Ben Stiller and Eddie Murphy Star In "Tower Heist"

Well that didn’t take long. Facing stiff opposition from exhibitors Universal Pictures has decided to scrap its plan of releasing “Tower Heist” on premium-video-on-demand three weeks after its November 4th release. The move comes a week after the studio originally announced its intentions to run a PVOD test in Atlanta and Portland which would make the film available to about 500,000 cable subscribers for USD$59.99.

No doubt the number of exhibitors willing to boycott the film outright had a great deal to do with the decision. Previously Cinemark, Emagine Theatres, Galaxy Theatres, Regency Theatres and an additional 50 screens owned by independent operators all publicly stated they would not be booking the film if Universal went ahead with the premium-VOD test. Then today National Amusements joined the list of exhibitors opting not to show “Tower Heist”. With 950 screens worldwide, National Amusements is one of the largest chains in the United. States. Bloomberg reported that of the 39,000 screens in the U.S., 12% were participating in the boycott.

If that figure directly corresponds to the drop in box office Universal could expect for “Tower Heist” then that’s significant. Given that it is predicted the film will make upwards of a USD $100 million or more, that could mean foregoing USD $12 million in receipts. It’s unlikely that Universal’s PVOD test would have brought in as much, even if the studio decided to roll it out nationwide. Try explaining that to talent whose contracts are tied to theatrical box office gross.

So earlier today Universal released a prepared statement reversing their decision to test PVOD with “Tower Heist”:

“Universal Pictures today announced that in response to a request from theater owners, it has decided to delay its planned premium home video on demand (PVOD) experiment. Universal continues to believe that the theater experience and a PVOD window are business models that can coincide and thrive and we look forward to working with our partners in exhibition to find a way to experiment in this area in the future.”

Before Universal’s original plan was made public, they reached out to key theater owners to inform them of their desire to release “Tower Heist” on PVOD. I’m not sure what came of these conversations or whether they were more of a warning to exhibitors rather than a request or negotiation. Jon Fithian, head of the National Association of Theatre Owners, who had been mum on Universal’s plans until today, referenced this ongoing dialogue in his response to the studios about-face:

“NATO would like to thank Universal for responding to various theater owners’ concerns and canceling the PVOD test it was contemplating. They have been engaged with individual exhibitors on this test, and while it was something that many theater owners could not ultimately support, the open and collaborative nature of the dialogue is appreciated. NATO recognizes that studios need to find new models and opportunities in the home market, and looks forward to distributors and exhibitors working together for their mutual benefit.”

One of the chains Universal no doubt spoke with early on was Regal Entertainment, the largest exhibitor in the world. The circuit never joined the boycott, but according to the Los Angeles Times, was taking their grievances up with the studio privately. Upon the news that Universal had a change-of-heart in regards to the PVOD test Regal’s Chief Executive Officer, Amy Miles, told the Times:

“We understand and respect Universal’s interest in finding a successful model for ancillary markets and we remain willing to assist Universal, and our other studio partners, in developing a strategy that is acceptable and productive for both parties.”

I don’t know any industry professional who doesn’t agree with Fithian and Miles. Making sure the studios are financially healthy and stable is important if exhibitors wish to continue showing high quality content. Though when one half of an industry decides to buttress itself at the expense of the other half, it almost always fails. Especially if that other half is the high-end distribution chain that creates future demand for a product at a lower cost.

Because Comcast now owns Universal, exhibitors probably felt that no matter what the results of the studio’s PVOD test the program would be expanded on other upcoming releases. After all, isn’t that why Comcast bought Universal? It needs and wants premium content such as the feature films made by the studio they purchased. However, what Comcast should keep in mind is that being shown in a theatrical setting is part of what makes the content premium in the first place.

Solely for business education purposes, it would be interesting to know the decision making process at Comcast Universal behind this move. Was it Comcast executives who demanded to run such a PVOD test and if so, what guidance did Universal executives give them?

One lesson that could be surmised from the events of the past week relates to economic viability and business survival and what members of an industry will do when either is seriously threatened. Exhibitors knew that if Universal was successful in shrinking the release window to 21 days, other studios would soon follow their lead. Eventually the USD $59.99 price would begin creeping down to a threshold that would attract a wider moviegoing audience. Realizing their entire business could be gutted, and needing to make a public stand as a warning to other studios, Universal left theater owners with little choice other than a nuclear. If your opponent’s actions will lead to your own demise, then your best chance of surviving is to make your opponent understand the adverse effects they will afflict upon themselves should they proceed.

In what the Los Angeles Times called “an audacious move” earlier this week, Universal Pictures announced earlier this week that it would allow the Eddie Murphy action comedy “Tower Heist” to be shown via premium-video-on-demand three weeks after its November 4th release date. Naturally, if Universal finds premium-VOD to be profitable without gutting their theatrical box office receipts, you can bet every other studio will follow their lead.

Of course, exhibitors aren’t big fans of premium-VOD or shortening the theatrical window from its current 90-day average in any form. Their big fear is that patrons will be accustomed to simply wait for a movie to be available at home rather than head to the theater not only lowering attendance but also permanently damaging concession sales.

The biggest downside of Universal’s plan, besides ticking off exhibitors, is the whopping USD $59.99 cost of screening “Tower Heist” in the comfort of your own home. During a time when news reports have the world headed toward another recession that kind of price might cripple sales. After all, USD $60 is roughly the price of six tickets on average at a movie theater.

However, it is tough economic times in the first place that is causing the movie industry to experiment with premium-VOD as they try to replace sagging DVD sales. But you probably already know that. In fact, you probably also know that theater owners will be just a angry about Universal’s current plans as they were this spring when the studio, along with three others, struck a deal with satellite television provider DirecTV to make a handful of titles available for premium-VOD 60 days after theatrical release for USD $29.99.

Those trials were viewed by many as failures due to poor sales, though some studio honchos deemed them inconclusive since films such as “Just Go With It” and “Sucker Punch” were less-than-stellar offerings. I don’t buy the argument that a lack of promotion was responsible for tepid returns because the fight between exhibitors and distributors over the issue made headlines throughout the United States and Canada.

Universal’s experiment with “Tower Heist” will no doubt benefit from the marketing campaign for the theatrical release. As well, the film features an all star cast including Alan Alda, Matthew Broderick and Ben Stiller (who was just on “Saturday Night Live” to promote the upcoming release). Not to mention, the November 4th release date of “Tower Heist” puts the three week mark right around the Thanksgiving holiday in the U.S., a time when large family gatherings could remove the USD $60 price tag hurdle.

To gauge the success of the test Universal will only be releasing “Tower Heist” on premium-VOD in two mid-size markets; Atlanta and Portland. These also happen to be two cities where Comcast, Universal’s new owner, has a decent sized digital cable subscriber base of about 500,000 homes. The thinking is that Comcast will be able to compare VOD sales from Atlanta and Portland against box office receipts in similar cities where “Tower Heist” won’t be offered on premium-VOD.

