Following a preliminary own-initiative investigation by the European Commission's competition authorities, Hollywood studios and Europe's third-party integrators have amended provisions of their Virtual Print Fee (VPF) contracts, notably the ones that ensured all distributors were offered the same deal. Commission was concerned that the relevant clauses could be in breach of EU rules that prohibit restrictive business practices as laid out in Article 101 of the EU Treaty. The studios made the changes before a full and formal investigation was needed. The issue has been simmering for some time as it was felt that some terms within the contracts could be detrimental to Europe's independent film distributors in accessing VPF-backed cinemas.
Analysis
The key area was of so-called 'most favoured nation' clauses, which were meant to ensure that all studios had the same deal (including the VPF amount) with a third party integrator and therefore no-one contributed less than their fair share to the overall switch while having equal access. However, the issue then also impacted on the ability of the third parties to offer a modified deal to Europe's distributors, many of which work on very different release patterns, as that deal (likely to be a lower VPF amount) would then have to be offered to the studios. The VPF financing mechanism ensures that distributors pay around 75 per cent of the digitisation costs with the exhibitor paying the balance but the payback model relies on the primary contributors (US studios) paying at the level set out in the original contracts. This amicable resolution of a problem that has ensured very few independent distributors have signed long-term VPF deals can only serve to push the market along, removing one of the last major obstacles to European companies actively contributing to financing the digital switch. Interestingly, this issue was also a live one in the USA. In 2009, when Paramount released its draft direct-to-exhibitor VPF deal, the only exception to the most favoured nation clause concerned any film that was exhibited in less than 50 theatres in North America at ony one time, which was clearly aimed at helping out smaller independent distributors.
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