Christie Digital launched its VPF program in the US in August, joining the ranks of Sony and Cinedigm in offering virtual print fee financing to US exhibitors. (DCIP, while the largest digital cinema deployment entity in the US, limits its VPF financing program to top three US exhibitors AMC, Cinemark, and Regal.) Christie’s program is distinctly different from that of Sony and Cinedigm (and DCIP), more closely mirroring the virtual print fee deals that have proven popular in Asia.Early virtual print fee deals were constructed to guarantee repayment of 75% to 80% of digital equipment costs. (For clarification, VPFs only cover 2-D equipment costs, not the add-on technology needed for 3-D.) This put the majority of risk on the studios to make the digital format work, as well as incentivized them to not engage in feature creep that would cause the cost of equipment to spiral upward. Today, however, the situation has changed. The digital format has been proven with a large number of cinemas worldwide, and banks are much more comfortable financing digital cinema equipment. As importantly, the cost of equipment has dropped substantially, and will likely drop more. While the studios continue to encourage the conversion of cinemas by offering virtual print fees, their days of guaranteeing a high degree of recoupment are over.
Studios have long said that the days of high VPFs would be limited. To get a hint as to how deals would evolve, the simpler model to study was that found in Asia and in some direct-to-exhibitor deals. This type of VPF deal is typically capped at 5-6 years, having low VPFs, and no recoupment guarantee. Audits are still required to ensure fair contribution by all distributors, but regular recoupment accounting and reports are out. This style of VPF plan has now emerged in the US with that recently announced by Christie Digital.
While Christie has not shared all details of its plan publicly, it has posted a web page promoting its offer at http:// christiedigital.com/vpf. Word on the street is that its VPFs are paid over a 6-7 term. A unique feature of Christie’s plan is its lease option. We’ll take a guess at their plan. With the low interest rates available today, the VPFs generated per screen each month can pay off a 3-year lease, with around a 40% residual. The lease would keep the equipment off balance sheet for the first few years. By the time the loan is recorded on the books, it’ll be a much smaller number. Christie could delay its booking of sales revenue and allow the exhibitor to take the projector with no money down. Or a deposit could be required which represents a major portion of Christie’s profit on the sale.
Strategically for Christie, this is a move that differentiates it from its DLP Cinema