Arthouses worry over digital dollars

Midsized Euro exhibs still wary of virtual print free deals

The marvels of digital cinema stole the spotlight at this year’s Cinema Expo, where soaring box office figures, pan-European 3D rollouts and lucrative digital upgrade deals, as well as a peek at trippy upcoming tentpole fare like Christopher Nolan’s eye-popping “Inception,” left the industry on a techie high.

As the smoke settled and the party ended, however, lingering questions remained about what a complete digital rollout will look like for smaller and midsized European exhibs that are unable to sign up for, or simply wary of, virtual print fee (VPF) deals with major studios.

For example, France’s top cinema circuits have been able to finance the digital switch thanks to outfits such as Ymagis and Arts Alliance Media, who offer virtual print fee deals and conversion services, a model that some smaller exhibitors find unworkable.

European exhibs eager for digital upgrades — David Hancock of industry research firm Screen Digest notes that only 15.4% of all screens in Europe (including Russia) are digitized — might be more optimistic about virtual print deals if U.S. majors show greater flexibility and offer agreements more tailored to the needs of individual cinema owners.

That appears to be the way the wind is blowing, according to Mark Christiansen, Paramount’s exec VP of domestic theatrical distribution operations, who spoke on the subject at the Expo.

The virtual print fee deal is based on the current 35mm film print model, in which distributors pay the cost of producing and shipping prints. Since digital distribution arguably eliminates those costs, distribs can use those savings to compensate cinema owners for the cost of installing digital projection equipment by making a payment to exhibs for each first-run film screened.

Yet the nature of that model favors big multiplex chains that can afford firstrun screenings of major releases, which provide distribs with the biggest revenues. Since small-town theaters and arthouses don’t get firstrun releases, there appears to be little incentive for the studios to assist them. Yet the digital hardware costs the same for both big and small players.

Unlike the other majors, which pay exhibs virtual print fees via third parties, Paramount offers direct deals to cinemas.

But small theaters can be more flexible in their programming and could have a number of virtual print-style deals with many distribs, picking up older releases for which they would get smaller, yet consistent payments, the total still adding up to the same amount of money needed to pay off the debt incurred by the digital upgrade.

While many see such flexibility on the part of the majors as inevitable, the studios have not yet shown much eagerness to embrace the idea.

Andreas Kramer, chief exec of German exhib association HDF Kino, wonders if all distribs would be willing to offer regular flexible VPF models or whether such payments would be catch as catch can.

“That’s very important for us, because we need a sure plan to finance at least ?75,000 ($92,804) — that’s a lot of money per screen.”

Christiansen dismisses the need for a standardized plan, however, and points to a virtual print fee deal between the studios and the Cinema Buying Group, an association of smaller U.S. exhibitors, which involves weekly fees, saying that deal likely will spur wider acceptance of such agreements from the majors.

“I think we are going to see a change,” he says, “because VPF payments don’t work for small cinemas.”

(John Hopewell contributed to this report.)

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