Tuesday 24 December 2013

Do You Know what a VPF is? You should - IF YOU CARE ABOUT INDEPENDENT CINEMA. Collusion Between the Big Six Studios and Major Exhibition Chains are Potentially Destroying Independent Theatrical Exhibition & Distribution: -Editorial Commentary By Greg Klymkiw

VPFs: A conspiracy to snuff out independent theatrical distribution, exhibition & production?

Editorial Commentary By Greg Klymkiw

Do You Know what a VPF is? You should - IF YOU CARE ABOUT INDEPENDENT CINEMA. Indies charge that "Collusion" Between the Big Six Studios and Major Exhibition Chains are Potentially Destroying Independent Theatrical Exhibition, Distribution and Production.

This is especially troubling in Canada. Our country represents 10% of the North American marketplace and if there is, indeed a War (albeit insidiously silent) upon Independent Cinema (and by extension, Canadian Cinema), then it's high time for those most affected to stand up, speak out and refuse to take this lying down.

Even more egregious is that Canada's largest movie theatre chain has already demonstrated its ho-hum commitment to indigenous motion picture product (and a whole lot of foreign indie product handled by smaller Canadian distributors) whilst they happily continue to get approval from the Federal Government to gobble up so many more screens that the Company's Virtual Monopoly could well become a Genuine Monopoly.

VPFs plus a Monopoly might be the Death Knell for producers, providers and END USERS who prefer to see independent films theatrically. They might even want to see more Canadian product if it had a consistent home in the marketplace, but unless things change, this will never be the case.

Though this piece is Canada-centric (and to an extent, North-America-centric), independents the world over have similar issues facing them. The Seventh Seal, so to speak, is upon us - a calm before the storm. It's time to be informed and to act NOW!!!- GK

"I'm so glad you're talking about VPFs. Nobody in the mainstream media is talking about it. Even the trades haven't dealt with it properly. Nobody in our industry wants to talk about what's happening because of VPFs, probably because the ones who benefit most from them are perfectly happy while the ones who are hurt by it fear reprisals by going public. VPFs and their effect upon independent film is one of the biggest conspiracies happening in the film business." - DEEP ESOPHAGUS (One of many sources for this piece who do not wish to be named.)

VPF, in the parlance of motion picture distributors and exhibitors is the acronym for "Virtual Print Fee", but before explaining what that actually is, even I, at this point, am compelled to first ask, "What in the name of Christ, is a virtual print?" Well, a print is, of course, the physical entity by which the movie you go to see is projected onto the screen, but a virtual print (?) is, uh, what? The Free Dictionary Online defines the word "virtual" thusly:

vir·tu·al (vûrch-l) adj. 1. Existing or resulting in essence or effect though not in actual fact, form, or name: the virtual extinction of the buffalo. 2. Existing in the mind, especially as a product of the imagination. Used in literary criticism of a text. 3. Computer Science Created, simulated, or carried on by means of a computer or computer network: virtual conversations in a chatroom.

Obviously the first definition doesn't necessarily apply, though in this day and age it's probably safe to suggest, as per The Free Dictionary, that film prints as we once knew them are virtually extinct (save for archival prints and those used for special cinematheque/festival showings). Number two definition most definitely doesn't apply, though given that fees are charged for "virtual prints", a little part of me would assert that yes, indeed there are prints that exist in the mind or as an imaginary product. Number three seems the likeliest choice given that films are now projected via digital media. So yes, I will accept that within this context, a "virtual print" can indeed exist, though in all fairness, there are any number of physical mechanisms and media utilized to deliver the 1s and 0s as projected movies to the masses, so I still find the term "virtual print" a tad oxymoronic.

Quite the conundrum, mais non? Baby, you ain't heard nor seen nothin' yet!

So, prior to cinemas converting to digital projection, movies were screened using actual film prints - celluloid mounted on metal reels - of which, each reel would contain approximately 20-30 minutes of the motion picture. A typical 90 minute feature might then be comprised of 3-4 reels shipped in heavy steel cans. Shipping and storage costs were considerable, but even more onerous was the cost of generating prints for distribution - usually $1500 - $2000 per print.

