Tag Archives: Virtual Print Fee

Latin American VPF Deals Hide Regional Problems – UPDATED

Butch Cassidy and Sundance Kid

[Ed: We have received lots of feedback and updated info from readers fram and active in the region. ¡Muchas Gracias/Muito Obrigado! The article has been UPDATED THROUGHOUT as a result.]

Much like Butch Cassidy and the Sundance Kid headed to Bolivia after they had run out of banks in the Wild West to hold up, so too digital cinema integrators have moved on to Latin America, now that virtual print fee (VPF) coffers are empty in North America and Europe. Yet despite the flurry of Latin America-related VPF press releases at the recent CinemaCon, there are fundamental issues that will make it a challenge to migrate the continent to digital cinema.

We have already discussed the press releases from CinemaCon 2014, including those  related to Latin America, so for a full breakdown have a look HERE. We will not provide a full analysis or analyse each deal, but try to look at the context and outlook for the region, as it struggles to catch up with the rest of the world in going digital.

As we pointed out during ShowEast 2012 it was the last chance for Latin American countries to get a VPF deal and we are unlikely to see many more major deals after this one. Gary Johns from Sony Electronics commented then that their VPF deals for North America were available until 31 March 2013, i.e. almost exactly a year ago. While international deals do have a little longer to run, studios like Twentieth Century Fox have politely but firmly informed exhibitors, distributors and (perhaps most importantly) government representatives in Brazil and elsewhere in Asia that the end of 35mm prints is nigh.

GDC at the Forefront – of press release announcements

It is noteworthy that deployment entities like Scrabble and GDC have signed separate VPF deployment deals with Hollywood studios (here and here respectively), highlighting that the continent could not easily follow deployment patterns and terms even for non-US or EU territories such as India and China. Of these two entities GDC has been the more active, with no less than five announcements relating to Latin America, while Scrabble has been largely silent recently. So what’s the motivation to be aggressive on the VPF front in Latin America?

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Q & A: Mark Christiansen Talks About Paramount’s VPF Deal

Paramount's Mark Christiansen

Paramount's Mark Christiansen

Since January 22nd, when we first posted our story on Paramount’s direct-to-exhibitor virtual print fee agreement, we have received quite a bit of correspondence on the topic.  Some typed out their thoughts in the comments section of the post, (and thank you for that).  Many of your emails asked questions about the agreement that we were simply unable to answer as we did not have enough information.  So, we felt it would be best to turn to the most qualified person to answer some of these questions; Mark Christiansen, Paramount’s executive vice president for motion picture distribution.

We compiled all of your questions into an email and sent it off to Mr. Christiansen.  He was kind enough not only to respond, but also to let us post the VPF agreement for your review.  At the time of his response in February, Mr. Christiansen said the feedback he was receiving about the deal was entirely positive and he was happy to report that between 10 and 12 exhibitors had already made commitments to sign the agreement.  He understandably declined to state exactly which exhibitors given that details were still being worked out.

You might think some of Mr. Christiansen’s responses are rather brief, though please keep in mind he was answering these questions via email.  When necessary we’ll provide our own interpretation of his responses, which are noted as such.  Please do not mistake this for Mr. Christiansen’s own opinions or responses.

Celluloid Junkie: Why did Paramount wait until now to put together a VPF they can offer direct to exhibitors?  Why not last year or earlier?

Mark Christiansen: DCI compliance testing was not available.  We wanted to have a testable specification in place before going directly to exhibitors.

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A Comprehensive Review of Paramount’s Direct-To-Exhibitor VPF Agreement

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.

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How Good/Bad Is Sony Pictures’ Deal With Cinedigm?

read_between_the_lines Reading between the lines of digital cinema related press releases is often required to understand what a deal really means, as opposed to what those issuing the release want you to think it means. This appears to be the case with the recent announcement that Cinedigm (formerly AccessIT) has signed a virtual print fee deal for North America with Sony Pictures Entertainment (SPE). On the surface it looks like great news for Cinedigm, who has the financial commitment from an important Hollywood studio that has not always been the first to sign up to any third party financing scheme (unlike, say, 20th Century Fox). But is the deal all that it seems to be and what does it really tell us about the studio/third party vendor dynamics?

