Will sun set on ozoners if they don't settle on Virtual Print Fees?

The major studios are driving hard to stop distributing 35mm prints in North America by the end of 2013, but one sector remains tied to traditional film prints: the drive-in movie biz.

Of the 366 drive-in theaters left in the United States only a handful have converted to digital projection; another 10% are expected to convert before this summer.

Two key hurdles: Neither the Digital Cinema Initiative tech specs nor the Virtual Print Fee business model were conceived with drive-ins in mind.

But this week, as the United Drive-in Theater Owners Assn. gathers in Kissimmee, Florida, for the industry’s annual confab, drive-in owners are anticipating news of an addendum to the Digital Cinema Initiative (DCI) and changes to the virtual print fee (VPF) rules that should smooth the way for drive-ins to make the switch to digital — and for film prints to truly disappear in the U.S. If drive-ins don’t convert, they run the risk of obsolescence.

National Assn. of Theater Owners prexy John Fithian said he expects a deal to update the DCI to be approved within weeks. Several studios have already signed off on the changes.

For drive-in operators, an updated DCI is critical, since theaters must meet DCI specs to get digital prints and must convert to digital to receive VPF. Drive-ins can’t meet the current version of the specs because they can’t provide masking to change the aspect ratio of their screens and can’t deliver 5.1 sound. Most drive-in sites have converted their sound system to FM transmission, by which patrons receive the soundtrack through their car stereo. Only a few have maintained old-style window speakers for nostalgia.

The update is also expected to waive or revise the requirement that outdoor theaters meet the same brightness standards as indoor theaters: 14 foot Lamberts. Faced with interference from ambient light and throw distances as long as 900 feet in some theaters, even drive-ins with the most powerful projectors on the market get only about 10 fL. Most drive-ins typically get 5-7 fL.

The enticement for drive-in operators is that digital projectors would provide more flexibility in theatrical programming, as well as the ability to present 3D, allowing exhibs to screen alternative content including concerts, sports and cultural perfs.

But like their hardtop counterparts, drive-ins need Virtual Print Fee revenue to help defray the cost of digital conversion.

“We are seeking pretty much the same terms and conditions the indoor theaters are seeking,” said Frank Hattinger, owner of six drive-ins in Southern California, Atlanta and Salt Lake City. Hattinger said he expects the VPF fee to cover around 75% of the cost to convert to digital.

Despite the cost hurdles, a few drive-ins have already made the leap to digital. Sam Kirkland’s Big Sky Drive-in Theater in Midland, Texas was the first U.S. drive-in to go fully digital, investing $300,000 to convert three screens.

But most drive-in owners have been unable to make the switch to digital without the guarantee of VPF coin. And the VPF model itself needs an update to accommodate the unique business models of drive-ins.

Notably, most ozoners, as Variety’s slanguage has termed them, are seasonal, so they only generate revenue for part of the year.

“It is economically a challenging conversion,” said NATO’s Fithian. “But you have to put it all in perspective. Even though drive-ins are typically seasonal they gross a whole lot more on one screen than a typical indoor theater does.”

Drive-in screens have been in decline for some time. In 1987, there were more than 2,000 drive-in screens. Close to 70% of those have closed, with a total of 606 screens at the end of 2011. Because most drive-ins have waited until the DCI and VPF issues can be resolved, those that waited to make the switch will reap a shorter VPF period than the typical 10-year payout offered to early adopters.

Some drive-ins don’t quality for VPF at all under current policy because they cannot show enough first-run features. Other operators want an exception for double features, which are common at drive-ins, and think the current VPF model for compensating double features is unfair.

“They have punished us basically for operating our business in different ways than other theaters operate their business,” said Rick Cohen, owner of Transit Drive-in in Rockport, N.Y. “We run double features so we get a half VPF.”

Time is running short before the studios’ September deadline to convert to digital and still be eligible to receive the virtual print fee incentive. Cohen said he recently paid $300,000 to convert four screens and expects to get $20,000 to $30,000 over six years from VPF.

“To be honest I don’t even know what the VPF amount is. They won’t even tell me because there is a non-disclosure agreement between Cinedigm and the studios.” Cohen said. “The drive-in theaters that are successful and in a decent-size market are probably going to be able to survive, but the drive-in theaters that are out in the country — those one- or two-screen theaters that don’t fit into the VPF model that the studios have favored — are not going to be able to make it.”

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