In the "old days", two projectors would deliver the picture, necessitating that a human being would actually need to do the reel change. As well, before the development and use of long-lasting Xenon Bulbs, the projectors were often fired up via carbon rods which needed to be carefully observed and replaced by - you guessed it - a human being. Even once the reels could be mounted on huge platters, thus making reel changes obsolete, a human being still had to "break down and revise" the film print in order for it to be properly projected.

The human beings I refer to are projectionists - UNION projectionists. The IATSE union had one of the most rigorous apprenticeship programs for projectionists and these were no mere button pushers, but highly skilled technicians, craftsmen and yes, artists in their own right with respect to the overall sense of showmanship that used to occur in movie theatres when you went to the pictures. Alas, in Canada, and elsewhere, these highly skilled professionals were replaced with pimply teenage concession attendants. And even here, in the oft-slightly-left-of-centre Land of Maple Sugar, the Projectionist Union was busted by a major cinema chain that still exists, though now in a far different and larger form. And yes, folks, our governments idly sat by and watched as the corporate pigs flushed this great branch of a great union and very integral position down the toilet.

So now, we pretty much don't need human beings to project film, save for the aforementioned acne-magnet button-pushers. The prints are digital. Film, for the most part, is dead. (And frankly, even though the digital resolution is in the 2K to 4K range, I can assure you that the picture projected onto your screens still looks like a pile of shit compared to the resolution, warmth and colour of 35mm FILM prints.) I've also encountered so many problems with DIGITAL screenings - everything from - yes, it happens - corrupted files, awful showmanship (everything from masking issues to lights going on and off when they're not supposed to) and endless sound problems that maintaining REAL projectionists might have been a damn good idea. They were a resilient and adaptable bunch and could well have been an important tie that binds.

That wouldn't happen, though, since so many major exhibition chains and even many major distribution entities have, since the early 1980s been slowly swirling down the toilet because of greed and laziness. More than ever, cinema is being treated as waste product by little more than septic specialists.

Still, something had to be done. The cost of physically getting prints to the venues was astronomical. Do the math on print costs alone via the now de rigueur wide releases of 800 to 2000 (and sometimes higher) screens. Let's modestly use figures thusly: 1500 prints in one territory, multiplied by $1500 = that's an expenditure of 2 and ¼ million smackers. Film prints in a territory like North America - especially considering that so many other costs needed to be factored into the distribution of said film prints - the numbers to achieve this had indeed become stratospheric. Digital technology changed all this. Now, film distributors are looking at hard costs of about $150 per print - a fraction of the earlier celluloid-based print costs.

Ah, but here's the rub. The biggest expense of the switchover from film print to digital print had to be borne by exhibitors with the cost being anywhere in the neighbourhood of at least $100,000 or more. In the long run, this was going to be a good move (not aesthetically, but from a business standpoint) to everyone.

So something had to give - or rather, someone had to give - COLD HARD CASH, and it's the giving part that must now concern us - the VPFs - Virtual Print Fees. The costs associated with conversion had to be covered and the studios decided that Virtual Print Fees would be the way to do it .

Unfortunately, it's turning into a potential Death Knell for the theatrical exhibition of independent cinema as many know it and love it.

"As digital cinema was looking like it would be a reality, the spin they put on it was that audiences were demanding it. This is such total bullshit. The audiences weren't demanding it at all. The initiative was completely studio generated - they bought into the new technology in a big way - especially Sony who literally bought IN to digital technology. It was a money-saver and money maker, but also part of taking anti-piracy measures. There's also the market reality of 3-D which, by virtue of up-selling consumers the ludicrous additional charges, it was much easier and more cost effective to make 3-D prints digitally, but also was another way to make money - LOTS more money." -DEEP ESOPHAGUS

D. Esophagus is right about the spin. Yes, the industry has been experimenting with digital exhibition for twenty or so years, but in such smatterings that the only audiences who would even care or know the difference were movie geeks of the geekiest order and most of them were not clamouring for this change. In fact, most audiences don't know the difference. In fact, it shocks me when I encounter anyone in the movie business who can't tell the difference. In any event, audiences were not demanding it. Greed and laziness on the part of the major providers demanded it.

The Big Six Studios (Columbia/Sony, Warner Brothers, Paramount Pictures, Walt Disney, 20th Century Fox and Universal) had a series of sit-downs with the major American exhibition chains to discuss a revolutionary idea - initially, and on the surface, a damn good one for those with deep pockets.

The studio set up a third party, (purportedly) arms-length corporate entity, referred to as . . .


