The first announcement that some independent cinema owners in Brazil were taking steps to fully convert to digital projection came forth at ShowEast with an announcement by joint venture Quanta DGT and Arts Alliance Media. 193 screens will be converted in the coming months. With luck, more announcements should come forth, both from Quanta DGT and the competing VPF program offered by GDC. The Quanta DGT deal is complex, and instructive as to how treacherous the hurdles can be in some countries.
It starts with ANCINE, the Brazilian governmental agency that oversees film production and distribution. About 2 years ago, ANCINE issued a decree that the national business development bank, BNDES, will offer low interest rate loans to exhibitors signed up under a qualifying VPF plan. The decree raised many questions, among which were how would a VPF plan qualify, and did BNDES like this idea? If the announcement had any impact, it was that independent exhibitors should wait to convert until the dust settled, which only served to frustrate distributors busy signing deals with the hope of accelerating the market.
It became clear that only majority-Brazilian-owned cinemas would qualify, and only majority-Brazilian-owned deployment entities would qualify. Import duties were addressed by passing legislation that would relax duties for five years at the federal level. But then there were the tax issues to sort out. If directly purchasing the equipment, the exhibitors would have to pay taxes on the VPFs received. The only way out was for the exhibitor to rent the equipment. To further complicate things, BNDES decided it didn’t want to be the renter, or a lien holder of any kind. Instead, it sought a pledge from a major Brazilian corporation who would accept risk for the loans. As a result, DGT, with a VPF deal in hand, and a strong relationship with ANCINE, entered into a joint venture with Telem, a major Brazilian architectural firm, also politically connected with ANCINE. Quanta DGT is that partnership. It holds title to the equipment, and rents it to the exhibitor. AAM was brought into the deal as exhibitors like its TMS, and a VPF management service was needed.
Initially, AAM, Telem, and DGT were each pursuing their own VPF deals for Brazil, but none could cross the government’s hurdles on their own. After spending time with each to negotiate VPF agreements, studios were ready to throw up their hands when hearing of the partnership. One expects some loose ends to be solved as the deployment entity moves forward, but no one expected that such a well-understood deal could grow to be so complex and with such an unexpected outcome.
GDC, with the only viable alternative VPF program for independents in Brazil, does not qualify for the special low interest loans from BNDES, but will likely appeal to exhibitors less willing to get into a commitment with the government. Still, GDC has been unable to move the independent market on its own, as exhibitors waited to see how the Quanta DGT deal would turn out. It was an unintended consequence of a government trying to do the right thing. Carnival begins at the end of February in 2014, a deadline of sorts for those intending to get things done. Presumably, GDC should be set to make announcements before then.
