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Earlier this year, when the cinemas were still operational, one of my friends who is a lawyer had filed a suit in the Delhi High Court against a Bollywood biopic that was produced by a large production house.  The Production house had consulted her during the making of the movie but did not credit her for the same in the title card. She ultimately won the case and the Court directed the production house to add her name to the Credits in all the prints. While the addition was carried out in India, she asked me to check whether her name was added to the credits in the International prints. I was sure that it is logistically impossible to do this for a physical hard drive print, in the international market. I still headed to the cinema and met the manager who showed me the physical hard drive of the movie and mentioned the reason why any additions cannot be made to already censored movies due to logistical issues. This reminded me of the days when I saw the representatives of the movie distributors, who would carry film reels in their scooters from one theatre to another as one print was shared by many theatres prior to 2005, when Digital Cinema made its foray into India.

Sometime in the aftermath of the Y2K euphoria, a silent revolution in movie exhibition was taking place in the United States of America, today we know this medium as Digital Cinema.

Though the idea was mooted way back in 1972, by eminent Computer Scientist Nasir Ahmed, the high costs of storing and compressing  data took another 26 years, before the first full length feature Digital Cinema was made in the year 1998 and exhibited in five theatres in the US with the help of Texas Instruments.

By the end of the year 2000, there were around 30 theatres in the world which had adapted this technology, however it took another 3 to 4 years and many technological improvements and enhancements for this technology to go Global.

As on this day, there are close to 200,000 digital screens worldwide, half of them in the Asia-Pacific region. India has close to 10000 screens, out of which 30% constitute multiplex screens and the rest being single screens.

While large multiplex chains have their own projection equipment, the economics of changing the projection equipment to digital ones was not economically viable for the single screens and smaller multiplex chains. To fill this gap, producers encouraged owners of these theatres to install digital projectors, for which the producers paid a Virtual Print Fee (VPF), which costed a fraction of the cost of film prints. Digital Service provider companies like Qube and UFO acquired these equipment either on their own or jointly with the theatre owners and installed them in these cinemas for which they charged a fee termed as a Virtual Print Fee from the producers. This Fee took care of cost of projector, periodical maintenance and upgrades, mastering, duplication and delivery of the Prints and Key Delivery Management. Virtual Print Fee is shared by the theatre owners and Digital Service Providers.

Digital medium is not only for the feature films, but also applicable to in-cinema advertising. The advertising revenue for Multiplexes is around 15% of their Gross Revenue.

Since 70% of screens depend on Digital Service providers (DSPs) for distribution of prints either physically or via satellite, they play a very significant role in the Indian movie industry. Their income is mainly from Virtual Print Fee and Advertisements.

Computerization and online ticket bookings to a large extent have made earnings more transparent. However still a lot of theatres depend on walk in customers and pre-printed tickets. There is a lot of room for illegal sale of tickets and leakage in revenue. DSPs have started installing a software called ‘icount’ where high resolution cameras are installed in the theatres. These capture the pictures of the audience and send it to a computer where Intelligent Machine Vision algorithms count the audience in each theatre. This visual count is later tabulated with the number of tickets sold and discrepancies are reported.

This also helps curtail unscheduled shows, illegal movie recordings and helps monitoring of different screens from a central location.

Since its been almost a decade or more since the producers are paying the VPF, they feel that they have been paying for these projectors beyond the cost of the equipment. The DSPs however argue that what they charge is hardly 15% of what a film print costs, whereas the international VPF is nearly 85% of the cost of film prints as there is a sunset clause (a clause that stops the producers from paying VPF once the cost of the equipment has been paid for). Due to this, the era of VPF is coming to an end in the UK markets by the end of 2020. Since the cost of VPF in India is still a fraction of that in the International markets, they may stay on for a while but will gradually reduce over a period of time.

The argument by DSPs is that their business model is typically like the Cab operators, where in if the passenger feels he has paid enough to own a car, he cannot ask for ownership transfer of the car.

