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Industry Report: Digital

The European cinema experts meet in Barcelona to discuss the challenge of digitalisation


- At the course organized by MEDIA Salles in Helsinki last February, Michael Karagosian – the expert who assisted the U.S. exhibitors’ association (NATO) in their approach to digital – chose the following title for his talk: “Year 11 and Still Talking about the Roll-out.” In fact what is considered the first commercial digital screening dates back to 1999: a decade later the screens that have adopted the new technology have grown to around 9,000*. We might ask whether this is a lot or a little but what is quite undeniable is that today the digital transition is the burning issue for the cinema industry. It is the subject of the conference decided by the Spanish Government, at present at its term of office in the EU Presidency.

(The article continues below - Commercial information)Cine Iberoamericano Int

Spain invites Europe to a reflection on the new technologies and the independence of the cinemas
For two days digitization was discussed in Barcelona, from a specific perspective: the impact that it may have on the sector of independent exhibition. The approximately 200 guests – officials from public organizations responsible for the cinema and experts from the professional sphere – dealt mainly with questions regarding economic models – those that have already been experimented or those that are being studied – which might finance the transition, overcoming the paradox behind this revolution: the promise of savings on the distribution front, the need for investment by the exhibitor.

Will VPF be sufficient to finance digitization in Europe’s cinemas?
VPF in the limelight then, considered as it is in the preparatory document, drawn up by the “Think Tank on European Film and Film Policy”, the only feasible mechanism from a purely commercial point of view for transferring resources from distribution to exhibition, unless the exhibitors opt for converting the equipment at their own cost. What is more, it is a mechanism that is not without “harmful side effects”, particularly in a context like Europe, characterized by a multitude of exhibition companies, many of which small or small-medium sized, that are sometimes unwilling to accept a third party in the traditional dynamics between distributor/exhibitor in the form of a financial intermediary who, on the one hand, anticipates the funds for buying the equipment and, on the other, recovers it through VPF, i.e. the contribution of the distributors.
Yet even if objections to the intermediary should be overcome – and this is figure that has become necessary since the studios, whilst ready to co-finance the transition, have laid down the condition that this contribution, for special purposes and for a fixed duration, should not be confused with or superimposed in any way on the rental fee - another crucial issue remains open in Europe: how many screens would be excluded from the “classic” VPF? The Think Tank estimates a fairly large slice of them: from 6,000 to 14,000 screens (out of a total of around 30,000). Calculating, moreover, that the VPF model, the extent of which is reckoned on the basis of the established distribution dynamics of 35mm films, would perpetrate the market logics of film, denying or at least delaying considerably the benefits that digitization promises. On the one hand, the distributors will not see any savings until they have finished paying the VPF, and on the other the exhibitors will not gain the full benefits of programming flexibility until they have become owners of their equipment (which, for the duration of the VPF agreement, belongs to the financing organism).

The intermediaries operating in Europe claim they can digitize over 80% of screens
The validity of VPF is – obviously – sustained by the companies that have put themselves forward as intermediaries in Europe: XDC (which has, up to now, signed agreements for the digitization of over 700 screens), AAM (a little over 500), Ymagis (almost 200). Jean Mizrahi, CEO of Ymagis, believes that with VPF 80% or even 90% of the Old Continent’s screens can be digitized.
“Consequently,” he stated, “there is no need for the State to substitute private players. I hope that the European Union will make this situation clear.”
For the intermediaries to play their part, it is, in fact, essential that credit from the banks should be accessible. In the present financial crisis, it seems that the European Investment Bank is willing to lend a hand: “We can assist those who come to us with an economic plan. But it’s not our job to identify the models,” stated Patrick Vanhoudt.

What are the prospects from the public sector?
That the mere transposition of VPF, particularly if applied “American style”, is not a feasible solution – and not even to be hoped for – is an opinion shared by many in Europe. For objective reasons on the one hand: just as exhibition is fragmented, so – perhaps to an even greater extent – is European distribution. And the more screens and content VPF includes, the better it works. It is no coincidence that standard agreements in the USA require that all the screens in a complex be digitized and regard films by the majors, which control over 90% of the market. What is more, there is widespread concern that the more oriented cinemas are towards Hollywood movies, the more compatible they are with VPF, to the detriment of domestic and European productions.
If we add that in Europe cinemas are considered important not only because of their economic weight but also because of the social and cultural role they play in society and on their territory, it can be seen why there are many institutions that declare that digital projection, instead of being an added opportunity for the world of the cinema, becomes a technological divide that will separate those who can afford the new technology from those who cannot.

