A long-in-the-works deal with the Hollywood studios is close to being signed.
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22 Jan 2013 - 1:31 PM  UPDATED 22 Jan 2013 - 1:31 PM

Roughly 70% of Australia's independently owned cinemas have upgraded their screens to digital. The rest have been holding off until landmark deals with the six Hollywood studios have been signed.

After negotiations that have dragged on for more than two years, contracts with the majors and a separate arrangement with independent distributors to set a Virtual Print Fee could be finalised within the next few weeks.

The VPF is paid by distributors to exhibitors to subsidise the cost of upgrading cinemas, amortised over at least seven years, allocated from the money distributors save by no longer having to strike 35 mm prints. That means the exhibitor pays about 25% of the cost of installing digital equipment, with the fees from distributors making up the balance of the investment.

The major circuits sealed VPF deals with distributors at the start of 2011 and their screens are 100% digital. Universal Pictures flagged at last year's Australian International Movie Convention that it was poised to sign a VPF contract with the indie operators and did so soon afterwards.

Independent Cinemas Association of Australia president Kieren Dell (pictured) tells SBS that another major, whom he declines to name, subsequently signed up and he expects deals with most if not all the other studios and independents will be concluded “in the next two weeks to a month or so”.

Dell says 70%-75% of indie exhibitors, representing 300-350 screens, have upgraded to digital and he believes the rest will make that transition once the VPF deals are finalised.

“A lot of people have converted in the understanding that the VPF scheme will be available,” he says. “The ones that are hanging off have not been able to find the finance for the upgrade without having an income stream to offset it. Once the deals are done, exhibitors have to connect to our Network Operations Centre so by the end of the year all should be in place with our plan.”

Time is a pressing factor because although there's no fixed date yet for the end of the 35mm era, Kodak is the only company still making celluloid.

In January 2012 ICAA heralded an alliance with US-based Cinedigm Digital Cinema Corp. to negotiate VPF contracts and provide administration and theatre management systems. At the time, ICAA optimistically said the VPF scheme could start in April of that year.

“These are complex agreements,” Dell says. “The reality is we have to negotiate with six studios separately and the independent distributors. They all have different issues. It's literally six different negotiations. Each of those studios is doing deals around the world so it's a function of resources as to how quickly it moves.”

Dell points out that the cost of upgrading has fallen from $100,000 per screen to as little as $35,000 for the cheapest systems, and second-hand gear can be had for $15,000-$25,000. He says that of the few small exhibitors that are closing their doors, the reason isn't the cost of going digital but other factors such as retirement and leases
expiring.

Dell's Majestic Cinemas operates 12 screens across five locations in regional NSW – Nambucca Heads, Port Macquarie, Singleton, Inverell and The Entrance – and he's adding three screens to the Port Macquarie twin.