29 July, 2008

XDC Announces VPF Agreements with 6 Studios

XDC is the Belgium-based company created by the EVS group and operating in several European countries to act as integrator in the cinemas’ transition to digital technology, by proposing solutions that aim on the one hand to boost the availability of digital content and on the other to finance technological innovations. Many will recall the proposal made some years ago: the installation of an electronic or digital system on the basis of a sort of a monthly fee to be paid by the exhibitor.

XDC has recently started a new phase: at the closure of the Cannes Festival, the company announced that a non-exclusive agreement, along the lines of the Virtual Print Fee, had been reached with four studios to finance the adoption of DCI compliant digital systems on 8,000 European screens. A similar announcement followed a month later, concerning the agreement with Sony Pictures and Universal.

The six major US distributors agree on the one hand to make their digital content available for the European market and, on the other, to allow XDC a contribution proportional to the amount they will save by distributing their films in digital format instead of on 35mm.Thanks to this mechanism, the cost of the digital transition would be shared approximately two thirds by distributors and one third by exhibitors.

We talk about this to Fabrice Testa, Vice President Sales & Business Development at XDC.
Let us consider your agreement from the point of view of European exhibitors interested in shifting to digital: how could their theatres become part of the “happy few”, that is the 8,000 screens (out of 30,000 operating in Europe) that are your objective?

According to the VPF model experimented in the United States, the studios’ contribution will be paid directly to XDC, which will act as intermediary, initially bearing the costs of purchasing the digital projection systems. The contribution will be calculated on the basis of the quantity of product from each major projected by every individual screen. Very pragmatically, I would therefore encourage those interested in taking part in the scheme to contact us: evaluations will be made case by case, in relation to the number of cinemas and screens to be converted to the new technology, their seating capacity and the number of tickets sold, as well as the market share represented by the films of each of the majors in question, of course. In principle, any theatre could “generate” this type of contribution, whatever the number of mainstream movies it projects: however, we have to be certain that the costs of the operation will be covered within the period of time established (10 years).

This confirms the opinion of those who believe that VPF is not the “universal panacea” for what is one of the major impediments to the digitalization of cinemas, i.e. how to redress the balance of costs between distribution and exhibition. What will happen to theatres that do not meet the VPF requisites?

It is clear that cinemas whose programming is based mainly on domestic or local films or in any case on those not distributed by the majors will hardly be able to benefit from the scheme. This is another reason why XDC has foreseen a leasing formula that will make it less of a financial burden for the cinemas themselves to purchase the equipment, whilst at the same time ensuring XDC’s technical assistance.

Digital cinema the Norwegian way: immediately and for everyone. The project backed by the Norwegian Government presented at a seminar in Kristiansand

Small but fast. This is how the Norwegian market’s shift to digital might be defined, according to the information emerging from the international seminar organized at Kristiansand by Norgesfilm and by Nordic Digital Alliance. In a country of four and a half million inhabitants, who buy around 12 million tickets a year in their 230 cinemas, most of which are owned by the municipalities, the digital adventure had already begun in 2001, with advertising on the big screen shifting to the electronic format. The adventure continued with the launch of two trials, run in 2006, based on a total of 33 fixed digital projection systems and one mobile one. These experiments were conducted on the one hand by Nordic – Norway’s Digital Operability in Cinema – a consortium in which the participants were, amongst others, the University of Trondheim and Unique Digital, the company responsible for digitalisation of advertising – and, on the other hand, NDA – Nordic Digital Alliance. The latter organization counts amongst its owners Arts Alliance Media, based in London but with a Norwegian founder – Thomas Hoegh –, and the cinema in Kristiansand, one of the big 7 on the Norwegian market. Today in Norway digital screens have reached a total of 40 (two of which have Sony 4K technology) out of an overall 440, thanks also to the private initiative of the cinemas in Bergen (4 screens) and Lillehammer, with a projector financed by the national film library. But the Norwegian recipe for digital would not be complete without a basic ingredient, which is Film&Kino, the organization that brings together the Country’s municipal cinemas and collects, on behalf of the Government, the tax on cinema tickets (about 2.5% of ticket price) and on DVDs, which brings in approximately 10 million euros a year, destined for the Norwegian Cinema & Film Fund.
Film&Kino has had free rein in using the “extra money” deriving from savings on the use of this annual income, which today amounts to a little over 15 million euros. This figure provides the basis for financing a digital transition that is meant to be not only quick but also complete. “The Norwegian Government,” Lene Løken, director of Film&Kino points out, “believes it should guarantee wide opportunities for access to cinema-going for all citizens, including those who live in areas where the cinemas would not be able to find a commercial balance, if left at the mercy of the market. Therefore, in a country like ours, where around fifty screens generate 90% of the box-office, public institutions have set themselves the objective of ensuring that the digital transition will involve all 440 of the present screens, creating benefits for the smaller theatres and giving them new opportunities.”

The economic model that has been identified to cover the total cost of the operation, estimated at around 50 million euros, was described by Jørgen Stensland, director of the Film&Kino consultants: “The investment by Film&Kino and the cinemas, which will amount to around 33 million euros, will cover 60% of total expenditure. The remaining 40% will be generated by distribution on the basis of the VPF agreements that we are negotiating with the studios, if we reach an agreement. Film&Kino will act as the credit institutes’ guarantor for the whole operation. We foresee costs being amortized in six years, although as a precaution contracts will be signed for eight. Theatres can choose how to pay their share in a variety of ways: everything up front, for example, or by a leasing agreement of up to six years. Special contracts will be signed with cinemas that are already equipped, as long as they have equipment that meets DCI specifications.” The Norwegians thus have clear ideas on digital: all, “no-one excepted”, will have to meet the objective and it’s quality DCI 2K for all of them, including travelling cinemas. “Using this strategy set up by public intervention,” continues Stensland, “we are facing up to an ambitious challenge: to obtain from the digital transition only the advantages it promises. On the basis of what we are learning from the two trials, which are being regularly monitored by an independent body, we foresee that the winners will be high-budget films and art-house movies. A larger number of popular movies and more quality titles will be available more quickly, even in small cinemas, which will improve their financial balances. And there will be more opportunities for European films.”

Projects for the distant future? “Practical short-term prospects: we calculate between 12 and 16 months to roll-out,” is Stensland’s reply. “We are a small market and wish to proceed all together and have projectors and servers before the suppliers are flooded with demands for huge quantities from bigger markets and companies. And we also have the advantage of having a single body to guide the transition and manage the different phases.” So digital the Norwegian way: immediately and for everyone.

Elisabetta Brunella