Despite Universal’s promise to compensate theater owners in test markets should ticket sales plummet during the early VOD window, Cinemark, the third-largest cinema chain in the U.S., said on Thursday that they would not be playing “Tower Heist” on any of their 3,800 screens throughout the country. That’s a bold move with serious financial consequences given the film is predicted to earn more than $100 million. In a statement the company said:

“Cinemark has urged Universal Pictures to reconsider its market test of this product… If Universal Pictures moves forward with its ‘Tower Heist’ premium video-on-demand offering as announced, Cinemark has determined, in its best business interests, that it will decline to exhibit this film in its theaters.”

One of the biggest ironies of this story is that Brett Ratner, the director of “Tower Heist”, was one of the filmmakers to speak out against premium-VOD when it was first broached last spring. According to the Hollywood Reporter, Ratner did not participate in Universal’s planning and wasn’t informed of the decision until it was announced. But, with Comcast’s controlling ownership stake in Universal it should come as no surprise that the studio is leading the charge to radically shrink the theatrical window. The Los Angeles Times agrees:

The “Tower Heist” plan would mark the most significant collaboration to date between Universal and its corporate parent since Comcast acquired media conglomerate NBCUniversal early this year. It represents a bold but risky step by Universal Pictures Chairman Adam Fogelson, NBCUniversal Chief Executive Steve Burke and Comcast Chief Executive Brian Roberts as they position their company on the leading edge of one of the most controversial issues in the entertainment business.

It was precisely these kinds of moves I feared when the Justice Department approved Comcast’s purchase of NBC Universal. It was my understanding that the 1948 Paramount Decree was meant to prevent such exclusive arrangements between content owners and content distributors.

One way exhibitors could try and deal with this latest affront to their business is to negotiate lower film rental terms when a title is offered via premium-VOD within four weeks of release. Removing all emotion from the matter, it boils down to simple business and economic practices.

If a manufacturer provides a retailer with a product on an exclusive basis, even for a set period of time, the retailer usually pays a premium for the exclusivity. The retailer sometimes passes along their higher product cost to the consumer or chooses to take a lower margin hoping the exclusive product will attract new customers. If the manufacturer offers a product to a retailer with no exclusivity, then the retailer usually pays less for the product. In theory the money a retailer saves on such products should be passed along to consumers through lower prices or alternatively used for marketing to attract customers.

Yet the high price of the “Tower Heist” premium-VOD offering leads me to believe Universal’s test may not be as successful as Universal hopes and that exhibitors may simply want to voice their opposition and let the studio move ahead with their plan. As a parent I sometimes do the same thing; I watch my elementary school aged children make mistakes I could easily prevent, knowing full well that by making the mistake on their own they are less likely to repeat it.

[Update: October 11, 2011] According to the Los Angeles Times, smaller exhibition chains are joining Cinemark in boycotting “Tower Heist” over Universal’s premium-VOD test. The circuits refusing to book the film include Emagine Theatres, Galaxy Theatres, Regency Theatres and an additional 50 screens owned by independent operators.

Executives at Walt Disney Studios must be breathing a huge sigh of relief having reached a deal with Odeon Cinemas in the United Kingdom and Italian exhibitors to show their upcoming tentpole release “Alice In Wonderland”. Additionally, Disney reached an accord with AMC Theatres to show the Tim Burton helmed film in North America when it is released on March 5th.

After announcing their plans to release “Alice In Wonderland” on DVD in June, just three months after its theatrical release rather than the usual four months, Odeon, the U.K.’s largest cinema chain, publicly threatened to boycott the film. So did exhibitors in Italy. AMC never made any public statements about a boycott, but delayed signing any agreement to show the film. Most of the details about the agreements were kept private by both parties, but according to a story in Variety, here is what we know:

• In the U.K. Disney will not begin advertising the DVD until six to eight weeks after the film hits theatres.
• In Italy, Disney will release three big movies during the summer, rather than waiting until fall. Traditionally, the summer box office grosses have been tepid compared with those in autumn. “Prince of Persia: The Sands of Time” will open on August 20th, while “Toy Story 3″ and “The Sorcerer’s Apprentice” will also open have summer playdates.
• Disney has extended the release of “Alice In Wonderland” on DVD from 12 weeksafter its theatrical to 13.

In the U.K., assurances were given that the studio won’t begin advertising for the DVD until six or eight weeks after the theatrical bow. It’s likely that exhibs elsewhere asked for the same terms.

There is no word on what AMC got out of their deal with Disney on “Alice In Wonderland”, though the advertising ban on the DVD seems like a no-brainer. In my opinion, such an advertising blackout may be a moot point since the controversy surrounding the early DVD has generated enough press that the public has already been made aware of “Alice In Wonderand’s” June home video release date. Ideally, exhibitors would have also received better film rental terms to play the movie.

Anec's Paolo Protti

Long before the issue over “Alice In Wonderland” ever arose, John Fithian, the president of the National Association of Theatre Owners in the United States, was correct in predicting in his public statements that both exhibitors and distributors would have to concede on certain points to reach a compromise if theatrical release windows were to shrink from the usual four months. This sentiment was echoed in a statement by Paolo Protti, president of Anec, Italy’s National Association of Cinema Retailers:

“Every battle must be fought for the good of the film market as a whole, without putting up barriers where you can reach agreements that are convenient for the industry as a whole.”

Commenting publicly on their own agreement reached with Disney, Odeon’s statement read:

“Odeon is pleased to confirm that it will be able to continue with its plans for significant investment in new cinemas, in digital technology in 3D capability and the other exciting developments designed for the increased enjoyment of all its customers.”

What some industry watchers now fear is that the seal has been broken on the four month theatrical window. The incident over “Alice In Wonderland” and Disney’s deals with various exhibitors around the world to release the film on DVD early will be precedent setting. However, it should be noted that not all exhibitors have gone along with Disney’s release plan for “Alice In Wonderland”. Theatre owners in Belgium and the Netherlands still plan on boycotting the film upon its release in their territories.

Surely Walt Disney Studios was hoping their upcoming release “Alice In Wonderland” would generate a lot of media attention before it hits theatres on March 5th, though they probably weren’t trying to create the kind of buzz the picture received over this past week. Theatre owners in North America and Europe protested when the studio announced it would move up the DVD release of the movie to early June, just three months after Tim Burton’s adaptation of Lewis Carroll’s classic is distributed theatrically.

The announcement was made on February 8th by Disney’s CEO, Bob Iger, during an earnings call and seemed to come as a surprise to many. A surprising number of newspapers, websites and radio shows beginning running numerous stories about the dispute just two days later and through the course of last week. In fact, the Los Angeles Times managed to sum up the latest battle over movie release windows rather nicely:

The flare-up illustrates how an arcane topic once only of interest to Hollywood executives can affect moviegoers around the world.

