Mexico’s showcases

For government worker Jordan Martinez Cardenas, a trip to the movies is a first-class escape.

For less than $10, he can sink into a leather recliner, put his feet up and enjoy a clear view of the big screen. If he’s hungry, he can summon a waiter to fetch him spicy tuna rolls or a mango frappe. If he’s early, as he was on a recent evening at the Cinepolis theater in the capital’s upscale Interlomas neighborhood, he can relax with friends at the theater bar.

“Going to the movies in the old days was the worst experience imaginable,” said the 24-year-old, sipping whiskey before a screening of “Apocalypto.” “I love this comfort, this luxury.”

Mexican directors have been winning recognition this award season for the heavily nominated films “Babel”, “Children of Men” and “Pan’s Labyrinth.” If there were a prize for best movie theaters, the nation would be a strong contender as well.

Once government-controlled and mocked for their decrepit conditions, Mexico’s movie houses have blossomed since deregulation in the mid-1990s. Competition has brought tens of millions of dollars in fresh investment. The swankiest VIP salons are among the best appointed anywhere. Multiplexes are sprouting throughout the country.

Expansion has been so brisk, in fact, that it has raised fears of a shakeout. Last year the number of screens grew to 3,762 nationwide, an 11% increase, while attendance barely budged, edging up to 165 million.

Still, the industry a rare example here of privatization that produces rewards for consumers as well as companies.

Mexico has a long history of crony capitalism in which the sales of state assets to well-connected businessmen resulted in private monopolies replacing public ones, with little benefit to average citizens. Consumers here pay high prices for phone service, electricity, cement and corn meal because of a lack of competition in those markets. Movie theaters are one arena in which patrons have come out winners. New entrants had no leviathan blocking their path when the market opened. Existing players responded with better service instead of lawsuits, which are often used in Mexico to keep rivals out.

“We have some of the best cinemas in the world because competition is very intense,” said Alejandro Ramirez Magana, chief executive of the Cinepolis movie chain. “I think that is badly needed in some other sectors of the Mexican economy.”

Mexico for decades tightly regulated film exhibition in a bid to support artists, workers and consumers. The government operated its own chain of cinemas to provide an outlet for Mexican films. It also capped ticket prices, which kept admission affordable for families but gave private owners little incentive to upgrade their theaters.

The result was dilapidated facilities and abysmal sound and picture quality and falling attendance. In some locations, patrons stood in one line to get popcorn and another to get soft drinks because union rules prohibited concession-stand employees from multitasking.

“The theaters even smelled bad,” said patron Martinez, recalling the sticky floors and garbage-strewn lobbies of his childhood.

Things began changing in the 1990s when the government sold its chain and deregulated ticket prices.

Among the first to sniff opportunity were three Harvard Business School students, Studio City native Matthew Heyman and Miguel Angel Davila and Adolfo Fastlicht of Mexico. A class project morphed into a marketable business plan as the partners raised $21.5 million to launch the Cinemex chain.

Focusing their efforts on Mexico City, their company built modern multiplexes in shopping malls with rich acoustics, friendly ushers, plush carpeting and conveniences such as telephone ticketing. More experienced players got spooked by Mexico’s 1994 currency devaluation. But the upstarts pressed ahead. Within two years of opening their first theater in 1995, they had grabbed one-third of the capital’s box office receipts, Heyman said.

Canadian buyout firm Onex Corp. and Los Angeles-based Oaktree Capital Management purchased Cinemex in 2002 for $224 million. Now owned by Kansas City, Mo.-based AMC Entertainment Inc., Cinemex has 44 theaters in Mexico with a total of 488 screens. Almost all of them are in the Mexico City metro area, where the company claims 52% of the market.

Movie going “was a pathetic experience in every way so we built killer movie theaters,” said Heyman, who returned to Southern California after selling his stake in the business. “The opportunity couldn’t have been more obvious.”

Foreign exhibitors, including Texas theater chain Cinemark, beefed up their presence in Mexico following deregulation, while longtime domestic operators such as Organizacion Ramirez, owner of the Cinepolis chain, scrambled to improve their product.

Stung by the rapid rise of Cinemex in Mexico City, Cinepolis upgraded existing theaters in the capital and built luxurious new ones. The company introduced IMAX big-screen technology to Mexico, was the first to issue loyalty cards to woo frequent patrons, and pioneered the concept of VIP salons. The chain’s tickets sell for around three times the national average of $3.35. But its boutique theaters have won a following among discriminating patrons for their leather recliners, full bars, waiters and concessions such as freshly popped caramel corn, chai lattes and crepes.

Ramirez said some patrons had told him they came for the snacks alone.

“We’re contributing to Mexico’s obesity problem,” said a smiling Ramirez, 36, the dapper Harvard and Oxford educated grandson of Organizacion Ramirez’s founder.

Today, Cinepolis is the largest cinema chain in Latin America and the fifth-largest in the world. At the close of 2006 it had 1,575 screens in 59 cities and revenue of $538 million. In addition to Mexico, it has theaters in Guatemala, El Salvador, Panama and Costa Rica. It is eyeing expansion in Colombia and Peru, Ramirez said. The company has boosted its nationwide share of ticket sales in Mexico to just over 49%, he said. That’s an increase of 10 percentage points since 2001 due largely to the construction of new theaters.

Critics say that growth has come at a cost. The Mexico City market in particular is plagued by too many half-empty houses, Heyman said, eroding profit margins for everyone, Heyman said.

“You want total screen capacity to be small and tight, not big and loose,” Heyman said. “The industry is way over-screened.”

Others agree that the capital is saturated, but see promise in other parts of Mexico.

Private equity firm Southern Cross Group along with U.S. investment bank Morgan Stanley last year purchased MMCinemas, based in Monterrey in northern Mexico, for more than $100 million, said Southern Cross partner Sebastian Villa, who declined to give an exact figure. The exhibitor is the nation’s second-largest theater chain in terms of screens, with more than 800 across 21 states.

Villa, whose investment firm has U.S. offices in Greenwich, Conn., said MMCinemas planned to expand in mid-sized Mexican cities with populations of 100,000 to 500,000 a half-million residents in the belief that it can dominate the market in such locations. The chain recently opened an eight-screen theater in San Miguel de Allende. It’s the first big multiplex for that central Mexican city, which has become popular with U.S. retirees.

Mexico is fifth in movie attendance behind India, the U.S., France and the United Kingdom. Yet a ticket is still a luxury to many in Mexico where the minimum wage is less than $5 a day and nearly half the population lives in poverty. On average, Mexican consumers see 1.5 films a year, compared with 5.4 in the United States. Video piracy here is rampant.

Villa sees pure upside in the low penetration, reflecting the potential for Mexican theater operators to lure more people to the box office as the nation’s economy grows.

Mexico City movie fan Martinez doesn’t need any encouragement. He said he frequented Cinepolis VIP theaters at least five times a month, even though it would be a lot cheaper to watch DVDs at home.

“It’s like a little vacation,” he said. “I like to get out of the house and enjoy myself.”

marla.dickerson@latimes.com

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New wave of cinemas

Since the mid-’90s, Mexico’s cinema market has lured new players. . .

Market share of movie screens in Mexico

Cinepolis: 39.7%

Cinemark: 7.6%

Cinemex: 12.7%

MM Cinemas: 19.2%

Other exhibitors: 20.8%

Sources: Cinepolis, CANACINE, Cinemex