Is a solution to the virtual print fee problem any nearer for Europe’s indie distributors? Melanie Goodfellow listens in on the heated debate at Europa Distribution’s annual conference in Lyon

The Villa Lumiere in Lyon, home to French cinematographic pioneers Auguste and Louis Lumiere and now a museum devoted to their legacy, was the venue for the fifth annual conference of Europa Distribution in October. It gathered together 65 independent distributors from across Europe.

But aside from screenings of Lumiere films Arrival Of A Train At La Ciotat and The Gardener, the assembled distributors hardly gave celluloid a second thought. The focus was entirely on the implications of the digital age.

Digitisation rates stand at around 56% of all screens in France, 53% in the UK, 40% in Germany and 30% in both Italy and Spain. The conference’s biggest talking point, as it has been every year, was the virtual print fees (VPFs) imposed on distributors to help foot the bill for new digital equipment.

Across Europe, the independents are locked in negotiations over VPFs with exhibitors and the third-party equipment suppliers Arts Alliance, Sony, XDC and Ymagis, which have digitised thousands of screens and now want to recoup their costs. Most indie distributors believe they are getting a raw deal in a system spearheaded by the majors.

“There are times now when we are having to turn down bookings because it is doubtful whether our share will cover the VPF,” says Edward Fletcher, managing director of UK distributor Soda Pictures.

‘We feel we should cover 75% of the total costs but the exhibitors are pushing for an 85% contribution’

Régine Vial, Les Films du Losange

A group of 20 French distributors including Les Films du Losange, Memento, Le Pacte, Wild Bunch and Sophie Dulac, have united under the DIRECT banner to negotiate collectively on VPFs. Under French law, distributors are obliged to pay VPFs for up to 10 years after digital equipment is installed. But there is room for manoeuvre in terms of the duration and fees.

“Last year, after three weeks of negotiations with Ymagis, I managed to get 2% off the asking price,” says Eric Vicente of distributor Sophie Dulac. “But then DIRECT went in and managed to get a 10%-15% discount.”

The main sticking points are the estimated costs of the digital equipment, the percentage of the digitisation bill the distributors should cover and the duration of the VPF payments.

“We feel we should cover 75% of the total costs but the exhibitors are pushing for an 85% contribution,” explains Régine Vial, director of distribution at Les Films du Losange. “Estimates of how much the equipment costs per cinema vary from $83,000-$125,000 (€60,000-€90,000) depending on who you talk to, and we need to get to the bottom of this.”

Vial says DIRECT has recently signed a deal with Arts Alliance but was still in the middle of hard-fought negotiations with Ymagis. The Paris-based company digitised UGC’s 600 screens as well as those of MK2 and is now handling the VPFs.

“We have a short-term agreement with Ymagis taking us up to December 31, but have yet to sign a long-term deal,” says Vial. “We’re not happy with the price and Ymagis has asked us to pay back over 10 years. We think it should be a shorter period.”

On the eve of the conference, Ymagis, which also has local offices in Barcelona and Berlin, signed new VPF agreements with 14 key Spanish distributors including A Contracorriente, Filmax, Golem and Vertigo.

Talking from Paris after the conference, Ymagis founder Jean Mizrahi denies he is the “big bad wolf” of French cinema digitisation (as one distributor described him). The former CEO of Eclair, says his four-year-old company has been instrumental in enabling the digitisation of screens in several European countries, a development which will benefit distributors financially once the transition period is over.

“It is private parties like us that have made the transition happen,” Mizrahi says. “Ymagis and its competitors are responsible for half the digitised screens in France, some 1,400 in total. We’ve been a driving force. Without us taking the risk upfront, the process would have taken a decade. For Ymagis, at a European level, the financial commitment right now exceeds $138.7m (€100m).”

The company, which employs some 55 people in several European locations including a large, no-frills basement office off the Champs Elysées, handles $1.4m (€1m) worth of VPF invoices a month, a sum which is growing rapidly.

Mizrahi rejects suggestions the gross receipts of VPFs billed by third parties represent on average at least one-and-a-half times the cost of digitising cinemas.

“Our management costs will be spread over several thousands of screens,” he says. “We’re charging for a service, which is managing something that is very complex. Distributors will soon find out that dealing with exhibitors directly is actually pretty complicated and costly. We are cheaper. We have a centralised system, the costs of which look reasonable when you take into account the service we are providing and the risk we are taking.

“At the end of the day our fees never exceed $1,040 (€750) per copy, which is still just half the cost of producing a 35mm print cost for many independent distributors, especially in countries like Belgium or Switzerland… and the fee is substantially smaller for distributors who accept to negotiate in good faith. Going into the future, the costs are going to get lower and lower.”

‘Without us taking a risk upfront, the process would have taken a decade’

Jean Mizraho, Ymagis

Soda’s Fletcher says the UK independent distributors do not have the same sort of market clout as some of their European counterparts. “As Odeon said to me, the studios are 96 percent of their market, so that sort of sets the reality of the dynamics in the UK,” he said. “Studios and main chains have signed VPF agreements so it’s a done deal - there’s nothing else to talk about. The remaining four percent of us, of which I am 0.02 percent, are irrelevant for the bigger exhibitors. We simply represent more paperwork.”

The digital roll-out in the UK was spearheaded by the UK Film Council through its Digital Screen Network, which funded the installation of projectors in 210 UK cinemas. But many cinemas have returned the equipment and adopted the more lucrative VPF system.

“I think many of us had our heads in the sand - we were doubtful that exhibitors would see enough advantage in returning the UKFC equipment, but they did,” Fletcher adds.

There is one approach which may offer hope to some of Europe’s indie distributors. At the conference, Swiss distributor Laurent Dutoit of Geneva-based Agora unveiled a scheme which will cover around one-third of medium-sized screens in Switzerland — and will cut the third parties out of the picture.

Under the accord, the distributors deal directly with the exhibitors who are able to take out special state-backed loans to finance digitisation. The scheme is expected to cost between $12.5m-$20.8m (€9m-€15m) with recoupment over six years.

Distributors at the conference applauded the scheme but many lamented it was perhaps too late for it to be incorporated into their national digital cinema landscape as the third parties were already installed.

“Switzerland is a very particular case. It’s a small tri-lingual territory. It remains to be seen if the Swiss model will work,” comments Mizrahi.