Overexposed

0 Comments | Insight on the News, Dec 18, 2000 | by Kristina Stefanova

Theater chains are in a Catch-22: While megaplexes are popular and profitable, older theaters at leased properties are eating up profits.

With the holiday movie season in full swing, theater owners normally would be thankful for extra screens. But because they have overbuilt to lure moviegoers to high-tech multiplexes, many film exhibitors have found themselves in trouble.

In fact, six of the nation's largest chains have filed for bankruptcy protection or are having financial difficulties. Most recently, Robert Redford's Sundance Cinemas, a joint venture with General Cinema Theaters, has shut down operations. General Cinema itself, the second-largest chain in the country, filed for Chapter 11 bankruptcy protection on Oct. 11.

Over the summer the No. 3 chain, Carmike Cinemas of Columbus, Ga., as well as the No. 4 chain, United Artists Theatres of Denver, filed for Chapter 11. The nation's largest chain, Regal Cinemas of Knoxville, Tenn., has not declared bankruptcy but is negotiating with its creditors. New York-based Loews Cineplex Entertainment and Missouri-based AMC Entertainment, are posting widening losses.

Other movie operators that took similar actions recently include WestStar Cinemas of Encino, Calif., and Silver Cinemas International of Dallas, the nation's largest art-film exhibitor. Edwards Theaters Circuit, based in Newport Beach, Calif., has filed for bankruptcy protection, too.

The industry's turmoil has not hurt consumers, according to Oren Cohen, an analyst with Merrill Lynch Global Securities in New York. "I don't see any risk of customers getting hurt by too many screens coming down" he says. "You're in oversupply right now, and the chains are only going to take down theaters that are uneconomical. So you are still going to be left with enough screens to fulfill customer demand."

Between 1990 and 1999, the number of movie screens in the country jumped 57 percent, from 23,689 to 37,185, according to the National Association of Theatre Owners. Admissions grew, too, but at a slower pace. Almost 24 percent more Americans went to the movies last year compared with 1990. Industry analysts estimate that the industry can handle only about 28,000 screens.

Usually, stiff competition leads to lower prices, but not with movies, "because the operators have to justify the cost of building all these theaters and they need more revenues," Cohen explains. While older theaters charge $6 to $8 per ticket, new megaplexes -- which offer as many as 20 screens, stadium-style seating and surround sound -- charge as much as $2 more. But as the industry shakeout unfolds, analysts predict there won't be any price increases other than the usual yearly raises.

The industry's demise began five years ago when megaplexes were introduced and theater operators raced to build them, racking up $7 billion in debt in the process, movie analysts estimate. "The new theaters are working quite well, but the problem is that the companies that built them didn't close down the older theaters" says Christopher Dixon, an analyst with Paine Webber in New York. The solution? "Shut down the old theaters" says Dixon.

But that's easier said than done because most chains are bound by long-term leases. "The guys who'll suffer the most are really the landlords that are going to lose these valuable leases that they have with the theater companies, since a lot of them will back out of long-term leases" says Cohen.

AMC is a perfect example of the industry's dilemma. The company closed 600 theaters throughout the country in the last four years but opened 1,500. "Over 60 percent of AMC screens are megaplexes now versus zero five years ago, so that's been a very strong building process for us" says Rick King, company spokesman. "At the same time, we have been very aggressive about exiting older, under-performing theaters"

Meanwhile, in order to pick up extra revenue, some chains are getting creative, making money from pre-movie advertising and renting out facilities during nonpeak hours.

Fall Season Films Worth Seeing

Christopher Guest continues to refine the methodology of This Is Spinal Tap with his new film, Best in Show (PG-13). He and Eugene Levy, who collaborated as screen-writers and costars in Waiting for Guffman, reunited for this consistently clever and gratifying improvisational comedy about proud and anxious dog owners, contrived to culminate at the finals of a prestigious dog show in Philadelphia.

A witty, insinuating new collaboration from director Robert Altman and screen-writer Anne Rapp, Dr. T & the Women is a freshly distinctive, bittersweet social comedy set in a well-to-do milieu in Dallas. The principal setting is the busy office of an estimable obstetrician-gynecologist played by Richard Gere, who proves an ideal figure of fondness and disillusion for an ensemble of actresses, notably Farrah Fawcett as a demented spouse and Shelley Long in brilliant form as a lovesick nurse.

By Gary Arnold