The integrator's role was (and still is) to provide substantial loans to exhibitors to do the film-to-digital conversion. The loan is paid back over ten years, a time period that also contractually insists upon strict maintenance procedures for the equipment which, in turn, is essentially owned by the Integrator until the loan is paid back in full.

To make the loan happen, exhibitors charge the studios (distributors) a Virtual Print Fee (VPF). The VPF is then paid to the Integrator who takes a cut for its third party services and applies the rest to the loan. Both the studios and the major exhibitors are signatories to these agreements with The Integrator.

The VPF itself is, at least in North America close to $1000 - per first-run print, per venue.

In theory, this sounds great - for studios and major exhibition chains - not so much for everyone else. Several "Deep Esophagi" in the independent distribution and exhibition sectors in the USA confirm they were NOT a part of this initial set-up and they had issues much different from the majors that should have been addressed. Many of them have even used words such as "collusion" and "conspiracy" to describe what went down.

The Indies are most affected by the following:

(i) A $1000 hit per print per screen for small distribution companies with specialty pictures is far too steep. Many of my Esophagi have confirmed the majors got and continue to get substantial breaks on the VPFs due to the high volume of screens they command for their product. Essentially, small films from small distribution companies are being penalized and potentially being driven into the ground to pay for film to digital conversion in mostly cash-rich, profit-wallowing exhibition chains.

(ii) In many countries there is now more than one "integrator" to choose from, resulting in rather inconsistent deals that the small distributors must wend their way through.

(iii) In spite of their "third party" status, many integrators are closely connected with the companies that actually provide the digital projection upgrades or worse, huge exhibition chains that are more than happy to have their upgrades paid for by the studios. The problem, however, is that it's not just the Big Six providing the funds to cash-rich chains, it small independent companies. Oh, and here's a good one, for you - many major exhibitors house arms-length integrators within their physical brick and mortar corporate castles. They'll tell us all, however, that they're merely renting space to the arms-length companies.

(iv) Print turnover is a huge issue here. If you're an exhibitor, the more times you turn over the prints, the more VPFs you can collect from the distributors. The more VPFs collected, the more money the Integrator will be able to knock off of the debt for the digital projection changeovers. Huge exhibition chains don't have to worry too much about print turnover as they have more than enough screens to hold onto prints doing business on smaller screens within their complexes.

(v) The VPF hardly is an equivalent to the cost of one 35mm print if you take into account that one print on very limited release could be platformed from one cinema to the next in each major venue and one would certainly not be shelling out $1000 for every playdate in every cinema. Even if you expanded on the number of prints, the overall cost would be considerably less than if you were to pay the VPF.

What happens if you're a single screen art house, or a smaller chain specializing in indie films? Well, according to several of my Deep Esophagi, exhibitors in this position are pressured by the integrators to turn over as much product as possible, as quickly as possible in order for those exhibitors' suppliers (usually art house or indie distributors or companies that also supply art product) to keep paying VPFs that they can't keep affording to pay because:

(a.) The distributors might have specialty product that requires time and word-of-mouth to build an audience or grosses. Most major exhibition chains don't give a shit about this and screw everyone over anyway, including the smaller suppliers, their product, the producers of said product and the end users who might actually want to see the product theatrically. In a sense, they're even forcibly buggering the indie exhibitors by forcing them into a position where they are changing the way they do business. This is clearly a danger to indies on every level.

(b.) Indie product might even be doing business right off the bat, but there's little incentive for exhibitors to hold the product since holding means it's taking longer to pay down the conversion debt. The losers here are the indie distributors, their product, their producers and audiences (and to a certain extent the indie exhibitors themselves).

(v) The major exhibition chains, seemingly in collusion with the Big Six, look upon indie product as a major pain in the ass. Indie product often requires the sort of time and nurturing they're not prepared to give. Even worse, the major exhibitors are placing the most horrific demands upon independent smaller distributors:

(a) Some chains are illegally (or at least, immorally) demanding that the distributors give them exclusive windows on the product and not allowing day-and-date VOD and other home streams. It's very admirable of these exhibitors to preserve the integrity of theatrical exhibition this way, until you realize that many of them are imposing two-to-six-month exclusive windows before the product can be released to other methods of content delivery, but then, treating the product like garbage and not committing to proper runs in the first place.

