Universal and Disney Close To VPF Deal With DCIP

By J. Sperling Reich | September 8, 2008 10:06 pm PDT

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.

Meanwhile, Sony Pictures and Warner Bros., while still in negotiations with DCIP for VPFs, don’t seem to be nearly as close to a deal as their counterparts.  They seem more than content to be the last two studios into the mix with DCIP.  The Wall Street Journal piece quotes Warner Bros.’ president of distribution, Dan Fellman, as saying:

“We’re working on trying to make a deal that is economically responsible for our company, whether it happens next week or whether it happens next month.”

There may be a valid reason for Sony and Warner Bros.’ reluctance to jump into participating in VPF arrangements with DCIP.  As Michael Karagosian of MKPE previously pointed out the two studios would pay 50% more than any of the other studios based on print counts for the top 150 films of 2006 and 2007.  In other words, Sony and Warner Bros. release the most films and thus would contribute the largest percentages to VPF deals signed with integrators such as DCIP.

Scott Sherr, the senior vice president of digital cinema operations at Sony told the Wall Street Journal:

“Digital is very important and critical to our strategy.  We’re moving carefully and thoughtfully and deliberately.”

VPF agreements, such as the ones DCIP is negotiating with Universal and Disney, are meant to help exhibitors defray the cost of installing digital cinema equipment.  Many throughout the industry have been hoping that the success of DCIP to negotiate VPF deals would help jump start the North American rollout of digital cinema in ernest.  Presently only 5,000 screens throughout the country, out of 39,000, have been converted to digital, with roughly 1,200 being 3D capable.

One completely erroneous statement in the Wall Street Journal article squarely falls the, “don’t believe everything you read” category:

The Hollywood studio’s payoff is later; once the equipment is rolled out and their financing obligations are done, digital distribution of movies will cost just pennies per digital “print”.

As anyone working at a studio can tell you, the creation of a digital cinema package for theatrical distribution and the security keys that go with it, while not as costly as rolling stock prints, aren’t exactly chump change.

J. Sperling Reich