The L.A. Times, along with The Wrap, touched on the fact that studios have been meeting with key North American exhibitors (probably Regal Cinemas, AMC Theatres and Cinemark) to negotiate a deal on shortening theatrical release windows. These meetings weren’t done surreptitiously. In January John Fithian, President of the National Association of Theatre Owners, told attendees of the International Cinema Technology Association’s tech conference that theatrical windows would be changing to help studios maximize revenues from home releases:

“As a person who represents the cinema industry I’m not going to tell you that we’re very happy that that model is going to change, but it has to. But it has to change logically and it has to change with studios and exhibitors sitting down together and analyzing the models. It’s not a great secret, this is happening. Leading studio executives, leading cinema representatives are talking about what these models should look like. The good news is we’re all at the table talking. That’s much better and much more cooperative than if studio x decided just to abandon the model and release a major picture in the cinema and in the home roughly at the same time. That’s not going to happen. What’s going to happen is some scientific thinking and some research and a deliberative process to maximize the model for the studios without killing the model for exhibition.”

So some North American exhibitors knew in advance of Iger’s announcement that Disney wanted to move up the DVD release of “Alice In Wonderland”, though certainly not all of them. And according to my conversations with exhibitors who had been in the loop, Disney was only looking to move up the DVD release date of “Alice”, not all of their subsequent releases. However, based on Iger’s comments both during the earnings call and a follow-up interview on cable news network CNBC, some cinema operators now fear a wider move is afoot at Disney and that other studios may follow suit:

“The problem with waiting these days is that you’re dealing with a much more competitive marketplace than ever before. The sooner we put a product into the marketplace — the less vulnerable we are to piracy.”

This kind of talk forced Walt Disney Studios Distribution President, Bob Chapek to release a written statement explaining that the shortened theatrical release window for “Alice In Wonderland” should not be taken as a signal Disney’s plans for future releases:

“It is important for us to maintain a healthy business on the exhibition side and a healthy business on the home video side. We remain committed to theatrical windows, with the need for exceptions to accommodate a shortened time frame on a case-by-case basis.”

European exhibitors were especially stunned by the news as it appears nobody from Disney had been meeting with them the way they had in the United States. Chapek sped off to the United Kingdom last week to conduct some damage control with specific exhibitors.

The top three chains in the U.K. all threatening to boycott “Alice In Wonderland” if Disney stuck to its DVD release plans. By the end of last week Cineworld, the U.K.’s third largest cinema chain, announced they had reached a private agreement with Disney and would show the film in their theatres.

Odeon and Vue, the country’s number 1 and 2 exhibitors had not reached a deal by the weekend and even went so far as to pull the film’s trailer from theatres. (There were a few reports Vue came to an accord with the studio since Friday.) Then today, Odeon confirmed publicly it would boycott “Alice In Wonderland” over Disney’s decision to release the film on DVD so soon, claiming it would:

“…inevitably set a new benchmark, leading to a 12-week window becoming rapidly standard… Odeon/UCI has invested considerable sums of money, especially in the UK, over the past 12 months to install digital projection systems in its cinemas. The proposed reduction in the window on a high-profile 3D title like Alice in Wonderland undermines the investment made.”

Exhibitors in the United Kingdom aren’t the only ones that are planning such extreme measures. Most of the theatre owners in the Netherlands don’t plan on showing “Alice In Wonderland” either. Speaking to AFP Youry Bredewold of Pathe and the Dutch National Board of Cinema Owners stated:

“We decided we need to send a message to the whole industry: if you don’t accept our terms we will never show your movies again.”

Ad Westrate, president of the International Union of Cinemas in Europe told the L. A. Times:

“I’m getting e-mails from my colleagues all across Europe and everyone says … this is one step too far. The guys are really fanatic now.”

Meanwhile, AMC Theatres in the U.S. may be taking a lesson from their counterparts in Europe. This morning, the L.A. Times reported that the second largest cinema chain in the world was “digging in its heels” over the “Alice In Wonderland” release window dispute and has not yet agreed to play the film. With more than 4,500 screens, mostly in North America, that could be the one straw that forces Disney to delay their plans for an early DVD release of the picture.

Disney's Bob Chapek

Even if Disney does cave in to pressures coming from exhibitors over the release window for “Alice In Wonderland” and delays DVD release of the film, this is an issue that will continue to rear its ugly head more and more in the near future. Warner Bros. is already talking to theatre owners about releasing the DVD for their animated film “Guardians of Ga’hoole” 86 days after its September 24th release, in time for the holidays. Last year, most cinema chains pulled Sony Pictures animated film “Cloudy With A Chance of Meatballs” when the studio said it would allow those who owned Sony televisions with Internet access to view the film a full 30-days before its release on DVD. In addition, Paramount Pictures ruffled feathers by releasing “G.I. Joe: The Rise of the Cobra” on home video less than three months after it premiered in theatres.

And it should come as no surprise that Disney seems to be leading the charge for the studios on release windows. As far back as 2005 Iger has said he wanted to shorten the release windows. Combine that with Chapek’s promotion at the end of last year as the head of all the studios’ motion picture distribution efforts. Chapek’s previous position? President of Walt Disney Studios Home Entertainment.

Since January 22nd, when Paramount Pictures announced their plan to offer virtual print fees directly to exhibitors, the news has been a frequent topic of conversation throughout the exhibition community.  It didn’t take long before a copy of the agreement began circulating through the industry, in large part thanks to the National Association of Theatre Owners.  With this year’s ShoWest less than a month away there is no better time to review the agreement in detail.

For those who have not seen a copy of the agreement, which is in draft form, it can be viewed on this post and downloaded here.  The first thing to take note of is that the document isn’t the size of a phonebook.  While many integrators VPF agreements can be upwards of 100 pages long, Paramount’s direct-to-exhibitor VPF is only 21 pages.  And just because the document is a draft of the agreement an exhibitor will ultimately sign doesn’t mean it’s going to expand.  After all, it’s not as if Paramount will be entering a brand new relationship with a highly leveraged third party.  The studio is entering an agreement with the same exhibitors they’ve been doing  business with for decades.

The agreement has 24 sections, one schedule and two exhibits.  Keeping in mind that I am not a lawyer, nor do I pretend to be, I’ll review each section pointing out some of the more pertinent bits and what they might mean for an exhibitor.  Some of the sections are standard boilerplate and will not be covered in as much detail.

The first few paragraphs of the agreement make up the usual preamble outlining the involved parties and their ongoing business concerns.  This is followed by:

Section 1 – Definitions
Almost every contract or legal agreement has a section that serves as a glossary that puts meaning behind some of the non-common words or phrases within the document.  Some contracts put this information in an exhibit at the end of the document, others put it right up front.  Paramount chose the latter and prefaces their agreement with all the meanings for acronyms along the lines of “DCI” and phrases such as “Booking Confirmation”, “Digital System” and “Wide Release”.  It actually makes a pretty good dictionary for digital cinema terms.