The press release opens as follows:

Cinedigm Digital Cinema Corp. (“Cinedigm”) (NASDAQ: CIDM) (formerly AccessIT) today announced an agreement with Sony Pictures Releasing Corporation (“SPRC”) supporting its “Phase Two” Digital Cinema Deployment Plan for up to 10,000 digital cinema projection systems. Over the next three years, SPRC will supply its upcoming pictures in a DCI-compliant format to Cinedigm installed theatres in the United States and Canada, when booked, and will make financial contributions for a limited time to promote DCI-compliant digital cinema technology (a new and higher quality delivery format).

The two big caveats that scream out (at least to the trained ear) are “when booked” and “ for a limited time”. In themselves they would seem obvious enough – you would not pay VPF for a film that’s not booked in a theatre and obviously VPF payment would not continue until cinemas close down for Armageddon (the Biblical one, not the Michael Bay film). But what do these terms actually mean? Short of reading the actual agreement, we can only indulge in speculation.

Many studios, especially Sony, have been quite strict about the conditions under which they will VPF.  Specifically, they will not pay a VPF for any print which is not shown as having been “officially” booked in their own internal systems.  At first blush this seems to make some sense.  That is until you discover that in practice, most film buyers will only book one print per mutliplex, no matter how many screens they actually intend to play the movie on.  After all, one of the benefits of digital prints is their ability to be placed on multiple servers in a theatre complex without having to have an additional physical print on hand.

The problem of course is that while a VPF can be collected on the first screen, the second, third, fourth, etc. screens will not receive a VPF since they weren’t booked directly with the dsitrbutor.  This has put Cinedigm and similar third party integrators in a sticky situation, forcing them to argue with studios over how many screens a film has actually played on rather than letting them pay based on what appears in a their computer systems. Thus, the throw away verbiage of “when booked” might have very purposeful implications in the agreement between SPE and Cinedigm.

‘For a limited time’ typically means X number of years or until the studio considers the equipment payed off, whichever comes sooner. Typically X has, true to its Roman usage, been ten (10) years for digital cinema, as witnessed by the recent Paramount’s VPF-directly-to-exhibitors agreement. But what if it is just five years, or even two? You might ask why Cinedigm would settle for anything less than ten? The reason is that when it comes to negotiations, there are just two variables that can be adjusted. One is the per print size of the VPF (the Paramount one is $725 for a standard 2D film in digital). The other is length of time of payback. IF you have given a commitment to previous Hollywood studio VPF signee that they are getting ‘best price’ you cannot offer a lower price to the next studio. This just leaves the length of time to be shortened.

So when a third party integrator is in a hurry to close a VPF deal and a studio is reluctant to committ to a particular pricing, they have to compromise somewhere. This was evident in the deal between Walt Disney and Arts Alliance Media:

Under the terms of the agreement, Disney will supply European exhibitors with its feature films in digital format and will make provisional contributions towards the digital cinema hardware costs of AAM-deployed DCI-compliant screens.

The key phrase here is ‘provisional contributions’, which rings a lot more hollow then ‘ten year fixed-price VPF contributions’. Just how ‘provisional’ is ‘provisional’ in this case? Again, we won’t know unless the details of the deal are made public, which they will not.

So we thought we’d ‘crowd source’ the speculation and analysis of how good this and similarly worded deals might actually be. Do you have an opinion or insight into the terms of the deal or Cinedigm’s announcement.  If so, then please feel free to share them in the comments section below.