Coming soon, the first scheme by the MEDIA Programme for the financing of digital equipment
In Barcelona the European Commission, co-promoters of the Conference, confirmed that the MEDIA Programme will be intervening in support of digitization as a means of safeguarding cultural diversity and in defence of theatres that would be “at risk” from a purely commercial perspective. This was announced by Odile Quentin, on behalf of the European Commission’s Directorate General for Culture, under whose wing the MEDIA Programme has just returned after a lengthy period with the Information Society. It was confirmed by Aviva Silver, Head of the MEDIA Programme, who illustrated the results of the public consultation launched on 16 October 2009, and explained by Hughes Becquart who outlined the time-frame of community action. A study will shortly be initiated making it possible to establish the lump sums that the theatres will be able to obtain from Brussels if they are selected on the basis of a call for proposals, the launch of which is foreseen for summer 2010. Four million euros are allotted for the first year: some may find this too little if we consider that the cost of digitizing a screen is estimated at around 70,000/100,000 euros, but it should be noted that it should be noted that for the first time the MEDIA Programme’s support for the circulation of European films also includes financing for equipment, with the aim of ensuring the presence of films produced by the Old Continent on digital screens, too.

At national level a variety of situations and intervention policies
The Barcelona Conference provided a place for exchanging views on the initiatives adopted in different European countries on the issue of digitizing cinemas.
After the pioneering intervention of the United Kingdom, where the money from the National Lottery and the project by the UK Film Council, aiming at increasing the offer of “non-mainstream” products throughout British territory, led to the digitization of 240 screens – well differentiated in terms of type and position - known as the Digital Screen Network, the Norwegian plan proves to be the most organic, though less apt for transfer to other territories. Norway – where the vast majority of theatres are municipally owned – has chosen a route to digital that includes all of its screens. For this reason an original formula of mixed VPF has been elaborated, which sees participation not only by the distributors (negotiations have been carried out directly with the majors) and exhibitors, but also by a public institution, largely based on the levy applied to the area of the cinema.
“Not one less” was the principle inspiring Finland, too, where the intervention of the Ministry of Culture was directed to digitizing both screens (around fifty, or about 15% of the country’s total, in the initial phase already completed) and the whole of the cinema chain. Practically all the country’s domestic productions are regularly available in digital format in a country that sees the combination of culture and technology as an engine of economic and social growth.
An overall plan – based on the concept of mutual aid – was conceived by the CNC in France. Turned down by the National Authority on competition, the programme will probably be converted into a selective scheme, targeting the cinemas that would find it more difficult to gain access to purely commercial models. “It is obvious that rapid action must be taken at this point. After sitting on the wall, everyone has been in a rush since the release of Avatar,” said Lionel Bertinet of the CNC, “We, too, will try to act quickly in two ways: one with direct aid to the cinemas and also through legislation. The objective is to involve distribution in the financing of digital conversion, as well as to guarantee transparency in the sector and free access to products.”
In Barcelona particular interest was aroused by the plan created in Italy – one of the European countries with the largest total of cinemas – in order to facilitate the digitization of screens through tax credit measures.

The dynamism of the regions can take advantage of community aid
A happy example of regional intervention was brought to the Conference by Marta Materska-Samek who presented the network of digital cinemas in Małopolska, the area stretching from Cracovia south towards Slovakia. This project won the support of the European Regional Development Fund, a decidedly rich source of savings, to which an extremely wide variety of projects aspire. As explained by Pierre Godin, on behalf of the European Commission’s Directorate General of Regional Policy, the Fund cannot simply finance the purchase of digital projectors.However, it can support projects for area development – for example urban regeneration – which revolve around the cinema.

Information and formation to accompany the digital transition
Faced with the complexity of the challenges posed by digitization – emerging both from the talks given and from the questions and observations that participants made on PCs, thus enabling a “virtual” debate – the need for training initiatives is particularly strongly perceived. In fact, if there is one thing that is clear to everyone, it is that digitization is a far more complex phenomenon than the mere substitution of equipment. Rather than purely technical competences, a new mentality is needed and a new way of making and offering cinema.

* MEDIA Salles statistics as at 1.01.2009 report 8,728 screens fitted with DLP Cinema or SXRD technology worldwide.

This article was published in Italian in the “Giornale dello Spettacolo” no. 8, 23 April 2010


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