100,000 digital projectors installed represent approximately US$6B in new equipment expenditures, much of which is debt carried by exhibitors. While studios may portray that they are the ones that will retire the majority of this debt, a deeper look reveals a different picture.
Based on data from July, by world region, the rounded figures for digital cinema installations are below. Altogether, this represents ~83% of the world’s cinema screens.
- EMEA: 5,900
- Latin America: 7,000
- Asia-Pacific: 28,200
- Western Europe: 23,700
- North America: 38,700
The North American breakdown is 3000 digital screens in Canada, and 35,700 digital screens in the US. If the total US screen count is 38,000, then 94% of the US has converted.
To put numbers to this, some assumptions must be made. A conservative estimate of equipment cost per screen in the US is $65,000. To simplify calculations, some other assumptions are made: the equipment loan is for 7 years, at 6% interest, and a 20% down payment. 75% of costs, including the 20% down, on average, are recoupable. Run these numbers in a spreadsheet, and the recoupable amount is about $63,000.
Let’s say that in the US, 85% of digital screens are subsidized by a VPF deal. Given 35,700 digital screens in the US, the rounded number of subsidized screens would be 30,350. If $63,000 is recoupable per subsidized screen, and the six major Hollywood studios book 93% of the movies shown on these screens, then the major studios would collectively be out US$1.78B.
For the rest of the world, the average VPF is lower. There are 67,800 screens outside of the US, including Canada. Let’s say the average cost of equipment per screen, landed, is $70,000, that only 70% of screens receive a VPF, that Hollywood only books 70% of the movies (on average), that 10,000 screens are allowed to recoup up to 70% of costs with 6% interest, while the remaining screens will recoup only 60% and no interest. Crunching the numbers, the major Hollywood studio liability would be US$1.48B.
The liabilities add up to US$3.25B, or 46% of the cost of conversion. That means 54% of costs are borne by exhibitors around the world. Of course, there were a lot of assumptions made in these calculations. But even if a 50-50 split, the number would seem surprising.
Not only are exhibitors worldwide ponying up about 50% of the cost of conversion, but they’re also paying higher operating costs with the new technology thrust on them. So it would seem prudent to have 50% of the say in the technology decision-making process. Now there’s one to chew on.
