Digital Crack: The Issue With VPF’s

Due to the digitization of movie theatres and the introduction of the VPF system the whole business model for distributors and exhibitors has changed and not for the better. 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 as a result shrank and there will be less screens for the release of independent films. With the introduction of VPF’s the landscape for independent films and independent distribution changed dramatically. This lack of diversity has led to empty theatres, a reduced demographic base for movie going and subsequently much lower attendance.

Was the VPF necessary, yes but has been mishandled in its application. Ideally, A Virtual Print Fee (VPF) is a financing mechanism for funding the purchase of digital cinema equipment. It is structured to cover the costs of converting to digital projection equipment through a fee that distributors pay for each booking over a set period of time. The idea behind a VPF is that the distributors save money by shipping digital, rather than 35mm film prints, and these savings are used to contribute to the cost of equipment for exhibitors.

The digital systems, which film distributors are largely funding, also should allow exhibitors the flexibility to screen different forms of content such as plays, operas, ballets, sports and concerts. But in fact the structure in embargoing the development of independent and alternative content markets. Many independent distributors are cropping up but are focusing on the ever expanding COD market and ignoring theatres in their entirety.

Because of the immense financial resources to fund a VPF program only the major movie studios have the resources to fund a true VPF program. As well often only the revenue thrown off from blockbuster really support the system. Previously the cost of 35mm prevented the expansion of independent releases, now VPF’s have created an expensive cost of entry into theatres which for most independent distributors which have prevented market entry.

Companies like DC, Medicine , Christie and others, all lined up to become factoring sources for the lucrative VPF, often charging very high handling charges for dealing with the VPF on behalf of the theatres. They chose to call themselves “integrators,” and they all offer very similar deals:

•    All the screens in a complex must be converted.
•    All films that are available digitally must be projected that way
•    All films shown digitally are subject to the VPFs, meaning local films or student film festivals are subject to the same fees as a major studio release.

The VPFs are structured in a few tiers.

First-run movies, released on the break are subject to an $800 fee.

Second-run films (Hello Drive-ins) are subject to a lower fee, which is calculated weekly until it hits the $800 cap.

The there are the odious called “Alternative Content Access Fees,” which are per-show and depend on day and time. The deal is everyone must pay the toll on the same level.

The VPFs are structured to be the same way major studios release their films. A 35mm print could cost up to $2000 to produce, usually they lasted only a couple of week them were sent to a nearby landfill. It was a costly and cumbersome form of distribution that needed to change. It was using a 19th century technology in a 21st Century world.

I was involved in converting a couple of theatre chains. I soon learned that the imposition of DCP was really a great way of selling a $20,000 piece of technology for $60,000. DCP was a cash cow for companies like Barco, Christie, Sony, GDC, Dolby and NEC. It was an industry where someone could take a rudimentary Linux driven computer and re-package it sell it for $6,000. Massive amount of money was taken out of the business. Many theatres were forced out of business and the model changed.

What should have been a form of digital liberation for the theatres, became a form on enslavement. The same people people who are deeply vested in implementing and prospering from the VPF implementation are the same people who are vested in the success of COD and TOT technologies. These people truly are not the friend of theatres.

The increasing dependency on the VPF, has effectively diminished the 1948 Paramount ruling to a point where while studios cannot own movie theatres, they ostensibly can own access to the machinery that screens the movies. The result is the same and the industry has become increasingly stratified.

Now the industry is facing Anti-trust allegations of the three major largest exhibitors. With the State after State, Ohio, Florida, Kansas, New York, Texas, Washington and the District of Columbia. joining the investigation it is beginning to look like something is about to change. As the VPF fess begin to face away, a void is going to be created and the industry will begin to change (again).

In many ways the VPF has created a dependency environment which when removed is going to create a huge vacuum, and create a need for many theatres to begin to experiment with alternative content and independent productions. It will be a very interesting time to be in the movie business. Again, as I had said before what is past if truly prologue. Think of re-thought out business model of the past and it is likely we will begin to see the rise of a new golden era of film going, once the VPF goes away. Truly nothing defines a market like good American innovation and free enterprise.

Look for the the erosion of the universal application of the DCI specification and the rising up of alternative venues and outlets for movie going. Collectively movie going is not going away, but the theatres as we know them sure is going to change….

Thanks top Ira Deutchman and other for inspiring this article