a finance, funding and licence vehicle for e-cinema installations, having recently also expanded into content rights with the cinema distribution deal for the wildly succesfull third annual Indian Premier League (IPL) cricket league currently screening in multiplexes all over India.

While most, if not all, of the content UFO sends through its satellite based digital cinema network may be high-def e-cinema, it is distributed to the over 1,800 screens throughout India. RMW also has experience operating and programming movie theatres, being the owner of Big Cinemas, India’s largest theatre chain consisting of more than 250 screens in 78 cities throughout the country. The pact will allow both companies to offer a wider range of programming and enable distributors to release titles on more screens simultaneously in an effort to increase box office revenues.

Commenting on the deal, Anil Arjun, RMW’s chief executive officer stated:

“By combining our unique strengths, Reliance MediaWorks and UFO Moviez will accelerate the creation of a secure digital ecosystem that facilitates a wider reach for digital distribution of movies, delivering to movie consumers a superior experience, more content, with greater reliability and lower costs. That’s where we can make a real difference.”

One could easily read into what Mr. Arjun is saying here, especially with his use of the word “secure”, to see why the move makes sense for both companies. Last year an Indian piracy ring was unearthed when the theft of a pre-release copy of the film “What’s Your Rashee?” was traced back to the vice president of technology at UFO. Films were allegedly being stolen by the executive while they were being mastered at UFO’s facility. An employee at RMW also turned out to have links to the piracy ring, however it was discovered no films had ever made their way out of RMW, presumably because of the company’s stronger security measures.

Thus it’s easy to see why UFO might have an interest in exiting this part of their business (which may only break-even for them) and turn it over to a company like RMW. After all, mastering is a core business for RMW, having already dominated the market for DCI-grade mastering for Hindi-films as well as doing work for Hollywood studios active in India such as Warner Bros and Twentieth Century Fox.

RMW will now wind up handling smaller, regional films, including titles from South India where Chennai-based Real Image has predominantly been a strong player. Time will tell whether the new relationship between RMW and UFO will place any pressure on Real Image to exit the content mastering business and focus on manufacturing and selling digital content servers (Qube) and audio equipment. Given that Real Image has their own JPEG encoder and a license in India for DTS 5.1 surround sound on 35mm films, they are likely to be in the mastering game for some time to come.

Norway’s FILM & KINO has announced that it has signed virtual print fee (VPF) agreements with five out of six studios (discussions with Sony Pictures still on-going), thus paving the way to make it the first country to switch over all of its cinemas to digital in a government-led effort. Announcement in Norwegian here and press release in English here. From the latter:

Film & Kino, the Norwegian interest organization for cinemas, announces the world’s first non-commercial complete national digital roll out with agreements with Twentieth Century Fox, United International Pictures (the local distributor for Paramount Pictures and Universal Pictures in Norway), Walt Disney Studios Motion Pictures International, and Warner Bros. Pictures International.

Film & Kino has served the Norwegian cinema industry for over 90 years, and is proud to announce multiple studio agreements in Norway. This complete digital roll-out will transform all of Norway’s cinemas, big and small, to modern DCI-compliant digital cinema houses. The roll-out will start in late 2009 after the completion of public tenders for the procurement of equipment and services required for the digitization process.

Next up is a tender process for different regions and operators in Norway. No one company or consortium is expected to win all the tenders, which are likely to attract interest from the likes of Arts Alliance Media and Unique Cinema Solutions (operators of the Nordic Digital Alliance and NORDIC Project that set the scene for the conversion), as well as XDC and others. The recent TI 4K announcement is not expected to slow the Norwegian conversion process as Norway has been on the forefront of installing Sony SXRD 4K projectors. Having been the first country to switch over all of its cinema advertising to digital, Norway looks set to do the same for feature films in cinemas.

Scrabble Entertainment has announced virtual print fee (VPF) deals with five Hollywood studios (“Hello Scott from SPE, in the back.”) to roll out digital cinema in India.  This may be the last notable VPF deal for some time, if not for ever.

Scrabble has signed up Walt Disney Studios, Warner Bros., 20th Century Fox, plus Paramount and Universal, with only Sony Pictures yet to come on board. At the press conference in Las Vegas on the second day of ShoWest 2009, three of the studio representatives joined Scrabble’s CEO Ranjit Thakur on stage to praise his efforts. Tom Molter from Warner Bros said that WB has supplied more digital cinema titles internationally than any other studio (definitely true for India) and was looking forwards to doing more of this with Scrabble. Julian Levin from Fox praised Ranjit’s determination and effort, acknowledging that negotiating with the Hollywood studios is a “very difficult and complicated process.” Lastly Jason Brenek from Disney was happy that Scrabble digital cinema roll-out would include 3D installations, understandable given Disney’s 17 3D titles over the coming three years. Jack Klein from Christie was also up on stage. Christie is the 2K digital cinema projector supplier of choice for Scrabble, but what is not discussed is that Christie is said to have helped behind the scenes to facilitate the VPF deals for Scrabble. Universal and Paramount were not on stage, though they had signed up as well (Paramount’s logo was on the banners, though Universal’s was missing), though this may be due to the fact that both are represented jointly in India by the (elsewhere largely defunct) UIP, with Paramount branding, in India, meaning that there is some untangling to be done still.

Screen International covered the agreement:

Scrabble has signed contracts with Twentieth Century Fox, Warner Bros, Walt Disney Studios and Paramount Pictures that become effective on April 1, and the company is in the process of finalising deal points in the agreement with Universal Pictures. The agreements are based on the self financing virtual print fees model, which is essentially a pay-per-use or booking system.

