The Commoditization of VPFs, or, Why Having a Deal With Hollywood Studios Isn’t The Big Deal It Used To Be

By Patrick von Sychowski | April 1, 2009 7:50 am PDT

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

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

Screen International covered the agreement:

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

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

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

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

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

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

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

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

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

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

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

Patrick von Sychowski
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