When first approached regarding virtual print fees for South America, the comment heard by the major studio execs was “what is taking these guys so long?” Referring, of course, to exhibitors in South America. That was 1 1/2 years ago. But the question hasn’t changed, unfortunately. Indeed, with the threat of rising film costs, and its likely obsolescence, why is it taking so long for South American exhibitors to convert?
The answer isn’t a shortage of funds. Independents in Brazil can get government-mandated low-interest rate loans for their equipment purchases. Argentinian exhibitors could receive similar benefits in their country. For the other countries, funds appear to be available. The equipment vendors attend the local trade shows, eager to take orders. But no one is buying.
In their over eagerness to move the region forward, studios signed as many as six digital cinema deployment entities to convert a limited market of around 1500 independent screens in Brazil, perhaps 1200 of which would qualify for financing. Of course, the worst thing that could happen would be for them each to sign up exhibitors. With each deployment entity scoring only a small share of the market, they wouldn’t be able to reach their minimums.
But these aren’t details that hold exhibitors back. South America represents the most extreme case of late adopter behavior experienced in the digital cinema conversion. Exhibitors shop for the very best deals, both in equipment and in VPFs. Being complex deals, the comparison of VPF offers can sometimes be fraught with misunderstanding. Comparing a term of one deal with a similar term in another, without considering how these terms work in the context of the entire agreement, can lead to a skewed understanding. Confusion can appear to be useful in a competitive market, pulling exhibitors towards a particular deal. But such devices eventually backfire, and in the end, exhibitors are still showing film prints.
In recent months, two of the deployment entities, Telem and DGT, decided to merge, with Telem investing in 49% of DGT. Telem is the leading architectural firm in Brazil, and has obvious interest in the new build market in cinema. It’s decision to exit its own VPF operation and join forces with another makes sense. DGT’s strengths are its exhibitor relations, with strong interest in operating its cinema monitoring service. That leaves Arts Alliance Media (AAM), Cinecolour, Sony, and GDC. It was announced at a recent Brazilian trade show that AAM was engaged in talks to join Telem and DGT. AAM’s interests are in the management fees it collects for VPF invoicing and back office operations, and in licensing its TMS. The threesome could be a very good deal for exhibitors, as the strengths and interests of each entity are complementary. Besides, the reduction to only four digital cinema deployment entities would be an improvement.
But would this be enough to break the logjam in conversion? Independent exhibitors will not feel the need to convert until they see their bigger brethren install digital projectors. The South American market could move quickly, once one or two big independent players make their move. With the scarcity of film ever so present on the horizon, studios are waiting with great interest for the first domino to fall.