Paramount Goes Direct-To-Exhibitors With D-Cinema Deal

Paramount Pictures LogoOn 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.
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Universal and Disney Close To VPF Deal With DCIP

And then there were four.  Four studios that is.  Or so says the Wall Street Journal which broke a story today reporting that Universal Pictures and Walt Disney Company have reached a virtual print fee deal with Digital Cinema Implementation Partners, the joint venture formed by North American exhibitors Regal Entertainment, Cinemark and AMC Entertainment to finance, install and maintain digital cinema equipment in their theatres.  The three chains, which represent a combined screen count of around 15,000, would like to start rolling out digital cinema as soon as the fourth quarter of this year, in time for the flood of 3D movies studios have slated for release next year.

Previously, DCIP had reached a VPF deal with Twentieth Century Fox, though the studio has never confirmed the news.  The signing of four studios is a crucial milestone which DCIP must cross in order to secure the USD $1 billion in financing the company has lined up from J.P. Morgan Chase to pay for all the expensive digital cinema equipment required to outfit theatres.  The Wall Street Journal had reported that Paramount Pictures had also signed a VPF agreement with DCIP, which had been rumored in the press but never officially announced.  Indeed, by the end of the day Variety had taken the air out of the Wall Street Journal’s big scoop by confirming that Paramount Pictures had not yet signed with DCIP. Read More »

DCIP Reaches VPF Agreement With Fox

Digital Cinema Integration PartnersAfter industrywide speculation and concern over the absence of any news about virtual print fee (VPF) agreements being signed by Digital Cinema Implementation Partners (DCIP) the company finally announced their first deal which rumor has it is with Twentieth Century Fox. The news was reported by Reuters and has not yet been made official by DCIP, however the company’s CEO, Travis Reid was quoted as saying:

“A party has signed a deal and we think it won’t be long until we have multiple studios.”

There are no details yet about the terms of the deal, nor any confirmation that it is with Fox, though during a conference call on Thursday Regal Entertainment’s CEO confirmed that a VPF agreement had been reached with at least one studio:

“We can’t disclose which studio, but we consider it to be a major milestone. It is always difficult in getting someone to be willing to be the first.”

Paramount is also rumored to be close to announcing a deal with DCIP, as is Walt Disney Studios.

DCIP was formed by North America’s three largest exhibitors – AMC Entertainment, Cinemark and Regal Entertainment – to manage and finance the rollout of digital cinema equipment and technology within each circuit. With 14,000 screens between them it is easy to see why the industry eagerly awaited news that the studios had come to some form of agreement with DCIP to subsidize the cost of installing digital cinema equipment. Due to the large size of the rollout, such a deal was viewed as a bellwether for the types of VPF deals other exhibitors would be able to get. Recent VPF deals announced by other integrators such as AccessIT in the United States and XDC in Europe did little quell everyone’s anticipation over news from DCIP.

No doubt even DCIP was getting a little anxious over the lack of progress on their VPF agreements they were able to make public. The company was founded in February of 2007 by the three theater chains and had hoped to wrap up their negotiations with studios over VPFs by the end of last year. As almost anyone working in or following the industry now knows, the studios began playing hardball with integrators such as DCIP on the contractual terms of the VPF agreements, haggling over every last detail including usage fees for alternative content and the length of the deal. XDC’s VPF with Hollywood studios is reportedly only USD $850 per film, per run.

And there’s one main reason that the rollout of digital cinema has stalled at around 5,000 screens in North America (out of 37,000); rolling stock prints range from USD $1,200 to $1,500 so even with VPFs the the distributors save heaps of money, whereas exhibitors are forced to pay for expensive digital cinema equipment they claim won’t save them any money or increase their revenue. That the standards for this equipment are still being determined by SMPTE and DCI hasn’t helped matters either.

However, in 2009 Hollywood studios plan to release upwards of 11 movies in digital 3D which will require the equipment to be installed on a broader scale. Presently the number of screens equipped for digital 3D in North America hovers around 1,300, making it difficult to release two such films into the market at the same time. News of the DCIP deal may be a relief for a few studio executives have otherwise to struggle to find enough digital screens to place their 3D releases on. Studios have actually begun to push some of their 3D releases back into 2010 to make certain they will have enough screens to put them on.

