“The VPF System – Distributors’ Feedback – Will the VPF ever vanish?” by Birgit Heidsiek

Due to the digitization of the cinemas and the consequent introduction of the VPF system the whole business model for distributors and exhibitors has changed tremendously. That is the bottom line which is experienced all over Europe. In some countries where industry representatives created their own VPF system that is supported by independent distributors, the digital transition worked out more smoothly. In other countries where exhibitors have to face a lack of financing for the digitization, many cinemas have to close by the end of the year when no more 35mm prints will be delivered. The theatrical landscape is going to shrink and there will be less screens for the release of independent films. While the cinemas use the new options in the digital age to offer different kind of programmes, the distributors are wondering if the VPF will ever vanish.

„The digital systems, which film distributors are largely funding, also allow exhibitors the flexibility to screen different forms of content such as plays, operas, ballets, sports and concerts – suggesting that the time has come for a re-definition of what a modern cinema actually ‘is’“, remarks David Puttnam, president of the British Film Distributors‘s Association (FDA). „Over the past few years – and in particular perhaps the past few months – whilst a great deal of attention has been granted to independent British producers, the truly independent British distributor has become a precious and rather endangered species.“

According to the FDA president, the UK’s ‘digital distribution eco-system’ needs the optimum flexibility to sustain ‘specialised’ films. „If the demand exists for a run to extend to more cinemas, surely there’s something slightly ludicrous about such a release being ‘penalised’ with repeated digital fees because a DCP happens to cross to a cinema with a different digital deployment company?“, points out Puttnam.

“Digital distribution is considerably more expensive than 35mm. In the main, this stems from the repeat ‘virtual print fee’ (VPF) that is charged every time a digital cinema print (DCP) moves from one cinema to another”, endorses Laurence Gornal, CEO of The Works Film Group. “Instead of paying for one 35mm print and moving it from cinema to cinema, a distributor must pay for a new ‘virtual print’ for every cinema that he wishes to play the film in. If the distributor opens the film for a week in one cinema, and then wishes to move the film (a ‘crossover’) to play in another cinema for another week, that will cost the distributor two VPF’s. It is all but impossible for the distributor to recoup these VPF costs from the cinema rentals for a week’s booking.”  The distributor considers the digital distribution as a huge disadvantage to independent, specialised and foreign language films in the UK. “The main problem is that the VPF model works well for wide releases from Major Studios but places independent releases at an economic disadvantage due to the repeat VPF fees they must pay for crossovers”, states Gornal. “What needs to be changed is that the repeat fees for ‘crossovers’ need to be abolished.”

„Digital distribution should be cheaper, however until now the saving per each digital screen (at least those under an integrator system) is not more than 90€ with respect the traditional 35mm release“, confirms Eduardo Escudero, Business Manager at the Spanish distributor A Contracorriente Films. The digital distribution should also help the exhibitor to configure a better programming and the independent distributors to reach wider audiences considering the advantages digital provides in terms of fast production and delivery. „However, the truth is that in a country like Spain due to the financial weakness of the exhibitors (146 million admissions in 2001 compared to 90 million admissions in 2012) and the lack of support from the Spanish institutions, has obligated most part of them to digitize their screens thru integrators. This third party model has been developed close to the studios and therefore planned mainly for ‘hit and run‘ titles and not independent films with a potential long tale exploitation“, says the Spanish distributor. “In addition, the digital release makes it easier for big titles to multiply its presence on multiple screens at the same complex because there is also a lack of transparency about the different VPFs each distributor pays”, concludes  Escudero.

The first European country where the digital roll-out was already completed was Norway. In June 2011 all the cinemas were already digitized. “The Norwegian VPF-model is based on a cost model from one to four screenings. This is reported after the screenings. Hence the VPF in itself does not in itself provide transparency”, accounts Unnur Sande, Head of Marketing at Oslo-based distributor Arthaus, who assesses the digital distribution in general as an advantage. “The main problem is that we have lost our whole backlog, as the cinemas according to the VPF deal are not allowed to screen 35mm prints”, she outlines. ”As a result of the digitalization, we have increased the numbers of premiere cinemas and thus decreased the life span on each film. This is not always an advantage, as smaller cinemas normally will profit of the word-of-mouth building up in a few weeks.”

Meanwhile in Italy still exists a hybrid system with 35mm and digital distribution. “The handling of DCP, the digital delivery via satellite will get us savings in terms of cost and more efficiency. But only when the VPF is finished. Until then there is no benefit for distributors”, emphasizes Stefano Massenzi, Head of Acquisitions at Lucky Red. “As of today there is no transparency as on programming as we don’t have any controlling tool. The single cinema and structure are not part of a global network where you can check the programming. Furthermore the cinemas ask for as many KDMs as the screens they have in order to open or move as many screens they need. So if the film is extremely successful you will earn more, but if not your shows will be cut and your potential reduced.” He also considers the multi-programming as problematic. If it is not done properly, it can limit the potential of a film as well as the excess of ‘event’ programming of extra cinema product.” At  the end of this year many screens in Italy have to close. “They don’t have the finance to invest on the renewal of the projectors.”

Even more dramatic is the situation in Greece which is suffering in consequence of the financial cutbacks. “Greece is not the most advanced place in Europe in terms of digitalization”, reports Vassilis Sourrapas, General Manacer at the Greek distribution company Filmtrade. Until now, only 16 percent of all the screens are digitally converted. “Digitalization was running behind anyway and the crisis only added to the problem”, sums up Sourrapas. “The theatre owners, however, are slowly realizing that they will not have films to screen as 35mm is slowly being faded out so anyone who wants to stay in the business needs to become digital.”

“The VPF system is quite different for every market and as a general it don’t provide the necessary transparency of how often a film will be screened in a theater or for how many weeks”, analyses Emil Simeonov, Managing Director of the Bulgarian distributor Pro Films. “Moreover, the VPF system was originally provided as a support for the exhibitors in order to give them the financial power to switch faster from 35mm to digital equipment. But there is not any kind of deadline for how many years the distributors will have to pay the exhibitors for the ‘new’ equipment, at least not on the Bulgarian market.” He fears that the distributors will cover more or less 100% of the cost of the digital projectors. “The VPFs seems to be forever”, wonders the Simeonov who sees the need for a regulation by the EU Commission. “The European films ‘pay’ the same amount of VPFs to the exhibitors like the Hollywood blockbusters. But in most of the cases they don’t ‘get the same services for the same money’, i.e. the European films gets less screenings for less weeks, no matter the same price of the VPF”, underlines the distributor. “I am afraid that’s a situation that will slowly but surely leads a big part of the European distributors to release less films, their main focus will be only to the high budget, genre movies and family films. I believe the European audience still needs films like ‘The Artist’ ‘Jagten’ or ‘Amour’.

While the VPF system suffers of a lack of transparency in various countries, in Austria the distributors and exhibitors figured out a satisfying solution. “Our VPF system has developed very well”, underlines Michael Stejskal, CEO of the distribution company Filmladen in Vienna, who created the alternative VPF system for the independents in Austria. Besides the UCI cinemas  who  work with their own  integrator, the only third party that got a foothold in Austria is dcinex. “Virtually all the cinemas that don’t deal with dcinex have joined our VPF model”, elucidates Stejskal. “With the exception of Fox also all the distributors contribute to our system.” However, Fox has let it be known that they will check very carefully whether they might participate in the independent VPF system or support the cinemas directly. “Almost all the cinemas and distributors all over Austria are integrated in a third party model or in our ‘free’ VPF model.”