Pay close attention to the definitions for “Quality Failure” and “Security Failure” as they come up numerous times in the agreement, specifically in regards to when a VPF will not be paid if either occurs.  Per the agreement a Quality Failure is:

. . . .the malfunction of a Projection System resulting in two (2) or more consecutive missed exhibitions of a Digital Title.

Whereas a Security Failure is a breakdown of the DCI specified elements of a digital system or digital network that protect encrypted content from unauthorized copying and duplication such that the encryption is removed.  Put another way, if you’re equipment doesn’t meet the DCI spec and a film is pirated or copied so that it can be played back on non-DCI compliant devices, then you have a Security Failure.

Section 2 – Term
This two sentence section sets the period of time for which the agreement will be in effect.  What’s interesting here is the “Effective Date” has been left blank so it can be filled in with an agreed upon date, however an end date of February 28, 2019 has been typed in.  What Paramount may be telegraphing to exhibitors here is that they have no intent to pay VPFs past that date.

Section 3 – Installations
This is one of the most important sections of the entire contract.  It lays out precisely how long an exhibitor has to install digital cinema equipment in their theatres from the date the VPF agreement is signed.  Per the Section 3. (a) an exhibitor must install:

. . .at least fifty percent (50%) of the number of screens in each Exhibitor’s Complex(es), as listed on Exhibit “B”, no later than six (6) months from the Effective Date of this Agreement.

If an exhibitor doesn’t meet this deadline then Paramount is not obligated to provide 2D digital titles.  The timeline for a complete conversion of an exhibitor’s complexes is discussed in Section 3. (b):

Exhibitor shall install one hundred percent (100%) of the screens in each Ehxibitor’s Complex(es), as listed on Exhibit “B”, within three (3) years from the Effective Date of this Agreement.

Like the previous deadline, Paramount is not obligated to provide 2D titles to an exhibitor if they fail to meet the deadline.  In fact, if the exhibitor fails to install digital cinema equipment in the time specified, Paramount reserves the right to terminate the contract.  One of the more eye brow raising clauses here is Section 3. (c) which says an exhibitor only needs to install one 3D screen in each complex.  One would think Paramount should request more than one screen so that 3D releases could play simultaneously, or at the very least a 3D film could be moved between screens two or three weeks after release.

Section 4 – DCI Spec Compliance
Given all the work the studios put into the DCI Spec this section is practically mandatory.  While one might be tempted to skim over this section, believing they’ve previously heard all the DCI demands, there are some important pieces to each of the clauses.  For instance, an exhibitor may install equipment that is non-DCI compliant if the technology is not available on the market.  They than have six months to upgrade their equipment to meet the DCI Spec once the technology is commercially available.

Though not mentioned by their name or acronym, the importance of Facility List Messages (FLMs) to help with the delivery of keys is discussed.  There is a penalty should an exhibitor fail to send the proper information about their install base in a timely manner:

It is vital that Exhibitor provide detailed information to the digital distribution entity designated by Distributor about the Digital Systems that are installed which should include, but not limited to, digital trust certificates, manufacturer, model, serial number, firmware version, watermarking system, and 3D system (if installed).  In the event a key fails because Exhibitor failed to provide current information (e.g., a “server swap”), Distributor will charge a fee of one hundred dollars ($100.00) for each and every time Distributor is not informed.

Section 4 also contains a clause pointing to “Schedule 1” of the agreement which defines the capabilities of installed projection and  digital systems.  It requires one Library Management Server (LMS) per complex to act not only as a Theatre Management System (TMS) and content repository but also allow for the full automation of content receipts.  There is no exception for smaller complexes which have only one or two screens and may not have a need for a full blown LMS or TMS.

But even if they don’t need it, at least an exhibitor will own their equipment.  Unlike an integrators VPF deal, a clause in this section provides for the full ownership of the equipment to remain with the exhibitor at all times.  Finally, this section contains a statement, which all projector manufacturers will no doubt take note of, forbidding the deployment of any projector after December 31, 2009 that does not meet FIPS “Level 3” certification standards.  (Projector manufacturers are already well aware of this deadline and are working towards meeting it).

Section 5 – Changes To The DCI Spec
The title of this section says it all; if there are changes to the spec then both parties will negotiate in good faith as to whether upgrades will be made to installed equipment and if so, who pays for it.  Small exhibitors without an IT department may have trouble complying with some of the language at the end of the section without help from an integrator or third party to track and perform upgrades:

. . .Exhibitor will implement (a) any software upgrade to any DCI Component required by any amendment or modification to the DCI Spec that are made available to Exhibitor at no cost and (b) any upgrade required by any amendment or modification to the DCI Spec to the extent the combined costs of any such upgrades do not exceed $100.00 per Digital System in any single Contract Year.

Section 6 – Distributor’s Obligations Regarding Digital Releases
Like with traditional 35mm, just because an exhibitor installs digital equipment doesn’t mean they are guaranteed to get every film the studio releases, or so states this section of Paramount’s VPF agreement:

Exhibitor acknowledges that the decision of whether to license any particular Film to any particular Complex or Screen lies entirely within Distributor’s unilateral discretion.  Distributor licenses its motion pictures on a picture-by- picture, theatre-by-theatre basis.  Nothing contained in this Agreement obligates Distributor to license motion pictures to a specific theatre even if the theatre possesses a fully operational Projection System.

This last sentence is meant to avoid any claims of “block booking” or the practice of not letting an exhibitor book a future film if they don’t book a current, possibly smaller title.  Paramount also protects itself by explaining that digital prints may not be available in certain cases, such as when they don’t control the distribution rights, when they acquire a film made by a third party which did not provide digital assets, when they distribute a film on fewer than 500 screens in the first four weeks of release or when they are prevented from distributing a digital title due to a “star talent agreement”.  This last instance was learned first hand by Paramount when Steven Spielberg threatened he wouldn’t let “Indiana Jones and the Kingdom of the Crystal Skull” be screened digitally.

The first mention of Quality Failure comes in this section.  In an effort to maintain playdates on equipment that has malfunctioned, Paramount  is allowed to supply a film print at their own discretion.

Section 7 – Distributor’s Obligation Regarding Virtual Print Fees and Watermarking License Fees
As important sections go, this one ranks right up there with installations as it lays out precisely when an exhibitor will receive a VPF.  The language can get rather tricky and seem like double speak at times, but upon close inspection is actually quite simple.  Paramount will pay a VPF or weekly print fee (WPF) for every screen that one of their films is booked on, but will not pay a fee for:

• trailers
• short films less than 15 minutes
• moveovers
• interlocks on a screen not booked by Paramount
• re-releases within the first six months of release
• second run releases, promotional screenings or screenings during non-peak hours (such as children’s shows)
• private or non-commercial screenings where no admission is collected

Section 7. (b)(i) really underscores the necessity for an exhibitor to convert 100% of their screens to digital.  Should an exhibitor decide to move a digital title to an auditorium that can only screen film and a new 35mm print needs to be created, then Paramount will receive a VPF/WPF credit, negating what it paid for the original booking.  However, if a used 35mm print can be shipped no credit will be owed.  Another instance where Paramount will receive a credit is if a new 35mm print has to be struck due to a Quality Failure of digital cinema equipment.  If such a failure occurs 3 weeks after the national release date of a film, then Paramount will only pay 50% of the VPF/WPF.