The thinking within the industry is that once DCIP starts announcing VPF agreements the rollout of digital cinema should ramp up soon thereafter. Michael Lewis, chief executive of 3D systems provider RealD, told Reuters:

“When the DCIP deal drops, then digital cinema is really on its way.”

Here’s to hoping Mr. Lewis is also fortune teller.

Screenvision’s Loss Is XDCs Gain

Serge Plasch Pan-European digital cinema integrator XDC has poached the Benelux head of pan-European cinema advertiser Screenvision to head up its virtual print fee effort as the company get a 7.5m euro cash injection. Serge Plasch is replacing Laurent Minguet as head and will go head to head with the likes of Arts Alliance Media in promoting digital cinema all over Europe. From the press release:

Serge Plasch (40), has been Managing Director of Screenvision Benelux since 2001 where he reinforced the leadership of that major advertising saleshouse for the Cinema Industry. Speaking fluently four languages, English, French, Dutch, German, he will contribute to strengthen XDC position in the large but fragmented European Cinema market. Enthusiast over this new opportunity, the new Managing Director & CEO says : “After years of talks and trials, large DC deployment is starting. All market players are convinced that Cinema will be digitized and that will improve the business model of the industry, for the good of the audience. XDC has proven its skills to operate DC screens through a full range of services and technologies. XDC is the first DC Content lab in Europe and it has built the largest early stage DC network exceeding 300 systems for leading cinema groups. I am also very pleased to work closely with a very motivated team and in particular with Bernard Collard.

Though tucked away at the bottom of the press release, but in many ways no less important, long-term consultant to XDC John Burchill Hughes has been appointed “special advisor to the Board of Directors and member of the management board for content related matters.”

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Sony Is Officially Fourth Euro VPF Studio

As revealed in this blog some time ago, Sony Pictures International (SPI) is the fourth Hollywood studio to sign up to Arts Alliance Media‘s European virtual print fee (VPF) based digital cinema deployment deal, that has so far found one cinema taker in France. The write up in the Hollywood Reporter is cagey on which territories will be part of this deal:

Under the agreement, SPRI has pledged to supply its films “to certain European countries” in digital format to AAM-deployed, DCI-compliant digital-cinema screens. Territories include “those in Western Europe,” SPRI said.

The releasing arm also has pledged “to make financial contributions in order to promote digital cinema.”

SPRI’s move comes after the November decision by French exhibition chain CGR Cinemas to sign with AAM to convert all its 400 screens to digital.

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French Cinema Converted To Digital Cause

CGR cinema logoArts Alliance Media (AAM) has converted an exhibitor in the staunchest of anti-digital countries, France, to buy into its virtual print fee (VPF) model for deploying digital cinema. Circuit George Raymond (CGR Cinemas) will convert all of its 400 screens in the first deal of its kind that AAM has signed with a European exhibitor. The press release from AAM is as bullish as you would expect from this long awaited announcement:

CGR Cinemas is a leading and expanding cinema chain in France. The company is well known for the success of its multiplexes in many mid-size cities across the country, for the efficiency of its cost management and for its profitability. By becoming the first European cinema chain to join the AAM initiative and go fully digital, CGR Cinemas is demonstrating that it is an innovative company, ready to embrace new technology to deliver the best possible quality cinema experience.

This agreement between CGR Cinemas and AAM shows that the VPF-based business model has now been fully adapted to meet the particular requirements of the European exhibition market.

However, not everyone is convinced that the VPF model is home and dry just yet in Europe. The Hollywood Reporter’s Stuart Kemp injects a note of caution in his analysis:

AAM is hailing the move by CGR Cinemas as the clearest signal yet that virtual print fee, or VPF, agreements will eventually rule the pricing roost between exhibitors and distributors across Europe.

But at the moment, Warner Bros. and the Walt Disney Group, alongside French indie distribution players, have not yet signed up to the virtual print fee agreements brokered here by AAM. Read More »