“The VPF System – Exhibitors’ Feedback – The terms of transparency” by Birgit Heidsiek

The financing of the digital equipment is a matter of survival for the exhibitors. While some industry representatives in countries such as Germany, Austria and Switzerland figured out VPF systems for the independents, many theatres in Europe had to close deals with third parties in order to secure their existence. Due to their lack of financing they went for this new business model – with all the according terms of transparency.

“All our screens have been done through a third party(Ymagis). Midsized companies as Utopia could not have afforded independent financing, especially as this might have made impossible financing of development”, reports Nico Simon, CEO of Utopia/Utopolis Group which runs theatres in in Luxembourg, France, Belgium and the Netherlands. “We do not get VPF’s. The third party does. There have been issues though, but exclusively from so called ‘independent’ distributors”, says Simon. Regarding the transparency, it is difficult for the Utopia/Utopolis Group  to judge the VPF system for 100 %. „But it is based on the fact that, as soon as all systems under VPF contract with a certain third party in a specific territory are recouped for, distributors won’t have to pay any VPF anymore“, remarks Simon. „I don’t know how this is reported, but I understand that the US studios are following this very closely.“

“The VPF system was the only way to allow exhibitors to do the digital transition. A 35mm installation had a cost of approx. € 15.000 and would run for 30 years+!  A digital installation cost is between € 50.000 and 80.000 (much higher the first years!) and hopefully expected to last for a max of 10 years. Economically, the transition could not have happened without this scheme“, underlines Simon who is also president of the European cinema network Europa Cinemas. „As of today, it appears that Europa Cinemas was right by being in favor of digital since the beginning and stating that, paradoxically maybe, the smaller cinemas would take the greatest advantage as digital should allow better access to films and a much greater flexibility in programming. Financing however remains a problem in some countries. Maybe because it was not understood early enough that digital could rather save these screens than kill them.”

“The digitization is easy for the big cinema chains which closed contracts with the third parties”, stresses the German art house exhibitor and C.I.C.A.E. president Detlef Rossmann. Meanwhile various medium-sized cinemas joined the independent system VPF Hub that collects VPFs from more than 50 distributors in Germany. “A few Major Studios such as Fox, Sony and Walt Disney have not signed yet. VPF Hub serves 180 theatres with over 700 screens who don’t work with the third parties.”

The third cornerstone is publicly financed by the German Federal Film Board (FFA) that allocates exhibitors with up to €13,000 per screen for the digital conversion. The construction of this trust model provides that the FFA collects €500 for a screen booking or meanwhile €1 per attendee from the distributors. “Some distributors don’t want to provide small cinemas with prints in the first three release weeks so that they don’t have to pay the VPF”, expounds Rossmann. “Originally the German distributor association had approved to spend €20 million. Currently it is questionable if the FFA will ever receive the advanced contributions from the distributors.” In addition, the Bavarian film fund created a support system for small cinemas that didn’t qualify for any kind of funding.

“The VPF payments are only provided for the first generation of the cinema digitization”, concludes Rossmann, “but the cinema associations assume that the distributors also have to come up with VPF contributions for the digital equipment in the future because the digitization saves them considerable expenses while the cinemas have to shoulder higher costs.”

“We had to obtain a new 2K digital projector when the UK Film Council Digital Screen Network/Arts Alliance Media (AAM) agreement came to an end in April 201 1”, describes the General Manager Charles Rubinstein the situation at the Rio Cinema in London. “We discovered that AAM had misadvised us at the time of the original installation resulting in us having a series one projector with an inadequate lamp to project 3D.” Since the cinema could not afford to purchase of a new series two projector, it obtained one via a Digital Funding Partnership (DFP)/XDC VPF agreement.

“XDC (now dcinex) having secured VPF agreements with the American majors proved to be rather slow, and encountered considerable resistance, when it came to securing agreements with the independent UK distributors. Also as a single screen cinema, from time to time we show two new films in the same week (usually for one week only) and it took something of a battle to persuade XDC to introduce the flexibility of a 60% VPF fee for distributors.”

The Rio Cinema also presents many one-off screenings as part of film festivals or special events with films which do not have a UK distributor. “We have to pay a fair number of VPFs ourselves. It is also very time consuming completing the detailed weekly programming reports integral to the enterprise. The scheme does not restrict us in any way regarding the range of formats we can project from. The only downside from the exhibitor’s point of view is the obvious one that a VPF is payable if a film is shown which is not available on 35mm and has not been released on DCP”, remarks Rubinstein.

As it was reflected at the CineEurope in Barcelona, among the integrators is a growing market concentration that underpins the oligopolistic structures in this segment. AAM and dcinex have sealed a pact and started a new reseller partnership in Europe. According to the General Manager of the Rio Cinema, dcinex has also taken efforts to make the VPF system more transparent. “It was not possible initially to find out how smoothly the VPF’s due from distributors on our programming were being received by dcinex”, accents Rubinstein. “However, only last week, dcinex launched an extranet platform that gives us access to various kinds of information including ‘an up-to-date estimation of your Turn Rate per cinema or group, your results, year by year, as well as the list of contents invoiced to the distributors’.”