The last paragraph of this section almost seems as if it could have gone in Sections 4 or 5 which deal with the DCI spec.  It mandates the use of watermarking technology from Thomson or Philips.

Section 8 – Record Keeping and Audits
The rules set forth in this section are somewhat similar to the ones exhibitors follow today when dealing with film.  In the case of digital, the exhibitor is required to maintain all their records for seven years up to 12 months after the agreement ends.  Paramount has the right to have an independent auditor look over an exhibitor’s books at their own expense.  If an exhibitor wants to dispute any VPF/WPF payment they have 60 days to do so.

Section 9 – Liability
This section is included partly to protect both the exhibitor and Paramount in specific instances of Quality Failure and Security Failure.  The Exhibitor is protected from being held responsible for faulty digital cinema equipment, provided they aren’t negligent with maintenance.  Should negligence be the cause of a Quality Failure during the run of a digital title than the exhibitor will be required to pay Paramount a VPF/WPF credit.

One of the important clauses in this section has to do with piracy.  If the exhibitor has notified Paramount of a Security Failure on specific digital equipment and Paramount decides to playback a digital title on that equipment anyway, the exhibitor will not be liable for any piracy that occurs.

Section 10 – Excluded Costs
Just to be clear exactly what financial obligations Paramount is taking on with the agreement  they put in this section to explain what they will and will not pay for.  Here’s what they are on the hook for:

Distributor is responsible for any and all costs of digital content preparation and distribution, including any and all costs relating to producing, encoding, encrypting, packaging, watermarking (other than watermarking which is part of the DCI Spec) and marketing Digital Titles.  Distributor is also responsible for costs of Key generation, key delivery and key management.

It’s unclear if Paramount means they will not only be responsible for costs associated with key management on their own end but also the exhibitor’s, though that’s highly unlikely.  When it comes to digital cinema, Paramount is not paying for anything other than the equipment itself through the VPF/WPF.  This includes such costs as installation and training.

Seciton 11 – Non-Exclusivity/Non-Interference
Though only one sentence, this section is noteworthy because it allows both parties to enter digital cinema deals with other companies.  For an exhibitor, this means they will be able to sign on with an integrator at a later date should they wish.  (More on that in Section 15).

Section 12 – Press Release
This is the usual muzzle clause which prevents either side from discussing specific deal points with the press.  The only reason we are able to write about the contract here is because it is in draft form.  Rest assured, we’ll never be reporting the nitty-gritty bits of a specific VPF agreement an exhibitor might sign with Paramount.

Section 13 – Most Favored Terms
Along with Section 3 on Installation and Section 7 on Virtual Print Fees, this section is extremely important.  Boiling all the language down to its core, it means if an exhibitor signs an agreement for a lower VPF with another company then Paramount must be notified and the studio reserves the right to lower its own VPF to the new amount.  Section 13. (a) e says it all:

If during the Term of this Agreement, Exhibitor grants any third party the Term for any other Film, under a comparable program with respect to other digital agreements, Exhibitor will entity a lower VPF or WPF during extend the option to offer such better and/or lower terms and conditions to Distributor.  Such option shall be at Distributor’s sole discretion.

And don’t even think about failing to notify Paramount of a deal with lower VPFs, for should they find out about it there are hefty penalties to pay.  The agreement even goes so far as to provide an equation for how to calculate such a penalty:

Double the monetary difference between Paramount’s VPF/WPF and the lower VPF/WPF and then mulitply by that figure by the number of VPFs or WPFs Paramount paid from the effective date of the lower VPF/WPF deal.

As if that wasn’t enough incentive to be straight with them, should Paramount levy such a penalty on an exhibitor the studio won’t pay any VPF or WPF until it is paid in full.  The only exception to the most favored nations clause comes in Section 13. (c) for any film that is exhibited in less than 50 theatres in North America at any one time.  This is squarely aimed at deals an exhibitor may cut for smaller films or with independent distributors.

Section 14 – Partial or Complete Termination for Quality/Reliability Failures
If the exhibitor experiences a Quality Failure on a digital system or projection system more than three times after the first six months of being deployed or if an exhibitor does not fix equipment that goes down within seven business days, then Paramount has the right to terminate the agreement for that system only, not for all installations in all complexes.  Simple, yet very important if you don’t want Paramount threatening to pull the plug every time a server goes down.  As is customary in such clauses, there is an exception made for force majeure events.

Section 15 – Termination/Other Remedies
This section details three additional events that allow Paramount to terminate the contract:

• If the exhibitor files for Chapter ll bankruptcy projection.
• If the exhibitor does not pay any monies owed within 45 days of being notified of delinquency.
• If the exhibitor signs up with a digital cinema integrator.

This last statement gives an exhibitor the freedom to sign with an integrator that Paramount has a standing VPF deal with when and if they chose to.  However there is a huge catch that integrators can’t be too happy about; the exhibitor (and presumably the integrator) must pay Paramount back for 100% of the VPFs/WPFs paid to date.  If a mid-size exhibitor is three years into their deal with Paramount that could be huge chunk of change to come up with all at once.

Section 16 – Indemnification
The bane of any business person trying to close a deal is the indemnification section as lawyers love to tweak and toil with its boilerplate language up until a signature pen touches an executable hard copy.  The indemnification section in the Paramount VPF is the standard “you don’t drag us down, we don’t drag you down” variety.  There is nothing all that special about it, though don’t be shocked if your lawyer finds something within it to complain about.

Section 17 – Warranties
Like the Indemnification section above, this section is almost always included in such contracts to represent certain facts which have no doubt been stated earlier in the document in some other fashion.  In the case of the Paramount’s VPF deal, the exhibitor agrees that all their digital cinema equipment will meet the DCI Spec and that they will use best practices when installing their systems.  Paramount guarantees that it will not knowingly give an exhibitor a computer virus, that the digital titles will be free from errors and that they will use best practices to provide digital titles to the exhibitor.  They also acknowledge an understanding that an exhibitor has to work within the limits of certain manufacturer warranties when repairing or upgrading equipment and software.

