The number of deployment entities in the world is growing. The studios are now engaged in negotiating deployment deals on nearly every continent. Some of these will offer financing to their regional exhibitors. Some will manage the deployment contract but will rely on exhibitor-sourced funds. Some will do both. Some deals will be direct with exhibitors. Some deployments now in discussion are modeled after DCIP: exhibitor-owned, separately operated, funds raised through the markets.
Deployment agreements not only guarantee payment of a virtual print fee towards equipment costs when a digital movie is booked, but also guarantee that the motion picture studio will supply a certain percentage of distribution in digital format. For the studio, a deployment agreement spells out the terms under which virtual print fees will be paid, including when the payments stop. For the deployment entity, the agreement is the collateral needed to secure financing. It is important to note that studios which do not enter into a deployment agreement can and do still deliver movies for exhibition on the deployed screens as a “Free Rider.” Such studios do not get the benefit of predefining the terms under which they will pay virtual print fees. Likewise, the deployment entity is without an agreement with the Free Rider to use as collateral with a bank. For many independent distributors, Free Rider status may be perfectly acceptable.
In January 2009, Paramount announced a plan for direct payment of virtual print fees to exhibitors. The plan allowed payments towards equipment in a single 3-D screen. While obviously geared towards populating 3-D screens for Monster vs Aliens, Paramount’s offer was based on a solid rationale. By paying virtual print fees directly to exhibitors, it could manage these through its booking system, representing a reduction in overhead required to administrate the virtual print fee program. Fox also offers its own version of direct exhibitor financing. However, the lack of support from other studios will put such programs to bed.
Below are reports of the US and European deployment entities.
Arts Alliance Media
UK-based Arts Alliance Media has several operations, including the funding, management, and promotion of alternative content; digital cinema mastering, distribution, system supply and financing; and operation of a web portal that enable 3rd parties to sell-through movies to the home. It is the system provider and service manager for the 240 sites of the UK Film Council’s Digital Screen Network, and has a 7000 screen digital cinema deployment deal signed with 5 of the 6 major film studios. AAM targets late 2009 for the completion of its 400 screen installation for Circuit George Raymond Cinemas (CGR) in France. It closed a €43M financing package in December 2008 for the completion of CGR and the build-out of new operations and infrastructure.
AAM added approximately 100 screens to its deployment of digital cinema by mid-2009, in both Spain and Netherlands. The company has also added exhibitor-sourced financing to its deployment options.
AAM offers both alternative content and licensable software. It also offers content mastering services. Its alternative content line includes an impressive array of opera, ballet, and family plays. Its licensable software includes its Theatre Management System (TMS) with asset management and VPF collection capability, which can be licensed by non-affiliated entities. TMS licensing could become a growing business, particularly when 25% of installed screens are unaffiliated with a deployment entity.
Arts Alliance Media is a division of Arts Alliance, with sister company Arts Alliance Productions. Arts Alliance’s founder, Thomas Høegh, is a venture capitalist with holdings in various online and storefront ventures.
Cinema Buying Group (CBG)
US-based CBG is a buying cooperative organized under the National Association of Theatre Owners (NATO). When first formed, its membership counted for over 8000 screens, although that number is lower today. Management of the unit is separate from that of NATO, and a cinema owner does not have to be a NATO member to belong to the cooperative. The mission of the cooperative is to obtain financed digital cinema systems for all of its members (with emphasis on “all”).
As a buying cooperative, CBG does not provide services, systems, or system financing. In 2008, following the evaluation of responses to its RFP, CBG signed with Cinedigm (formerly AccessIT) to provide digital cinema systems to its membership.
CBG members comprise a large number of independent cinema owners, some operating either 2nd run houses or simply low revenue generators. Cinedigm has sought means to include all of CBG’s members in its 2nd phase rollout. The weekly virtual print fee, or WPF, first publicly introduced by Paramount in its direct-to-exhibitor VPF offer, is one such mechanism by which Cinedigm seeks to generate virtual print fees in non-mainstream cinemas.
Digital Cinema Implementation Partners (DCIP)
US-based Digital Cinema Implementation Partners (DCIP) is a joint venture of AMC, Cinemark, and Regal Entertainment. It is chartered to finance and rollout digital cinema to the over 14,000 screens owned by these three circuits. DCIP has signed deployment agreements for 20,000 screens with 5 of the major studios. (Not Warner Bros.) The 20,000 screen count opens the door for other circuits to join in, although it is expected that the enormity of this deal would delay installation with other parties until after the three partners are covered.
DCIP has had an awkward history, covered in earlier reports. According to figures released in Cinemark’s 10K earlier this year, its owner exhibitors have invested a total of $16.5M in the venture, which has produced no visible results to date other than the signing of deployment agreements. Considerable funds are estimated to have been spent by DCIP’s engineering staff, which has reportedly mismanaged contracts to develop its virtual print fee management system, including inventory management.
Cinedigm (formerly AccessIT)
US-based Cinedigm, formerly Access Integrated Technologies (AccessIT), was the first to sign virtual print fee (VPF) financing agreements and to execute a significant volume of digital cinema installations. To date, it has been the largest installer of systems anywhere in the world, around 3900.