(b) On certain indie product, the chains demand theatrical exclusivity over smaller exhibitors, play the product and then, even if it's doing business, they blow it off the screens, rendering the product unusable for move-overs to calendar houses. In fact, the major exhibitors should be letting the calendar houses play the product first, then take on the indie product on move-over. This would be, however, an annoyance for them and would gobble up screens for Big Six product.

Here's one added insult to the injury. There are exhibition chains demanding upfront guarantees from smaller distributors. Sometimes what happens is a smaller film might well genuinely flop and after all the math is done, the distributor owes the exhibitor money because the VPF still must be paid.

What everyone seems to ignore is the math on the monies raised by the Integrators. Over the past three to four years, SURELY, most, if not ALL the debts have been paid off - long before they were estimated to have been paid. Still, the cinemas collect VPFs, turn them over to the Integrators (who keep collecting their cut of the action) and one wonders where all this money is going? Who is profiting from it? Why are these fees still be charged? Is this yet another film industry scam to make money on the backs of others? Will it take government intervention to end this ludicrous practise? Or will it simple end once all independent producers, distributors and even exhibitors are VPF's out of business?

Even more ludicrous in Canada is that some of our larger exhibitors refuse to give small distributors a firm playmate for the product. Many times a distributor will find out on a Monday or Tuesday morning that they'll be opening on a Friday.

Great! Lots of time to promote the film.

Is there a positive side to any of this? A small one. Certain exhibitors refuse to be signatories to the agreements with Integrators which makes them attractive venues to smaller distributors. No longer are they shut out of potentially good product because a chain is sewing it up. The problem, though, is that these screens are few and far between. Independent product needs a good mix of venues to be theatrically viable. The major exhibition chains could care less. The Big Six, obviously, could care less also. After all, who needs competition when what they do is relatively easy and lazy?

Canada is in a terrible situation right now for its domestic product. The vast majority of it is being affected by all of the above, and then some. Worst of all, the country's largest chain, Cineplex Entertainment has not stepped up to the plate and exercised its corporate responsibility to ensure enough screens with long-enough playing times for domestic product. They'll deliver the goods on a few generic titles with big stars, but good domestic product getting a fair shot is virtually an anomaly.

Even the federal government through Telefilm Canada, the country's major public investor in Canadian motion picture product is allowing VPFs as legitimate Prints and Ads (P & A) expenses for Canadian distributors seeking market support for Canadian motion picture product. This might actually be the most grotesque example of corporate welfare as public funds are going to distributors to pay to integrators to pay for the loans on film-to-digital conversions that have MOSTLY been incurred by large exhibition chains that, in turn, treat Canadian motion pictures like so many cesspools.

For Canada, there could be a simple solution to all this:

1. Canadian product should be exempt from VPFs.
2. Canadian distributors not aligned in any way, shape or form with the Big Six, should - for all non-Canadian product - be allowed a massive reduction on VPFs.
3. Our country's largest exhibition chains could exercise some corporate responsibility to Canadian film culture and completely revamp the manner in which Canadian cinema is exhibited - even if it's at a loss. Such losses could well take the form of tax credits or some other reasonable incentive to provide consistent homes for Canadian product.

If things don't change, the changes resulting from the current Status Quo could be sheer disaster - perhaps even a major cultural genocide. All independents - distributors, exhibitors, producers and perhaps even end-users need to take a long, hard look at how their business is being manipulated by cash-rich corporations. Independents MUST fight back. Independents must COLLUDE. Collusion in business is given lip service as a dirty word, but as such, it's alive and well in the film industry amongst major exhibitors and distributors. It's hurting everybody and those most affected by it need to be informed, but they also need to fight back collectively with all their might.

And will the major exhibitors and distributors deny all this?

Of course, they will. They'll come up with whatever spin and outright lies they need to come up with to cover their reeking posteriors. It's time for indies to pull out some huge cans of aerosol air freshener, mask the fetid odour, then dive in with gloves on to empty the viscous fluids churning about in the innards of these unrepentant FAT CATS.

Theatres in CANADA that DON'T charge VPFs (& hence, aren't in the business of conspiring to DESTROY independent & Canadian Cinema) include:
and most other independent cinemas.

*NOTE* Any Canadian Cinemas That Wish To Be Added To This List, Just Let Me Know In The Handy-Dandy Comments Box Below