Sections 18 – 24
At this point, almost as if Paramount’s lawyers knew everyone would be tired of ferreting out all the important information, the agreement falls into the usual pattern of obligatory sections filled with the standard legal speak that comes at the end of a contract.  Section 18 deals with assignment, Section 19 with Force Majeure, Section 20 focuses on the relationship between both parities, Section 21 gives instructions for how to deal with any additional documents and Section 22 provides mailing addresses for any notices being sent to either party.

Two additional items worth pointing out in the main body of the agreement come in Section 23 (Sales Tax) and Section 24 (Miscellaneous).  Paramount will not pay the sales tax on any equipment purchased when calculating the amount to be reimbursed.  With digital systems costing upwards of USD $80,000 that could mean the exhibitor is stuck paying as much as USD $4,800 per installation should the tax rate average 6%.  Combined with any down payment they must make on installations, an exhibitor may have to fork over a huge amount of capital to convert a circuit with upwards of 100 screens.

The noteworthy bits in Section 24 have to do with choice of law and jurisdiction.  The entire agreement will be governed under California law and any disputes that arise will be settled in a Los Angeles courtroom.

Exhibit “A” – VPFs/WPFs
Most who get their hands on a copy of the Paramount VPF agreement will more than likely flip straight to this page which highlights the actual amount of the VPF Paramount is willing to pay.  Before diving directly into the financials however, it is necessary to understand that Paramount will be splitting theatres into two groups; “Category A” theatres are those that play films upon their national release and “Category B” theatres are those that play films several weeks after their national release.  Category A theatres will receive VPFs, while Category B theatres will be paid WPFs.  The amounts are as follows:

Paramount will not pay a VPF for any title in excess of the aggregate film rental an exhibitor would pay for any title.  Translated, this means if Paramount only makes USD $500 in film rental off of a 3D digital title in a specific complex, they aren’t going to pay USD $825 to the exhibitor.  Instead, they will pay USD $500.  Likewise, Paramount will not pay a WPF that is more than the weekly film rental of a given digital title in a Category B theatre.  In other words, if Paramount is owed USD $200 in film rental for a given 2D title in a given week, then they are not going to pay the USD $242 WPF, but only USD $200.

Other than Exhibit B, which is meant to list out a theatre owner’s complexes, that’s the end of Paramount’s VPF agreement.  It should be reiterated that this is only a draft of the agreement and it may change over time.  If you have any questions, comments or corrections about anything that’s been reviewed in this post, please feel free to leave a comment below.

Example of box office figures delivered via Webalo

While it may not be the Hollywood-way, I’m always glad to hear about a longtime friends’ success.  That’s one way of saying I need to offer a full disclosure for this post.  You see, Rob Edenzon has been an acquaintance for ten years now, since joining the board of directors at FilmStew, a web startup I helped found before the dot com bubble burst.  Now Rob is the vice president of sales at Webalo, a technology company that helps format and deliver software applications and enterprise business data to mobile devices.

For some time now Rob has been telling me about Webalo’s contract with specific television networks to deliver detailed overnight Nielsen rating spreadsheets to their employee’s Blackberries, while at the same time expressing a desire to offer box office grosses to studio executives on their own mobile gadgets.  Well, his wishes came true on Wedensday as Webalo announced a deal with Lionsgate to deliver “live” box office figures to the smartphones of the studio’s top executives.  What’s interesting to me is that the box office figures are coming not from aggregators such as Nielsen EDI or Rentrak, but instead from Lionsgate’s own internal SAP systems.  Though, on second thought, the press release (warning: PDF) announcing the agreement didn’t say whether the box office figures were flash grosses or audited reports and if they are the former, then I wouldn’t be shocked if they were coming from an aggregator.

It must not have been hard to convince Lionsgate to try out the technology.  Webalo’s offering is pretty much a turnkey solution with a web interface that enables IT managers to quickly reformat reports for mobile phones (mostly Blackberries) on the fly.  Thus, I assume, given then current economic climate, that Lionsgate didn’t have to spend a lot of up front money to integrate the technology into their systems.  Instead they are probably just paying the per user license fee that Webalo charges to most customers.

The per user licensing schema may be preventing Lionsgate from rolling out the technology company-wide.  The studio is initially limiting the rollout to key employee groups and if all goes well may offer it to employees throughout the organization.  In the obligatory press release quote, Leo Collins, Lionsgate’s chief information officer (doesn’t that sound so official), seemed rather excited about the new technology:

“We take great pride in our position as the leading next generation studio.  Key to our strategy is to aggressively embrace new media and technology, and to continuously seek innovative models both in terms of our content delivery and in our business infrastructure.”

Did Mr. Collins just coin the term “next generation studio”, or has it been used before by someone outside of Lionsgate?  Oh. . . and what exactly is the definition of a next generation studio?  In any case, the Webalo announcement comes on the heels of Lionsgate announcing they would be reducing their 2009 production slate in response to spate of recent box office disappointments and the worldwide recession.  Hopefully, when it comes to the studio’s upcoming releass, the new service will allow Lionsgate exec’s to receive better box office news while on the go.

Sometimes rebound relationships can really pay off.  At least that’s what Walt Disney Studios is hoping now that it has agreed to enter a long-term agreement with DreamWorks to distribute upwards of six films a year starting in 2010.  The deal was put together very quietly over the last several weeks as DreamWorks simultaneously tried to negotiate an agreement with Universal Pictures which had originally been announced back in October of last year.  That deal fell apart late last week when Universal and DreamWorks could not agree on a set of terms and as Universal reportedly discovered DreamWorks was negotiating with Disney.  When speaking with The Hollywood Reporter on Saturday the studio’s official line was:

“Universal Pictures has ended discussions with DreamWorks for a distribution agreement.  Over the past several weeks DreamWorks has demanded material changes to previously agreed upon terms.  It is clear that DreamWorks’ needs and Universal’s business interests are no longer in alignment.  We wish them luck in their pursuit of funding and distribution of their future endeavors.????”

What a few of those “material changes” amount to says a lot about theatrical motion picture distribution and just where a studio realizes a profit when releasing a film.  The deal that DreamWorks was originally negotiating with Universal was a straight distribution partnership.  Such deals will usually see the production company paying for the production of a film while the studio pays for film prints, marketing and advertising in exchange for recouping costs and a share of the box office gross.  That share can range anywhere from 8% to 15% of the gross – not the net – receipts.  This is the same type of deal that George Lucas cut with Twentieth Century Fox for the “Star Wars” prequels.  The agreement DreamWorks reached with Universal was pegged at 8% and while the terms of the Disney deal were not made public, several news sources reported the percentage DreamWorks would share with the mouse house to be around 10%.

At first glance it looks as if DreamWorks took the worse deal by about. . . . 2%, however in a point that shows where a film reaps most of its profit, it was the access to television revenue that enabled Disney to win DreamWorks over.  Universal could not guarantee DreamWorks as many slots on premium pay cable networks such as HBO, whereas Disney’s deal with Starz cable networks leaves them with plenty of airtime to fill, especially now that Disney has announced it is reducing the number of films it will produce annually.  For years now industry insiders and the media alike have speculated that a film’s theatrical run was just a glorified advertising campaign for its ultimate DVD and pay television release and this news helps confirm such thinking.

