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.

CJ: What changes or market forces facilitate direct to exhibitor VPFs for Paramount that didn’t exist before?

MC: The unavailability of large scale financing deals which backed integrator deals has shut down or slowed down most integrator roll outs.  We know there are exhibitors out there with access to local financing that wanted to install d-cinema now.  Paramount wants to support them.

CJ: What happened to the initial concerns Paramount and other studios had over anti-trust issues if they worked directly with exhibitors?

MC: Paramount’s offer is completely independent of other studios offerings.  We are not aware of any comparable offer available at this date.

[Interpretation: There may be anti-trust issues if studios collaborate on a unified VPF agreement.  In an attempt to avoid such accusations Paramount wants to make it clear that they have not been working in conjunction with other studios to draft their agreement.  This could also be a slight nudge aimed at other distributors to try and get them to offer similar agreements to exhibitors.]

CJ: What does Paramount’s announcement mean for the integrator model?  Is it dead?  Is it not working?

MC: Paramount’s agreement allows switching to an integrator at any time.  The agreement can be used as a bridge to an integrator deal or as a stand alone deal, but of course, not both.

CJ: The VPF document is very short, only 21 pages long instead of the 80 page deals most integrators offer up, why is that?  Is there anything missing from the Paramount direct-to-exhibitor VPF?  If so, what were you able to leave out?

MC: The integrator agreements have a lot of language to protect the financing entity behind the deal.  There are also strict rules dealing with alternative content, confidentiality, termination, and how and when studios get credits for failed screenings.  We were able to leave most of this out and handle these situations the same way we do with 35mm.

[Intepretation: When dealing with integrators Paramount is entering into an agreement with a third-party they are not used to working with – a third-party that will have to become highly leveraged to execute their business model.  On the other hand, Paramount has been dealing with exhibitors for decades and has longstanding relationships that negate a lot of the legal language in such an agreement.]

CJ: There is a most favored terms clause in the VPF, but what happens if an indie distributor, who can’t afford a big studio VPF, comes along with their one or two films per year and asks for a cheaper VPF deal?  Will that mean Paramount will lower their VPF payments, or are there exceptions for smaller distributors?

MC: There is an exception for very limited releases.  Remember that independent distributors have to buy 35mm prints now just like Paramount does.

CJ: There is a hard stop date of February 2019 in the VPF document.  Does Paramount not intend to pay VPFs through this deal past that date?  Is this a way of enticing exhibitors to get on board now?

MC: Yes to both questions.

CJ: What was the reasoning behind the timing of installations (50% in six months ,100% in three years)?

MC: If Paramount is committed to supply digital versions of its product, there must be the same ability to stay on screen as there is with 35mm.  If an exhibitor only has one or two digital projectors, where would we move as the picture plays out?  We did give an exception for as few as one 3D projector.  If Paramount and the exhibitor reach a licensing agreement, we will commit to supply digital versions of 3D product.

CJ: This deal is for domestic exhibitors only.  Is there any plan to offer the same VPF deal directly to international exhibitors? If so, what’s the timing?

MC: We are working on it, but it will take some time.  We have to tailor agreements for each country.

CJ: Was there any thought to a pay-per-play model?  What is Paramount’s thoughts on that type of model?

MC: We are not currently considering this.

CJ: What room is there for manufacturers or equipment dealers to facilitate this model with small exhibitors, kind of like a mini-integrator?

MC: This is an opportunity for both current integrators and equipment dealers.  Exhibitors will certainly need expert help selecting, installing, and maintaining d-cinema systems.

[Intepretation: Not every exhibitor has an IT department that can monitor and maintain d-cinema equipment on an ongoing basis.  Such exhibitors would still need the assistance of an integrator, dealer, equipment manufacturer, etc. for such expertise, if only to stay on top of upgrades.]

CJ: Will Paramount be auditing an exhibitor’s records in order to make the appropriate VPF payments or will you a third party perform the audit?  Is Paramount going to audit every single screen, no matter how small?

MC: The VPF payments will be tied to our booking system, so there shouldn’t be much to check.  We certainly would audit if we believed that any part of the contract had been violated.

CJ: Will Paramount’s VPF agreement support hybrid 35mm/digital screens for theatres that can’t get enough digital content?

MC: Yes.

CJ: There is nothing about subsidizing 3D glasses in the VPF document.  Does Paramount plan to offer a subsidy for 3D glasses, possibly on a per film basis?

MC: We are looking at this on a title by title basis.

CJ: Do you think other studios will follow Paramount’s lead?

MC: We certainly hope that other studios find a way to directly support exhibitors.

CJ: Some industry insiders say that Paramount announced this deal simply to appease Jeffrey Katzenberg regarding his 3D releases.  Is there any truth to that?  Did Katzenberg really push for this new agreement or was it something Paramount came up with independent of Dreamworks Animation?

MC: While Jeffrey Katzenberg certainly supports this program, it was a Paramount initiative.  We have been among the leading studios supporting the conversion to d-cinema and this is a logical next step.