By: Jonathan Blinderman (guest blogger from Glaser Weil)

Many profit participants have been noticing a new expense charged against films that receives theatrical releases: a “Virtual Print Fee” or “VPF,” leaving the participant confused as to what the charge is for. The following provides an explanation.

With the development of commercial-grade digital projectors, theater owners offered significant resistance to the replacement of their existing film projectors. Film projectors are very durable, lasting for decades, so why would a theater owner incur a significant expense to deploy a new, unproven technology that the studios may or may not support?

All of that changed in the early 2000s. There are a number of factors that lead to the change: 1) with the cost of each negative print going up and more screens per complex running an individual film, the overall costs of prints was rising; 2) the significant adoption of digital 3D by theater goers at a higher ticket price created additional revenue for distributors; and 3) studios began to see the value of the programming flexibility that digital distribution provided.

The issue for the theater owners was that much of the benefit of going digital (reduced print fees) went to the distributors and not to the theater owners. This changed when the major distributors agreed to help pay for the deployment of digital projectors by contributing a defined percentage of the cost of deploying digital projectors. In trying to determine the most equitable method for determining how much each distributor should pay, the industry adopted the concept that each distributor would pay on a per booking of a screen basis. Since one of the benefits of digital projectors was to eliminate the need for physical prints (and the associated cost), these booking fees were labeled “Virtual Print Fees,” often shortened to “VPFs.”

Thus, when a distributor books a screen for a film, the distributor must pay either to the theater owner or the financier of the digital projector a set fee. This VPF payment is then charged against the distribution costs of the appropriate film.

One thing to be noted: The major distributors negotiated a sunset provision, such that once the projectors are fully paid for pursuant to the terms agreed upon, the theater owners will no longer be allowed to charge VPFs in any form. For the initial deployments of digital projectors, this date is quickly approaching. Once that occurs, VPFs will disappear, and the cost of physical prints will be a thing of the past.