Workmen were putting the final touches on an L.A. movie theater the other night and it wasn't a 20-screen megaplex. The three-screen Fairfax is reopening under new ownership, like hundreds of other U.S. theaters that were shuttered or sold during a wave of recent bankruptcies.
Entrepreneurs refuse to believe that America is "over-screened." They are negotiating cheaper leases, and sprucing up the two- to 10-screen multiplexes that were dumped by big movie theater companies in favor of movie palaces with 14 or more screens and stadium-style seating.
By one movie distributor's count, at least 112 theaters have reopened across the nation. Many are offering first-run movies but charging a slightly lower ticket price than the huge megaplexes down the street.
You have to wonder if this phenomenon will throw a monkey wrench in the sleek business plans of industry consolidators like Denver billionaire Philip Anschutz, who has gained control of three big movie-theater companies with almost 20 percent of the nation's screens, or No. 2-ranked AMC Entertainment Inc., which has offered to buy No. 11 General Cinema Theatres out of bankruptcy.Brief phenomenon?
AMC Chief Executive Peter Brown sounds unperturbed. Alone among the top four movie companies, AMC escaped bankruptcy in the past two years, when a dozen operators toppled from debt. The Kansas City-based company now operates 25 of the 50 top-grossing theaters in the United States.
In AMC's experience, the revenues of a multiplex slide ever downward if it competes with a megaplex offering more screens and amenities. Largely for that reason, AMC has disposed of as many as 1,000 of its older screens since it opened the nation's first megaplex in 1995.
"I don't really think there's that big of a market for yesterday's ball game," Brown said, predicting that most reopened theaters will remain in business "five years at the most."
Some independents bet otherwise. They say they can watch their costs and can tailor their offerings more astutely in a local market. They're signing some multiplex leases for eight years or longer.
In Southern California, one seasoned theater operator says his company, UltraStar Theaters, took over six leases from Edwards Theatres Circuit Inc. without any concessions from the landlords, because he spied opportunity.
The theaters' revenue has surged 60 percent in one year, says UltraStar Chief Executive Alan Grossberg, who speculates that Edwards's management was distracted by the challenge of opening and running huge megaplexes.
Edwards, which has 669 screens and is the nation's 12th-largest movie theater company, sought the protection of bankruptcy court in August 2000. Last month a judge approved a recovery plan that places control in the hands of Anschutz Corp. and Oaktree Capital Management LLC.
Grossberg says he books first-run movies and caters to customers in a three- to five-mile radius in markets like Carlsbad and Del Mar, where he has owned various theaters in the past 27 years. UltraStar opens its theaters earlier each day than most competitors, and offers discounts on Tuesdays. Adult ticket prices range from $7.50 to $9, or about 25 cents less than the closest megaplex charges. Matinees are priced $1 less than competitors'.Laemmle's bet
The art house Laemmle Theatres is confident that it can draw customers to older theaters. Greg Laemmle, a third-generation movie exhibitor, says his family's company signed a long-term lease for the 71-year-old Fairfax Cinema because it's in a densely populated part of the city.
Laemmle offers first-run specialty films. Most recently, the Fairfax had been run as a discount theater by Loews Cineplex Entertainment Corp., which sought the protection of bankruptcy court on Feb. 15.
Laemmle said the company is also taking over a 10-screen theater in Woodland Hills, which was previously operated by General Cinema Theatres, a unit of GC Cos., which filed a voluntary bankruptcy petition in October 2000.
Although strong movie theater operators could once bargain for exclusive runs of new movies in a given area, the geographic boundaries have blurred or shrunk with the proliferation of screens. Even with the elimination of 851 screens in 2000, the National Association of Theatre Owners counted 35,597 indoor screens. That's 32 percent more than in 1995, when the megaplex building boom began.
So far, there's no public evidence that the surviving big chains have tried to exert any muscle to push smaller independents out of the first-run market. Indeed, AMC's Brown says his company was never one of the movie exhibitors that sought a "clearance stranglehold" as a means of "bullying their way to a gross."
Hollywood is waiting to see what Anschutz does with his theater investments. In addition to his stake in Edwards, the Denver billionaire controls United Artists Theatre Co., which emerged from bankruptcy in March.
On Oct. 11, No. 1-ranked Regal Cinemas Inc. filed a prepackaged reorganization plan in bankruptcy court after 95 percent of its creditors agreed to accept a takeover proposal by Anschutz. The three companies together boast more than 6,000 screens, but Anschutz has taken no public steps to consolidate management.
Hollywood executives say they are watchful, but they don't sound particularly worried that Anschutz ranked as the 16th-wealthiest American by Forbes this year will extract concessions from big studios. After all, half-century-old antitrust decrees require them to license films "theater by theater."
And to ensure competition, there will likely be an entrepreneur eager to show new movies in a spruced-up six-plex.
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