With Samsung soon spreading its wings across the world with their ‘ONYX’ technology, projectors will soon become extinct and they may collaborate with DSPs on a revenue sharing basis once there is a sizeable market. These innovations have made cinemas go projector less after 120 years, thus making  the future of Digital Cinema exciting.

Trivia: – The first commercially released feature film in digital format is “The Last Broadcast” which released in the year 1998 in the US.

Long before the multiplex era, all that existed were single screens. Single screens ranged anywhere from 300 seats up to 1,300 seats from small screen to large 70mm screens. The world of movie distribution has seen huge changes in terms of logistics and transparency.

Also read about dramatic changes brought in by emergence of OTT platforms.

Distributors had two ways to deal with the theatre owners, outright rent for a specified number of shows per week or a revenue sharing basis where the distributor took 70-75% of the total net collections (after taxes).

Moreover, since the movies came in film rolls, they had access to limited number of prints for multiple screens spread across the length and breadth of the region for which the distribution was undertaken.

Theatres sharing the prints would strategically space the shows in a manner in which the film rolls could be transported from one screen to another which was a logistical nightmare. Any glitch would end up in interruption of the movie screening much to the ire of the audience, even worse would be rolls jumbled up practically hampering the experience of the movie watching audience.

Digital era has changed all this and with the advent of multiplexes, movie prints and distribution have become logistically simpler. All you need is a hard drive or a satellite feed that can be decrypted with the help of a KDM (Key Delivery Message), for specific theatres and number of shows.

Distribution is by and large still an unorganized sector in large parts of India. Ticket collections have however, become more transparent in the last decade or so, mainly thanks to consolidation by large multiplex chains. As for single screens, doubts still exist on transparency.

Types of Movie Distribution:

Outright Purchase

A distributor signs an agreement with the producer for a fixed amount for a certain geographical area. The price is arrived at taking into consideration, the population, number of screens and the budget of the movie. Once the distributor has bought the rights, the onus of promoting the movie by way of propaganda is entirely the distributors responsibility. The distributor has to book the theatres well in advance for a specified period and number of shows. Generally, a big budget movie with bigger stars would command a higher price considering the viability of releasing the movie in larger number of screens during the first week of the release. Any profit or loss, would be absorbed by the distributors. In this method, If the movie ends up with a good theatrical run, the distributors end up making more money than the producers.

Price at which a territory sold to the distributor8 crores
Print, publicity and rental costs6 crores
Total cost incurred by the distributor 14 crores
Financials – Outright Purchase Method

If the net proceeds (after deduction for taxes) from the theatres exceeds 14 Crores, the distributor makes a profit. Similarly, he will absorb the loss. Sometimes, the theatre rentals are substituted with sharing of the proceeds between the theatre owners and the distributors. 

Minimum Guarantee

In this method, producer gives the rights of distribution for an agreed amount. In case, the distributors profit share crosses this amount, the producer and the distributor will share the profits made over and above the agreed amount. In case of a good run, producers and distributors both make money. This is typically used by huge production houses. Price at which a territory sold to the distributor, say 10 crores . In case the proceeds exceed 10 crores, the distributor and producer share the profits at an agreed percentage.

Distribution

This is a method where the burden is totally on the producer. In this case, a distributor pays a fixed amount of money (refundable) to the producer to screen the movies in a certain geographical area. On screening the movies, the net collections from the theatres are given back to the producer. The producer gives an agreed amount of commission on the collections. At the end of the theatrical run, the advance is returned to the distributor. This method is usually adopted for small budget movies, with limited prints and small number of screens. The commission to the distributor differs based on the collections. If the collection exceeds the advance amount initially paid, the commission would also be higher. Based on the response to the movie, the producer has the liberty to change the method of distribution for other geographical areas.

Advance paid by distributor to the producer for a territory  2 crores
Net proceeds collected by the distributor 4 crores
Commission paid by producer to the distributor  (10% of net proceeds)0.4 crore
Producer will refund the commission along with the advance to the distributor2.4 crores
Financials – Distribution Method

In case the net proceeds are less than 2 crores, the distributor gets back the advance in full either without interest or a minimum rate of interest. In this case, the distributor is more like a financier.