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July 16, 2010
'Avatar' increased demand for digital equipment
The hugely popular Avatar release, coupled with the improved economic outlook in the spring of 2010, suddenly increased the demand for digital equipment worldwide. All indications from this June's Cinema Expo International in Amsterdam are that 3D continues to grow in popularity with no slowdown in sight.
Adding more 3D digital screens requires more investment in projection equipment and the ongoing issue of raising the funds. Fortunately in the U.S., there are a number of financing options open to exhibitors, ranging from the large VPF-type (Virtual Print Fee) nationwide plans from digital-cinema providers Cinedigm and Digital Cinema Implementation Partners (DCIP) to custom-designed leasing programs supported by equipment manufacturers.
Six months before the Avatar release, it was a "buyer's market." Sales were nearly stalled, and equipment manufactures had plenty of inventory on hand, and most were offering various financial incentives to get things moving. Fortunately, Avatar didn't flop and by ShoWest 2010, there was a reversal where many manufacturers suddenly had more orders than inventory. Critical hardware is now on back order, with exhibitors waiting 90-plus days for delivery.
Today, manufactures have found they are better off using available capital to expand their production capacity than financing the sale of inventory that is in short supply.
The majority of financing arrangements available to U.S. exhibitors have had VPF participation from the studios. The VPF deals are all different, and since their introduction in 2004, they now describe various studio incentives for not using a 35mm print. The original VPF deals worked like a business adaptor, to couple the new digital economics to business structures that had for the past 100 years developed around 35mm film. VPF deals provided a way to jump-start the deployment and keep existing relationships and business arrangements intact. As conceived, VPF plans are temporary and limited to a fixed number of screens, but the term is being used increasingly to describe a wide range of studio-supported incentives.
Initially, VPF plans were crafted to relieve the perceived inequality between the exhibitor's increased costs for equipment and the distributor's savings on prints. While it was easy to see the distributor's cost-saving by eliminating 35mm, it was harder to estimate the cost of building the digital pipeline. Exhibitors could easily see the high equipment costs, but not the savings of running a digital operation. Now, exhibitors and distributors have six years of practical experience in operating a digital network and screens and there is a much better handle on true costs and savings. The industry is maturing and experience is leading to better negotiations and more custom VPF plans from distributors.
Although the existing VPF plans reduced costs for many organizations, they don't fit everyone's needs, particularly those of smaller and independent exhibitors that are technically astute and don't need (or want) the services from the nationwide providers.
In the U.S., NEC has several financial programs that have been tailored to assist the smaller exhibitors, particularly those who may not fall under the DCIP, Cinedigm or CBG (Cinema Buying Group) umbrellas. NEC's financial solutions were designed from the onset to be "bridge" solutions, where exhibitors could get 3D going now and make their decision on a broader deployment later. The program can easily be rolled up later into one of the larger nationwide deployment programs.
NEC Display, the USA group responsible for digital-cinema sales, was able to work with NEC Financial Services, NEC's in-house leasing division, to craft several special programs suited to exhibitors. NEC Financial Services has been helping its corporate customers purchase capital-intensive products such as supercomputers.
The first of NEC's programs is a five-year stepped leasing program for projectors and servers. The lease payments are structured so the monthly payment is 1% the total amount leased for the first 18 months, increasing to 2% for months 19 to 36, 3% for months 37 to 48, and finally 4% for the remaining 12 months. The stepped structure was set up with the expectation that exhibitors would receive an increasing supply of 3D titles and therefore the low initial payments would aid in the generation of positive cash flow within the first 18 months.
"With the increased number of 3D movies scheduled to be released over the next few months, now's the time for theatre owners to improve their technology and benefit from the increased box-office revenue associated with 3D movies," said Jim Reisteter, general manager, Digital Cinema Division, NEC Display Solutions. "We're excited to offer special financing programs to help theatre owners obtain advanced digital projector technology for 3D that has the potential to pay for itself within 12 to 18 months."
The second NEC program involves working with a separate company, Digital Link II LLC, a partnership between 3D provider RealD and system integrator Ballantyne/Strong. The Digital Link program is responsible for financing approximately 380 NEC systems with exhibitors such as Marcus, National Amusements, Southern Theatres, Clearview Cinemas and Regal Entertainment over the past few years.
RealD was able to secure agreements with several studios' major 3D releases for VPF participation. NEC Financial supplied the funds and provided the projectors. The combination of VPF participation and NEC's attractive leasing rates meant that exhibitors could move forward with critical 3D installations for the fall of 2009 and spring 2010, when there was no other immediate way to secure VPF payments.
Projector manufacturer Christie has been helping its customers secure digital equipment and was responsible for getting the initial 2005 deployments rolling with the phase-one Christie/AIX program leading to over 3,700 screens.
Barco also offers tailored financing options to provide the right financing solution for every customer. In October 2009, Barco created the "Deliver Digital" program to assist their regional and independent exhibition customers in acquiring turnkey digital-cinema systems (including projectors, servers, automation, etc.), coupled with a tailored financing program, and supported by a full complement of installation and ongoing support services.
This unique program was created in partnership with Cinedigm to facilitate Virtual Print Fees and reduce out-of-pocket expenditures. With Deliver Digital, exhibitors hold title to and own the equipment from day one, and are able to compete with national circuits as they have access to the same benefits, such as preferred financing terms (including $0 down payment for qualified exhibitors) and VPFs. Customers also receive Barco's full complement of services, including installation, warranty and 24/7 Network Operations Center (NOC) remote monitoring.
For exhibitors that may not be seeking VPF support to convert their circuit, Barco helps facilitate low-cost financing through trusted relationships with companies experienced in funding digital-cinema conversions. Barco has been leveraging these relationships successfully over the past two years, supporting many customers, including Moving Image Technologies and Theatre Equipment Construction & Service, among others. Since every exhibitor and dealer has different requirements, the team at Barco and its financial partners are committed to developing the right financing solutions to meet the specific needs of customers. With hundreds of screens successfully financed in 2009 and hundreds more already in 2010, Barco's customer-focused financing solutions have been the clear choice for many.
Sony Electronics is taking a full-service approach to the digital-cinema market, providing exhibitors with a complete range of products—including its 4K projection technology—installation and integration services, digital signage and alternative content, as well as the ability to offer flexible and convenient lease financing and purchasing options.
Exhibitors can choose a turnkey solution from Sony, with several financial options. The most advantageous is Sony's Virtual Print Fee administration program, which includes financial support from studios. The second option is a direct purchase with lease programs through Sony's third-party leasing companies to provide exhibitors with flexible terms. Finally, exhibitors can also customize their own finance programs by choosing a combination of Sony's direct and VPF administration services.
According to Gary Johns, senior VP of Sony's Digital Cinema Solutions Group, "As a total entertainment company, Sony is uniquely positioned to provide a full-service approach and offer everything that an exhibitor needs to maximize their investment in digital cinema."
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