Of course, there is a lot more to assuring premium pay television slots than the revenue gained by such agreements.  These days, with the global financial crisis making it difficult if not impossible to raise capital, production companies and studios need pay TV deals to use as collateral when looking for financing.  That is truly the case with DreamWorks.

After a rocky three-year marriage to Paramount Pictures, DreamWorks asked for a divorce in the summer of 2008.  They immediately found a sugar daddy in the form of India’s Reliance Big Entertainment, who offered up USD $550 million to finance DreamWorks’ movies over the next seven years, a figure which has reportedly been reduced to USD $325 million.  The catch was that DreamWorks had to match Reliance’s amount with their own source of funding.  They began courting Universal since DreamWorks founder Steven Spielberg began his career at the studio and made many of his biggest hits there.  Though Universal had agreed to USD $125 million in loans, DreamWorks was unable to raise the rest of the money and instead asked for a USD $25o million investment.  Universal naturally balked at an investment – not a loan – of that size, so industry insiders and media outlets alike have speculated that Disney was able to step in with their wallet, despite a recent announcement that revenue at the studio was down 64%.

The irony in all of this is of course that DreamWorks was originally founded in 1994 by industry bigwig Jeffrey Katzenberg, music mogul David Geffen and filmmaker Spielberg when Disney refused to promote Katzenberg to the president’s role.  While the relationship with Disney may have been acrimonious at the time, DreamWorks now finds the studio as its biggest ally, while in the process managing to turn Universal into a bit of an enemy.  Nikki Finke, who helped break the news about the secret negotiations between DreamWorks and Disney, details the whole bitter fracas on her blog Deadline Hollywood.  It’s worth a look, if only to read about the numerous Universal deal points Spielberg wouldn’t agree to.

Disney’s press release announcing the agreement was a love-fest of quotes from Spielberg, DreamWorks’ partner Stacey Snider and Disney’s CEO Bob Iger.  BusinessWeek should be credited with having scored an interview with Iger shortly after the news broke.  Iger explained that the deal Disney had originally negotiated with Spielberg last summer, before DreamWorks agreed to partner with Universal, was no longer going to be the same:

“I got news that he was rethinking his decision and that he felt that Disney was the place he should have gone to all along.  The world had changed since then, and the terms of the agreement had to change as well.”

Get ready to hear numerous reports that Disney will try to hawk its indie label Miramax now that it has a deal with DreamWorks.  Let the rumor mongering commence.

New Weinstien Company President Tom Ortenberg (Genaro Molina/LA Times)

Tom Ortenberg, president of theatrical films at Lionsgate, is ditching the studio he’s spent 12-years at for a similar title and position at The Weinstein Company.  In his new role, Ortenberg will take on some of the same responsibilities at TWC that he oversaw at Lionsgate, including distribution, marketing, publicity and domestic acquisitions.

Over the past two decades, Ortenberg has gained a solid reputation of being a savvy executive who had real talent for acquisitions and marketing.  He was integral in planning the campaigns behind some of  Lionsgate’s most successful movies, including the “Saw” series and “Crash” which won the Best Picture Oscar for 2005.  In 2008, Ortenberg was interviewed by Dan Rather at the Sundance Film Festival and he explained some of the traits he looks for in a film when making an acquisition.

Certainly the Weinstein brothers must have been excited to land a veteran exec such as Ortenberg, especially after all the recent turnover within TWC’s senior executive ranks. In a press release announcing the hire,Bob and Harvey Weinstein said:

“Tom’s arrival at the company is a major coup for us.  His instincts, wide knowledge of all parts of the industry and impeccable track record is unbelievably good fortune for us as we prepare to release some of the biggest and most exciting films we’ve made. . . He’s the consummate professional, who’s bringing his years of experience to the company, and we are confident that his expertise will continue to further the success of The Weinstein Company and strengthen our existing executive pool.”

When Ortenberg reports to work on February 2nd he’ll slip into the freshly minted position – president of theatrical film – a title the Bob and Harvey Weinstein apparently created to match the one he held at Lionsgate.

Ortenberg’s move was not entirely unexpected, as Lionsgate has been a little top heavy ever since they purchased Mandate Pictures in 2007.  Though here’s a mildly interesting tidbit – according to a post on Nikke Finke’s blog Deadline Hollywood on Monday, it appears both Lionsgate and TWC may have been forced into making the announcement a few days before they really wanted to:

“I’m told that Lionsgate’s Joe Drake gave Ortenberg a 6-month test period to see if he wanted him as part of the team. Since that time Ortenberg has been shopping himself. In early December, Ortenberg was told his contract would not be extended.  Drake has no plans to replace him. . . I hear his [Ortenberg's] salary at TWC is less than what he was making at Lionsgate. . . This was going to be announced at the end of the week, but my tipsters foiled those plans (again).”

Possibly because of Finke’s post, Drake, who came on board as Lionsgate’s chief operating officer with the Mandate acquisition, was sure to point out when speaking with Variety that Ortenberg’s tenure ended on friendly terms:

“We owe a big debt to Tom. We just decided to go separate ways.”

Whatever the truth may be, the comments left on Finke’s blog post, many of them by industry insiders, seemed to sum up the news as a mixed blessing.  The Weinsteins have a reputation of running roughshod over the talented executives they hire and most were concerned that Ortenberg may wind up in a similar situation before too long.

On the eve of the National Association of Theatre Owners’ meeting with equipment vendors to review digital cinema requirements on Friday, Paramount Pictures has thrown the exhibition industry a curve ball in the hopes of resuscitating the stalled rollout of the technology.  Rather than work solely through integrators such as Digital Cinema Implementation Partners (DCIP) and Cinedigm (formerly AccessIT), Paramount has become the first Hollywood studio to offer North American exhibitors financial assistance for digital cinema installations.

What’s significant about Paramount’s announcement is that previously studios have refused to cut deals to reimburse exhibitors for digital cinema installations directly with exhibitors for fear of future anti-trust litigation.  Instead, they relied on digital cinema systems integrators to provide a buffer between themselves and theatre owners.  But, with the digital cinema rollout at a near stand still, Paramount seems to be throwing caution to the winds.

Paramount has a vested interest in seeing digital cinema take off, specifically to increase the number of 3-D capable projection systems. This March the studio will be releasing Dreamworks Animations’ “Monsters vs. Aliens” in 3-D and presently the United States and Canada only have about 1,200 screens properly equipped with 3-D systems.  Paramount has been promoting the film heavily for nearly a year at industry trade shows and will be airing a 3-D commercial for the movie during the upcoming Super Bowl telecast.
Paramount has already struck virtual print fee deals with four domestic digital cinema integrators; Cinedigm, DCIP, Kodak and Sony.  The studio has also signed VPF agreements with international integrators such as XDC, Arts Alliance Media, Ymagis and GDC.  However, integrators must turn around and find financing for such deals to purchase the digital cinema equipment they will install and maintain in theatres.  At an average of USD $70,000 per screen integrators need to land tens of millions, if not hundreds of millions of dollars in financing.  DCIP is presently looking for more than a billion dollars to roll out digital cinema equipment in upwards of 16,000 screens for AMC Entertainment, Cinemark and Regal Entertainment.

