A. D. Murphy, a USC adjunct professor and industry analyst for the trade publication Variety, says distributors have two compelling reasons to re-enter exhibition. Obviously they profit "from the money that comes back from it," Murphy says, but distributors also covet greater control of theaters that serve as the "launching platform" for a movie's journey through the distribution pipeline. A movie's box-office visibility usually determines how well it sells further down the line when it is released on videocassettes, pay television, commercial TV and foreign theatrical markets.
Can Nurture Films
If distributors own theaters, they'll be in a position to nurture a film that might otherwise be dismissed as mediocre. "It's not mollycoddling; it's marketing," Murphy says.
The timing of the distributors' move into exhibition is nearly as intriguing as their motive. Some onlookers assume the motion picture companies are acting now because the Reagan Administration appears unconcerned about "vertical integration." That's the antitrust term for control of two or more levels of the production-distribution-retailing chain in a business.
"A lot of it has to do with the political environment," Fox's Sherak says.
"It should be viewed (as vertical integration). So what?" says Drabinsky of Cineplex, whose company recently sold half its stock to MCA Inc., the parent of Universal, a major producer and distributor.
"Vertical integration is not necessarily a problem under antitrust law," explains Fred Haynes, assistant chief of the Justice Department's antitrust section that monitors the motion picture industry. It becomes an issue if the government suspects that it is facilitating collusion between companies, he says, or if newcomers contend that vertically integrated companies make it more difficult to launch either a distribution or exhibition business.
Haynes and other antitrust specialists point out that the dismantling of major distribution-exhibition companies in the 1940s and 1950s occurred not because they were vertically integrated but because they conspired to fix prices in local markets.
Understandably, movie-goers today won't recall much about the "Paramount" decrees, other than the fact that Hollywood monopolies were broken up. The Justice Department first sued in 1938, but 10 years passed before the majors began settling the cases by signing agreements, or consent decrees.
Robert J. Rose, a Los Angeles attorney who specializes in motion picture antitrust law, explains that only three distributors--Warner Bros., 20th Century Fox Film and MGM--are actually barred from re-entering the exhibition business.
Paramount Pictures and Radio-Keith-Orpheum Corp. were also forced to break up distribution and exhibition, but their surviving distribution companies were not barred from re-entering the theater business--perhaps because they were first to settle their cases, Rose says.
Three distributors--Universal, Columbia Pictures and United Artists--owned no theaters at the time, so they weren't barred from the exhibition business.
Nevertheless, all of the majors avoided multiple theater ownership until 1981, when Columbia Pictures Industries acquired 31% of Walter Reade Organization, a small circuit in New York.
The investment "was not terribly visionary. I don't think we were intending at that point to integrate in exhibition," says Francis T. Vincent Jr., chairman and chief executive of Columbia Pictures Industries, now a subsidiary of Coca-Cola Co.
"We were interested in knowing more about (theaters)" and gaining "outlets in the East Side of Manhattan," Vincent says.
The Columbia chairman says he doubts that his studio will acquire more theaters, because Columbia and Coca-Cola are earnings-conscious. "Prices are so high, you really have to wait a long time to generate earnings," he says.
Yet Columbia owns a 43% stake in Tri-Star Pictures, which announced plans earlier this month to acquire the United Artists Communications circuit, second only to General Cinema in its number of screens. Tri-Star is reportedly prepared to pay between $450 million and $500 million, but the deal depends on Tele-Communications Inc.'s takeover of UA Communications. (TCI announced last week that it has agreed to acquire 51% of UA Communications but wants to keep just its cable-TV properties.)
Vincent says theater ownership makes sense for Tri-Star. The 4-year-old film company "needs diversification," he says, and theater ownership will help "build its presence."
Columbia gradually increased its holdings in Walter Reade and paid nearly $17 million for the remaining 58% in January.
But the rash of big deals actually began last July, when Loews Corp. sold its theater circuit for $158 million to Los Angeles businessman Jerry Perenchio and Bernard Myerson, the circuit's longtime president who has a minority stake.