Jeffrey Katzenberg must be congratulated for putting his money where his vision is. He is without peer in his tenacity to bring 3-D to the entertainment world. Equally impressive, he also managed to get Paramount to put its money where his vision is. Upon learning that some exhibitors are reticent to sign long term agreements with system integrators, Paramount introduced the direct VPF, allowing exhibitors to sign directly for financial assistance without engaging a 3rd party system integrator. In addition, Paramount made its terms public by not requiring an NDA to be signed. As a result, NATO has been aggressively handing out the agreement to its members. The agreement asks for 100% of screens to be converted to digital projection within 3 years, but a new “Katzenberg” clause allows an exhibitor to waive this requirement if a single 3-D screen is installed. The VPFs offered are $725 for 2-D screens, and $825 for 3-D. Considering that no middleman will be present to take a cut, these are compelling numbers. Paramount reports that several exhibitors have already signed. Presumably the deal is only for North America.
Paramount’s agreement has an MFN clause, requiring other studios to follow suit if it is to have any value. The reaction by other studios, though, has been less than enthusiastic. Fox offers to engage in a letter of agreement with exhibitors, agreeing to retroactively pay for digital screens once a 3rd party deployment entity is onboard. Disney is cautiously looking at Paramount’s offer, but is unlikely to move first. All around, studios are concerned that Paramount’s offer will make it difficult to separate rental credits from VPF payments, complicating the ability of the studio to cap the VPF payment period.
One of the comments heard, however, deserves discussion. Paramount has been criticized for over-simplifying its agreement, to a mere 20 pages from the typical 80 pages. Mark Christiansen, EVP of MP Distribution, offers an interesting argument for this. Paramount’s direct VPF eliminates the middleman, allowing all negotiations to be conducted directly with the exhibitor. The argument is made that studios and exhibitors already have a strong business relationship in place. Bad conduct can be punished by withholding the next movie, an effective and much simpler approach than using an attorney to manage the relationship. This would suggest that 60 pages of 3rd party VPF agreements are focused on the what-if’s of the relationship. Yikes, no wonder these deals are so difficult to negotiate.