Raising such capital during the ongoing financial crises and worldwide credit crunch is next to impossible, as Mark Christiansen, Paramount’s executive vice president of distribution, pointed out when speaking with the Associated Press about the studio’s new plan:

“Trying to get $10 million or $100 million today is almost impossible.  Now a local theater owner can get financed on a local level and we will support them. We can get digital cinema rolling from the local level up instead of from a national level down.”

The studio’s thinking seems to be that banks might be more willing to loan money to individual exhibitors in smaller chunks, especially if they are local, regional businesses.  If the plan works it could certainly rescue some independent exhibitors who have not been pleased with the Cinema Buying Group’s VPF deal with Cinedigm or may be too small for VPF deals altogether.

Paramount intends to provide a VPF with a cap of USD $1,000 directly to theatre owners for a period of ten years (and for Paramount films only), provided the exhibitor converts half their screens to digital or install at least one 3-D projection system.  What isn’t clear from initial reports is whether an exhibitor will have to convert half of all the screens in every venue they own, as is the case with most integrator’s VPF agreements, or whether an exhibitor could focus digital installations on specific theatres.  Of course, exhibitors who have executed agreements with integrators and are already receiving VPFs would not be eligible to participate, though under the Paramount plan theatre owners who purchase their own equipment would be allowed to enter into deals with integrators at a later date should they choose to do so.

Under the terms of the deal exhibitors would be allowed to own and operate their own digital cinema equipment, so long as it complied with Digital Cinema Initiative and SMPTE specifications.  In most integrator agreements it is the integrator that owns the equipment, not the exhibitor, something theatre owners have voiced complaints about in the past.  In fact, some North American exhibitors, tired of waiting for integrators to scrounge up financing or come up with a reasonable agreement, have instead begun to purchase and install their own digital cinema equipment in limited numbers so as not to miss out on any of this year’s upcoming 3-D releases.  Such moves could put the studios in a difficult spot, as instead of being in control of VPFs, exhibitors might start trying to recoup their investment in digital cinema through alternative means, such as attempting to decrease film rental payments.  Seeing this new trend of exhibitor financed equipment, Paramount’s move could also be an attempt to try and manage the situation before it gets out of control.

Paramount sure doesn’t seem to be trying to hide the fact that their aim is to widen the number of 3-D capable installations, since they told the Hollywood Reporter that VPFs for 3-D films will be higher than those paid out on 2-D films.  It’s no surprise that the studio should be so eager to try and re-ignite the digital cinema roll out.  For months rumors have swirled around the industry that Jeffrey Katzenberg, head of Dreamworks Animation, has been quite displeased with Paramount’s efforts to push digital cinema.  Katzenberg has been a huge advocate of digital 3-D presentation and announced that all of Dreamworks Animations’ future projects will be in 3-D.  With the release of “Monsters vs. Aliens” less than two months away, the announcement could be a move by Paramount to appease Katzenberg.  If that’s the case, it certainly seems to be working.  Katzenberg told the Hollywood Reporter:

“It’s a real big breakthrough, and I am counting on the other distributors to follow through on this, too.  It’s a tremendous opportunity for a number of exhibitors who have not had access to the kind of funding that now will be provided on a theater by theater basis, as well as for larger exhibitors who have been frozen out of the market because of the credit crunch.”

NATO also seems to be pleased with Paramount’s decision and like Katzenberg hopes that other studios will follow suit.  Given the quote from John Fithian, NATO’s president, which appeared in Paramount’s press release, it wouldn’t be surprising if the organization was instrumental in helping the studio come up with the new plan:

“Paramount is getting out front on this critical industry transition and we applaud them. Direct arrangements between distributors and exhibitors won’t work for everyone, but for some of our members, it could make the difference in surviving and thriving in the digital era. And it certainly enables some exhibitors to get wired much faster — and that means more 3-D screens sooner. We urge all studios to give this creative option a fair chance.”

With 20 digital 3-D films slated for release by the end of 2010 the digital cinema rollout has become an urgent matter for all of the major studios, and now that Paramount has dared to be the first to take the plunge and agree to sign VPF deals directly with exhibitors, don’t be shocked if you quickly see others following their lead.

If you’re looking for a screaming deal on a finished film you should probably give Warner Bros. a call. In his Los Angeles Times column today Patrick Goldstein details an interview he conducted with Alan Horn, the studio’s top dog. Goldstein contacted Horn after he learned producer Joel Silver was pitching Lions Gate Films to pick up “RocknRolla”, the British gangster film from director Guy Ritchie which Warner Bros. was due to release in early October.

Apparently, with the recent shuttering of subsidiaries Warner Independent Pictures and New Line Cinema Warner Bros. finds itself with too many films to release over the next six to twelve months. Besides “RocknRolla” Goldstein reports that Warner would be happy to unload two additional films; Danny Boyle’s “Slumdog Millionaire”, originally a WIP release, and the New Line cop drama “Pride and Glory” starring Edward Norton and Colin Farrell. Silver became proactive in a finding a new home for his film when he realized Warner Bros. wasn’t about to spend the money to market the movie. Horn confirmed this in his conversation with Goldstein, saying:

“Joel has an 800-screen deal, which we’ll honor, but we might not be willing to spend the marketing money he wants us to. . . The filmmakers have every right to do what they think is best in support of their movies. But we have the right to do what’s best for Warner Bros. Sometimes the pursuit of those interests results in a disagreement. For now, we’re preparing to release the film in October, but I don’t see it starting out on 800 screens. If Joel is thinking there is someone out there willing to spend twice as much money as we’re willing to, I’m sure he will pursue that.”

While he was making the rounds at Warner Bros. Goldstein checked in with Dan Fellman, Warner’s head of distribution. The executive spoke about the juggling act he and his staff are conducting in an attempt to make sure the studio’s marketing and distribution departments aren’t overloaded going into the fall and holiday season. According to Horn, the studio would like to release about 25 or 26 films every year:

“I think having a new movie coming out every two weeks is plenty,“ Horn said. “Any more films than that and we’re putting too big a strain on the system. It’s just too crowded in the marketplace these days. I’d like for us to find a way to release movies like ‘Slumdog Millionaire,’ but we keep coming back to the same question–can we really do it justice?”

Given Goldstein’s column on Thursday, with Warner’s top brass going on the record, the answer to Mr. Fellman’s question appears to be “no”.