Logic is Paramount as a Studio Buys-In Directly

Last week we were graced with an exceptional write up on the Celluloid Junkie Blog of Paramount's announcement of VPF agreements for the masses [Agreement subject to details on contract, your milage may vary. Don't bother applying if you are not in the North American area, above the Rio Grande.]

This week we are graced with a version of Paramount's actual Digital Cinema Agreement Draft. Here's a brief clip from Section 6, Part a)

Exhibitor further acknowledges that for each of the Films released by Distributor, ...,Distributor will select the distribution pattern and select the Complex(es) and Screen(s) that Distributor believes in its good faith business judgment to be appropriate for its Film, considering all relevant circumstances and nothing shall interfere with decisions made by Distributor’s sales personnel.

Wow~! One thought that this type of demanded control was a reason that the Technicolor agreements didn't go through several years ago.

3. INSTALLATIONS:
(a) Exhibitor shall install at least fifty percent (50%) of the number of screens in each Exhibitor’s Complex(es), ..., no later than six (6) months from the Effective Date of this Agreement.
(b) Exhibitor shall install one hundred percent (100%) of the screens in each Exhibitor’s Complex(es), ..., within three (3) years from the Effective Date of this Agreement.

Now we are talking. No more lingering around. And what about 3D?

(c) Notwithstanding ... Exhibitor is allowed to install as few as one (1) 3D screen in each Complex(es) as listed on Exhibit “B”.

The legalese is enough to melt the pixels from your computer screen. But given what they are trying to do, and the realities of money, it seems like a good document to launch a conversation from. There are a few twists about DCI Specification that are noteworthy should any exhibitor decide to stick their neck out and buy equipment before a spec is formalized or compliant product is available...Which. Is. Everyone., since, as we remember, the companies who will test for compliance were only recently announced and have not completed one test yet.

Exhibitor shall ensure all equipment ... required by the DCI Spec will be compliant with the DCI Spec.

To the extent a hardware or software component necessary for such equipment to fully comply with the DCI Spec is not commercially available at the time of installation Exhibitor will not be obligated to develop any such components and may complete installation of such equipment as is. When the technology necessary to make Digital Systems compliant with the DCI Spec becomes commercially available from any manufacturer and whether or not any such equipment is available from the manufacturer from whom Exhibitor originally obtained the equipment,

You can smell that there is a kicker coming, can't you? Fortunately, the streets are not as likely to be littered, as they were after the JPEG transition, with equipment that didn't make the spec before their business model failed. It is still a risk, because...

..., Exhibitor will by the later of six (6) months after such availability upgrade or the next available window in which upgrades are permitted after such availability upgrade (it being agreed and understood that such windows generally occur between January 15 and March 31 and between September 1 and October 31, or as otherwise generally accepted in the industry), upgrade all Digital Systems to bring such Digital Systems into compliance with the DCI Spec, the costs of which shall be paid for by Exhibitor.

Well, we know that an Exhibitor is going to pound the manufacturer for some kind of guarantee that the equipment they purchase is going to get through the certifying process. And, any manufacturer is going to have to jump through those hoops. There is one hopeless TI hoop that is being allowed for, but that is the topic of another post...the good news is that (at least from Paramount's viewpoint) there is no reason to string a pointless technical exercise on the back of this contract. 

As we digest this contract, we'll make some more comments. Enjoy reading it yourself and mention your favorite parts...for example, I'll close with this one, important only because we see that the parties of the first part are learning as they experience frustrations from the parties of the second part.

In the event a key fails because Exhibitor failed to provide current information (e.g., a “server swap”), Distributor will charge a fee of one hundred dollars ($100.00) for each and every time Distributor is not informed.

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Agok Again~!

Money, Diverging Standards, 3D and Other Problems. Those are the topics of this report.

Money Problems...What a surprise. Diverging Standards...I surprise myself for thinking it would be otherwise. And 3D...still being promoted as the great hope, the technology that will save an industry. There are numbers to look at in every regard. Let’s gets started.

The good news is a press announcement from Arts Alliance pushing several good points. In fact, too many for one press release. It should have had pictures and graphs. One suspects hidden meanings. First on their list is the triumph of finding two sets of financiers; one just in time, since they really needed to continue the digital cinema roll-out at CGR Cinémas in France. For a few months they had been stuck at a little over 100 (the press release says 125). One has suspected that they were left without a paddle by one of the big-shot banks which had gotten their wings clipped. (For some reason, they didn’t send out a press release about it.) But now they are saying that they have 20 million euros for completion.

20 million euros~!~!~! 300 systems~!~!~! Yet again, I am agok. The Arts Alliance Press Release went on and on about everything, but didn’t do the math. Let’s see. 20 million divided by 300 is 66,666. That is astoundingly close to the 65,000 per system that Cinedigm put forth in their press release last month as well. Except, of course, that the euro and the dollar are not trading at parity. Can that be the new cost/system number? Did we miss that press release...seems so recent that it was still over 100,000 per system.