Cinedigm has long been in an uphill climb. Over the past 4 years, its stock dropped from a high of $14 to under $1 today. However, its market cap has improved considerably over the past 6 months, from $9.4M in December to $27.5M. But the company’s most recent financial report shows that its losses have widened.
As a startup, Cinedigm diversified by buying a satellite distribution operation, an alternative content company, a cinema advertising company, and a software company specializing in forecasting and sales management for content distribution.
Cinedigm has successfully supported nearly 4000 digital screens, an accomplishment no other in the world can claim. Its challenges, however, have been to capitalize on its investments and its know-how. But the company is now showing strength in both its alternative content offerings and its software.
On the content side, its recent deal with Olympus Pictures to distribute the independent’s movies is unique among alternative content providers. Too early to tell, however, how successful Cinedigm will be with this. The company has also experimented with live 3-D sports events, which played to packed audiences. On the software side, the company licenses booking software to several of the major studios, and its TMS and associated asset management software is now in its 2nd generation, and also available for license by others. TMS licensing could become a growing business, particularly when 25% of installed screens are unaffiliated with a deployment entity.
Film & Kino
Norway is unique, and in many ways envied, in having the ability to subsidize a digital cinema rollout plan that will include all of the country’s cinemas. Film & Kino, the Norwegian cinema association, has signed five deployment agreements with the US majors. (All but Sony.)
Norway has been accumulating proceeds from its cinema ticket tax for many years, and is putting these funds to work to finance digital cinema. As a result, studios will only contribute around 40% to equipment costs (quite a steal for the studios).
Equipment RFPs will go out this summer, with the goal that system installations begin late this year.
Kodak Digital Cinema
As I’ve been known to say, Kodak Digital Cinema continues to defy gravity. Over the past twelve years, Kodak’s stock has fallen by 95%, reducing its market cap to $800M. One would think that Kodak is ripe for acquisition, and bottom seekers would be taking heed that its market cap dropped 50% in just the past 6 months.
Given this, Kodak’s digital cinema effort is a bubble within. Its engineering team is said to have created a top line of digital cinema server and TMS products. Its sales strategy, however, centers on its ability to leverage itself as a deployment entity to exhibitors, providing both financing and equipment. While such strategy might work for GDC, who is a dominate player in Asia, Kodak Digital Cinema dominates nowhere, and faces incredible competition at every junction. Kodak is not cash rich enough to offer financing to major exhibitors, so it targets the small independent players. Sony follows the same strategy for its 4K deployment. But Sony is offering high-end 4K technology, and is using deployment to seed 4K in the industry. Kodak has no unique technology to sell.
Kodak has had some success in on-screen advertising, with around 2100 screens today. Its largest customer is Cineplex in Canada. But Kodak’s ability to weather its corporate situation and to demonstrate staying power in the digital cinema market is quickly waning.
None of this says, though, that one should expect Kodak Digital Cinema to pull out of the market soon. Unless large cutbacks occur, the division will likely carry on, to a large extent giving the brand a technology edge in the cinema market. Should the division fail, then management has a plethora of cinema patents that it can enforce as a result of its engineering investment.
An end game strategy for film technology will be to put the competition out-of-business to become the last provider of film. Kodak has already taken such steps by cutting film prices, thus forcing its competition to cut margin. In doing so, it also undermines the virtual print fee model, the budget for which is ultimately coupled to the cost of film. In this regard, the tactic has worked. Kodak has caused studios to lower the VPF amount they are willing to pay in new negotiations, increasing the amount to be contributed by the exhibitor. This game is likely to continue.
Belgium-based XDC is the system integrator and financier for 500 digital screens in Europe, with exhibition deals in place that will expand its installation base to approximately 1200 screens. The company was spun out of EVS Broadcast, who owns 47% of the company. EVS has a market cap of $504M. XDC acquired funding through Fortis Bank for up to 2000 screens in the first phase of an anticipated 8000 screen rollout. The company has deployment agreements with all 6 of the major studios.
In late 2007, XDC brought on-board Serge Plasch, formerly of cinema advertising company Screenvision Benelux, as its new CEO. Serge has brought a refreshing focus to XDC, helping it move forward from its pioneering past into a DCI compliant VPF-driven world.
XDC offers an impressive array of alternative content. It offers mastering services, and employs its own TMS and its own server in its systems. (The question was raised last report as to the company’s intent to maintain its own server.)
In June, the company closed its office in France so that it could consolidate operations and sales efforts at its Belgium offices.
France-based Ymagis is a relative newcomer in the deployment entity world. It’s CEO, Jean Mizrahi, was the former CEO of Éclair Group, who is described as Europe’s largest independent film house. The company has signed five deployment agreements with major US studios, allowing it to operate in 10 countries. The company offers to install systems using either its own financing or exhibitor-sourced financing. It claims the installation of 320 screens to date.
Ymagis may be a newcomer, but it has made significant impressions with exhibitors. It has a reputation for flexibility in financing arrangements that has made it noteworthy.
The company is bare in its other offerings. It provides content mastering and distribution services, but does not have its own TMS. It does not offer alternative content or maintenance services.