Scrabble, the sub-continent’s only company whose operations comply with the standards set by Hollywood’s Digital Cinemas Initiative, has deployed 80 digital screens to date within India and plans to instal more than 500 over the next three years.

According to Scrabble, Hollywood collections currently account for less than 10% of overall take from the multiplexes in India’s top eight markets, which itself comprises 75% of total Indian box office.

It is no surprise that Hollywood hopes that digital cinema will be the Trojan horse that will help them increase their market share from a paltry five to ten per cent to, if not levels seen elsewhere in the world, at least double that.

So why is this possibly the last significant VPF deal? Once upon a time VPFs were the Great White Whale, to be hunted across the seas and stories of its conquest to be told to grandchildren and scars from the battles to win it over proudly displayed. Those days are gone. Today VPFs are almost routine.

The reason is that the studios have by now done enough of them, both for domestic (US) and international, to know how they will be structures, what the general price should be and how they will be implemented. One you have the cookie cutter, you just adjust the ingredients slightly depending on the third party entity and territory. More importantly, once a price has been agreed with one digital cinema entity, nobody else should hope to be able to negotiate a better price. The original AccessIT Phase One was as good as it got, and now digital cinema integrators are having to make more with less.

This is not to say that third party entities are not having to work hard to get VPFs signed these days or that studios sprinkle them like confetti on all a sundry. But now it is a battle over an ever-shrinking piece of cake. So instead of focusing of VPFs, here is what to look out for instead.

DCIP. The US three-exhibitor giant is still the 800lb gorilla in the room and when it moves, the rest of the industry will have to move as well. There are signs that it could be imminent, though the recent Sony-AMC announcement indicates that it can’t come soon enough, at least for one of the three exhibitor members. DCIP already has most of the VPFs in place. Now it just needs the financing, which sources tell me is very, very close.

Direct-to-exhibitor-financing. Paramount’s lead is about to be followed by at least two other studios, if rumours in the industry are to be believed. Warner Bros. name comes up most frequently in such speculation, with the names of Fox and Disney also mentioned. The last two have obvious interest in making this happen (Avatar and 3D respectively), though the mention of Warner Bros is interesting, given that historically it is the studio that alongside SPE has been slowest to sign VPF deals.

The exit of third party integrators. The window of opportunity may have closed for some, many or all of the third party integrators. They could end up leaving the business altogether or scaling back their involvement – as Technicolor is said to be doing, choosing to focus on film services once again.

Studio compromises. This is something that everyone knows will happen in a number of fields related to digital cinema, but nobody wants to do it or even discuss it before the roll-out proper has started. This will primarily be related to second tier theatres and it was glimpsed in the WPF (weekly print fee) that was part of Paramount’s contract. However, compromises may also take place on the technology front, ranging from small scale things (modems for KDMs, to more fundamental issues).

RealD's Disposable 3D Glasses

Late last week I picked up on a rumor that was circulating about European exhibitors.  Apparently, they are rejecting digital 3D versions of DreamWorks Animation’s “Monsters vs. Aliens” in lieu of 2D digital and 35mm prints as a response to being told that distributors will not pick up the tab for 3D glasses.  The film opens internationally on March 27th.

Disposable polarized 3D glasses cost between 50 and 99 cents (USD) and are required to view digital 3D movies shown using systems manufactured by RealD and Masterimage.  “Active glasses”, which operate using LCD lenses that flicker open and closed at the shutter rate of the projector, are reusable and cost upwards of USD $$25 to $30.  Such glasses are necessary to view 3D films shown using XpanD technology.  Reusable glasses for Dolby’s color wheel system cost USD $23.  More than likely the dispute is over disposable glasses rather than reusable glasses since it is generally accepted that the exhibitor will be responsible for the latter.

In North America it has become a somewhat common practice for the distributor of a 3D film to pay for disposable glasses in part or entirely.  This may not last however since distribution chiefs such as Mark Christiansen of Paramount Pictures have said they are determining whether they will be reimbursing an exhibitor for the cost of disposable glasses on a film by film basis.

The theatre owners that reported the unofficial boycott of “Monsters vs. Aliens” in 3D were from the Netherlands, the United Kingdom and a few Scandinavian countries.  Equipment manufacturers and the few dealers I spoke with confirmed the story, and were somewhat frustrated as they believe such issues will hold up the rollout of digital cinema in Europe.  When contacted about the issue, representatives at Paramount Pictures in Los Angeles said that local distributors in each territory set the policy for how 3D glasses will be handled and weren’t sure what the ruling was on “Monsters vs. Aliens”.  Since a film can have different distributors from one country to the next, it makes sense that a U.S. distributor may not have control over what a distributor does in Europe. . . or anywhere else for that matter.

Of course, the decision not to pay for 3D glasses did not come as a shock to some European exhibitors, especially those who have been reviewing virtual print fee agreements.  “I have always been a little bit suspicious of this since nobody is willing to put in a contract that studios are willing to pay for it.  We believe that is the way they are going,” said V.J. Maury, CEO of Palace Cinemas, based in Central Europe, when asked about the issue.

Palace uses both RealD and Masterimage and thus deals with disposable glasses.  However the chain has managed to work out their own glasses recycling program.  “We have adopted a position where it’s just not going to be that way and we are working toward a reusable glasses model.  It’s a throw away that can be used many times.  It just makes sense.  There is no point to waste that much plastic.”