(One hears that the Cinedigm financing came from vendors...one vendor? multiple? so, is the 9 million in trade and no cash? Who can tell? Please do~!)

Great. More research projects. Where are the products made and shipped from? Would that make a significant difference in the integrators price? Do EU taxes plus shipping make up for the difference? More on this later.

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As Jack Benny used to say: Whell~!

One would have thought that there would be announcements and angst. Announcements for 1,000s of systems per month, and angst for supply problems...can't get that many lenses that quickly, can't get that many engineers and technicians that quickly.

What we get is an announcement for a 137 here, and a 180 there. Congratulations are actually in order, that anyone has gotten even that far in this environment. It is not surprising that it is the old hands, XDC and the newly named Cinedigm (formally AccessIT), who were trusted enough to get the cash, which in turn, allowed the orders. Fortis Bank has gone through a lot of troubles in the last few months, but XDC and Fortis were able to put a deal together that puts 100 million euros into the hands of XDC. And Cinedigm got 8.9 million dollars from un-named sources.

Reading through press releases is an imprecise art, but I stare at the Cinedigm numbers and am agok. The release <http://investor.accessitx.com/releasedetail.cfm?ReleaseID=351951> says that the credit facility will be used to fund the launch of 137 systems for Premiere Cinema. Good for them and good luck to us all. But as much as 8.9 million dollars is, that is less than $65,000 per system; all of Cinedigm's overhead for getting this loan and the next, all the overhead of site surveys, plus the paperwork and drawings which follow, the communications with each cinema, checking and 'discussing' with each cinema - making certain that the changes get done – power and air conditioning, new audio wiring, the famous telephone line and aDSL line which the cinema has to get installed, all of the technician time and the organization to get the techs and the equipment there on the right day...Oy~!

And, that doesn't mention the equipment. Wow. $65,000 for less than 150 systems. Imagine the meeting at the vendor's places after those requests are made. Cinedigm will be asking for prices that were probably talked about when 10,000 piece orders were contemplated. This will have to include the projector, the server, a central server no doubt and the Cinedigm Theater Management System. The freight bills alone will be significant.

One presumes that 3D equipment is an additional expense borne by the cinema, along with such items a the BluRay devices (when will the first professional units show up?) and back-up satellite equipment, and matrix systems to put any signal on any projector.

One presumes that Cinedigm will welcome the deal, regardless of how much it actually cost. Their profit is in the back-end, especially in the alternative entertainment which they are put together through their associated companies' efforts. One notices a recent Turner Sports/NBA announcement on their site , promising live 3D NBA action on Saturday nights in 80 cinemas or 160 screens.
The XDC announcement is just as opaque, except that they are clear that the process is; get the VPF agreements, get some cinemas interested and signed or close to signed, then go to the bank with that deal in hand. Then, like Cinedigm, make an announcement about the money. A small difference between the two; Cinedigm says they have the money deal signed, XDC says that the ink on the paper is drying, but that the deal needs a few more approval steps.

But the deal says that Fortis is keen on the deal and the more recent announcement from XDC is a deal for 180 sets of DCinema systems with the Portuguese chain Zon Lusomundo (an implication that the money came through), and 193 screens for the Cineplexx Chain in Austria. (N.B.–contract value is 24 million euros, which is $32.4 million...over 3 times the $9.8 million value of the Cinedigm financing. Granted, these are not similar deals and no one knows what kind of back-end XDC has in the profits of the Cineplexx deal...though, they have been known for back-end profits on other deals. Still...)

Just a slightly tangential note on the banking situation that stands like a ghost behind all this. Fortis is a surprise player, only because they have been involved in a bit of a snag these last few months. Fortis was a Belgium/Netherlands bank, formed during a brief post-Napoleonic moment when these countries were joined. Fortis had recently bought the bank group ABN Amro, along with Spain's Banco Santander and the Royal Bank of Scotland. They divided the assets and went their merry way. Now that some parts of the ponzi scheme known as modern banking have been exposed, it appears that Santander got the more stable bits and RBOS and Fortis got the adventurous but unstable bits. As Fortis started to buckle under the load, the Netherlands nationalized the Fortis Bank portion that was in Netherlands (for 26 billion euros) and the Paris bank BNP took over the Belge and Luxembourg parts of Fortis (for 14 billion euros.)

All this took place during the week before 6 October, and the Fortis/XDC release is dated the 13th...and is now followed by the action in Portugal. So it looks like people kept their eye on the ball and made it happen regardless. This is in contrast to the DCIP/Hollywood Studios deal which was announced and then got lost in the financial malaise that is now the US.
As a last side note, I am unable to wrap my head or enough time into figuring out the Bank of Scotland/Royal Bank of Scotland situation...and which one did the financing of some dcinema systems...all which seem to be stalled for the last few months. Both banks were in severe trouble and needed government help recently. The google record is confusing and without inside info, I am confused.

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