Cinedigm announced its agreement with exhibitor Emagine to VPF-finance 10 new screens under its phase 2 deployment. Emagine already has some 40 other screens already equipped with digital cinema under Cinedigm’s phase 1 deployment. The new arrangement is unique in that Emagine fronted the money for the equipment, and will be reimbursed by Cinedigm through fixed payments made over an undisclosed number of years.
This is the first exhibitor-financed deal announced in the US in which all studios will participate. Although that participation is more than likely to take place, it is not certain that Cinedigm received the blessing of each studio prior to its announcement. Payments made directly to exhibitors is not necessarily covered under existing deployment agreements, and terms need to be negotiated. Key elements of concern to studios is that payments made directly to the exhibitor are fixed in nature and not tied to the actual VPFs collected for those screens. This prevents any temptation by the exhibitor to try and collect additional VPFs by booking more movies than normal. (With shortened engagements.) Cinedigm’s press release emphasizes its agreement to operate by this rule. In addition, since the exhibitor will collect interest, it is likely that studios will place a cap on the interest that the exhibitor can earn from their money.
In the Emagine scenario, Emagine loans Cinedigm money for the equipment while Cinedigm retains title. Cinedigm now has an obligation to pay Emagine up to the agreed amount, and will pass title to Emagine once recoupment is achieved, per the rules of its deployment agreements.
Cinedigm’s move is significant. It has opened the door to exhibitor financing in the US. The scheme has required studios to rethink certain details of their deployment agreements, but their concerns are logistical, not philosophical. If the financing scheme allows digital cinema to move forward, why not?
