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Box-Office Potential Entices Large Chains, Movie Makers

July 27, 1986|KATHRYN HARRIS | Times Staff Writer

Not so long ago, a movie theater owner was likely to put on a long face and tattered clothes before meeting with a Hollywood film distributor anxious to know how well his film was doing.

The theater owner would bemoan movie attendance, insist that he was subsisting on popcorn sales--and then drive off in a Rolls-Royce. At least that's the story Don Harris tells about the way owners once masked their theaters' success.

The idea was "never to let the distributor know" how well the theaters were doing because the owners "might have to pay more for film rentals," explains Harris, an executive with AMC Entertainment, the nation's fourth-largest chain of theaters.

Historians may record 1986 as the year everyone caught on to the potential profits in movie exhibition.

Motion picture theaters are suddenly the hottest properties in entertainment after operating for nearly 40 years as the least glamorous and most fragmented aspect of show business.

The leading exhibitors are acquiring regional chains around the country and building new theaters at a furious clip. The number of screens in the United States has jumped at least 13% since 1980, according to an industry trade group.

Acquired Theater Chains

And, more significantly, the motion picture distributors themselves are entering the exhibition business to reap new profits and extend their control over their costly films' destiny. Five distributors--Universal, Paramount, Cannon Group, Columbia and Tri-Star Pictures--have acquired theater chains or announced deals since January.

It is the distributors' first foray into exhibition since antitrust lawsuits broke up the old studio monopolies in the late 1940s and early 1950s. Alarmists fear a return to Hollywood's monopoly on local movie palaces and prices, but a number of industry experts scoff at such concern. For now, attention is focused on which theater chains will merge and who'll wind up as the industry's biggest players.

Jim Sheehan, president of Mann Theatres Corp. of California, predicts that mergers and acquisitions will accelerate and peak in the "next year or so, because the industry is hot, and there does seem to be this merger mania throughout the country."

"This is top-dollar time," says Thomas Sherak, a former film buyer who is now president of domestic distribution and marketing for 20th Century Fox Film Corp.

Yet the stampede perplexes some onlookers who question whether theater ownership is a "growth" industry. Theater attendance in the United States has ebbed in the past 18 months, down from the 1984 peak of nearly 1.2 billion admissions. Videocassette rentals are accused of robbing box-office business. And some pundits predict that "over-screened" markets will backfire on exhibitors if price wars erupt or movie makers cut back their production volume.

So why buy now?

"It's a good time to consolidate because it's at the end of a generation," says Garth Drabinsky, president and chief executive of Cineplex Odeon Corp., an upstart company that more than doubled its screens by acquiring Plitt Theatres Group last November. The move made Cineplex one of the continent's four largest circuits, and it has recently acquired two more chains. Drabinsky says he can improve an old theater company's profits by 40%.

"By and large, the industry has been run by family operations on a regional basis since the breakup of the theaters and distribution in the late '40s, early '50s," Drabinsky says. In his view, the sons and daughters of many theater owners don't want to take over the family business. The aging owners, faced with the choice of making costly repairs or watching their theaters decline, are opting to sell now.

The most ambitious chains, intent on increasing their market share, are anxious to acquire these regional operations, or circuits, as they are called in the industry. In less than a year, for example, Cineplex has gained control of an estimated 60% or more of the screens in Chicago through its acquisitions of Plitt and Essaness Theatres Corp.

In the city of Boston, recent acquisitions have made USA Cinemas the sole owner of all first-run theaters (excepting X-rated or martial-arts houses).

In Denver, Mann Theatres strengthened its market share by swapping its Northern California screens for General Cinema's Denver theaters.

Motion picture distributors, however, appear to have more complex motives for re-entering the business. While studio executives prefer to describe their theater acquisitions simply as "good investments," outsiders and analysts are more blunt about the strategies behind the move.

"Distributors are coming in to control their films in the marketplace," says Martin Romm, a securities analyst for First Boston Corp. in New York.

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