Digital Cinema Looking for Gains in Amsterdam

If the digital-cinema revolution took its time getting traction among U.S. exhibitors, the situation in Europe has been downright slo-mo. D-cinema proponents say there has been a perfect storm of woes impeding progress in European territories: a tendency to lag behind U.S. rollouts, combined with a pullback in Hollywood studios' generosity in funding installations on both sides of the Atlantic and now the spreading global financial crunch.

"Everybody is suffering from the state of the financing market," said Gemma Richardson, a spokeswoman for London-based Arts Alliance Media. "We have five studios on board, so we're rolling. But we're trying to get everybody to pitch in and help, and that means from the pricing of equipment by the manufacturers and right on down the line."

An installations facilitator, Arts Alliance has been among those companies at the center of the European digital rollout. "We're having conversations with the top cinema chains throughout Europe, and it's just a question of who wants to get in the game," said Howard Kiedaisch, Arts Alliance's New York-bred CEO and a former international executive at Universal and PolyGram.

Arts Alliance's deal this year with the French theater chain Circuit George Raymon marked the first funded through a virtual print fee arrangement with Hollywood studios. Through VPFs, studios agree to pay exhibs the equivalent of what print runs would cost for several years after converting to digital distribution.

Funding D-Cinema installations by tapping studio largesse has been much more widespread in the U.S. But in the U.S. and Europe, Hollywood studios recently have insisted on much lower VPFs than was true in the earlier days of the U.S. digital rollout. That's been a drag on how many circuits sign up for installations.

In some cases -- like a near $1 billion deal recently struck by four studios with the Belgium-based D-Cinema service XDC -- impressive financing is in place. But third-party facilitators such as XDC or Arts Alliance still need to hammer out VPF-related agreements with individual exhibs.

"That's just what I call a hunting license," one D-Cinema wag quipped of XDC's deal with Warner Bros., Disney, Paramount and Fox.

Europe's D-Cinema rollout will figure in several sessions set for CinemaExpo International 2008. The annual exhibition trade confab kicks off Monday at the RAI convention center in Amsterdam. Europe has only 1,300 screens equipped for movie-quality digital projection, with many of the installations involving lease-only arrangements with systems vendors and others funded with government subsidies. The U.S. has almost 5,000 movie-quality digital screens, dating from an initial round of deals in late 2005 and early 2006 orchestrated following a lengthy engineering phase by a Hollywood studio consortium.

"The reality is that only as of February of this year are we where the U.S. was in December of 2005," Arts Alliance's Kiedaisch said. "It should go faster now, because the U.S. rollout shows people digital cinema helps business once you have digital screens up and running."

Arts Alliance recently struck a deal with Spain-based Yelmo Cineplex to equip five screens in a Madrid multiplex set to open in July. Those installations won't tap into any VPF funding, but execs hope to do so eventually as Yelmo and Arts Alliance expand on their relationship.

Meanwhile, though 3-D installations necessarily lag digital installations -- you can't have the former without the latter -- the less-expensive, less-complicated 3-D rollout could gain quick traction once Europe's D-Cinema footprint grows a bit.

"RealD is dependent on the roll-on success of digital cinema," said Michael Lewis, CEO of U.S.-based 3-D vendor RealD. "But 3-D has been the driver for getting digital out there, because right now there is one sunny area in the cinema business, and that's 3-D."

RealD, which operates more than 90% of the global 3-D screens, has almost 1,000 North American screens but just 192 elsewhere, including 116 in Europe. The company recently struck a contract to equip 600 screens operated in the U.K. and elsewhere by the Odeon/UCI and CineWorld circuits, but only slow progress will be marked on converting those screens until the chains sign off on VPF-related financing agreements.

Complicating Europe's VPF negotiations is the simple reality that more films are distributed there independently. As a result, "exhibitors will just have to pay a larger share (of D-Cinema installation costs) than in the U.S.," a D-Cinema proponent noted.

Proponents of 3-D tout exhibitors' ability to charge more for 3-D movie tickets, as well as its ability to differentiate the theatrical experience at a time when home theater viewing is on the rise. As for D-Cinema, it eventually will save studios on distribution costs and boosts exhibitors' ability to program advertising and alternative programming in their auditoriums.

"Everybody knows all the merits of digital," Kiedaisch said. "But it's important that anybody who wants to be around in three to five years helps drive the process. You can't just be an ostrich with your head in the sand."

By Carl DiOrio, The Hollywood Reporter