Hollywood Pulls Curtain Down on Theater Chains : Entertainment: Receipts are down this year because of fewer Hollywood mega-hits, the recession and a glut of screens.


Three years ago, when Hollywood was in the middle of a boom cycle, Newport Beach-based Edwards Theatres Circuit Inc. embarked on an ambitious $48-million expansion to build 117 movie screens throughout Southern California.

A lot has changed since then. Many of the independent companies which fed the production spurt have folded or are struggling, the major studios have had few box office hits and the nearly year-long recession is keeping families home watching television.

Hollywood’s problems now are filtering down to theater operators like Edwards.

“The theaters we are constructing now we committed for a couple years ago,” says James Edwards Sr., chief executive of the privately owned Edwards Theatres chain. “We wouldn’t do that (today).”


While Edwards says its new screens will do well because they are in under-served, high-growth areas, the chain would have stretched out its expansion from three to six years had it had a crystal ball to gaze into today’s competitive market.

Indeed, the rapid expansion of the late 1980s has led to a nationwide glut of movie theaters--many now losing money--that even a string of box office mega-hits wouldn’t easily fix. Some analysts say the only way to stem future losses will be to board up poorly performing theaters, which some theater chains have begun to do.

“If it (Southern California) isn’t over-screened, it soon will be,” said John Krier, president of Exhibitor Relations, a Los Angeles-based theater consultant. “There is no question now that few areas need new theaters.”

The same is true across the country, for several reasons: There are too many screens, not enough moviegoers and increasingly high prices. Since 1980, the number of screens has increased 35%, but attendance has not kept pace. And while revenues have gradually gone up, it is largely due to ticket price increases.


Box office attendance this year is below last year’s. Through Labor Day, box office receipts totaled $3.49 billion, down 4% from $3.63 billion in the same period of 1990, according to Exhibitor Relations.

Much of the slump occurred in August, where, according to Daily Variety analyst A. D. Murphy, box office gross slid 28% to $310.6 million and ticket sales plunged more than 31%--the worst August in 23 years.

“It’s going to be a very tough year for theater circuits, with very limited, if any, growth visible,” said Harold Vogel, entertainment industry analyst at Merrill Lynch in New York. “It will only accelerate the consolidation of the industry into stronger hands.” Already the top 15 circuits control 57% of the screens in the country.

Unlike Hollywood studios, which can recover some of the lost revenue of dud movies from overseas markets, home video rentals or TV licensing deals, movie theaters get only one shot at making money. Already under pressure from the overbuilding frenzy of the late 1980s, the weak summer box office has put another crimp in squeezed theater chains.


Denver-based United Artists Entertainment Co., the nation’s largest chain, last year took a $25.6-million charge against earnings to close 73 screens and sell 215. It now operates 2,420, down from a peak of 2,766 last year.

General Cinema, a Boston-based chain of 1,467 screens, has closed 20 theaters encompassing 80 screens, laid off about 80 employees and consolidated field offices.

“Initially we thought our circuit would peak at 1,800 screens,” says Peter Farwell, a vice president at General Cinema, who expects attendance to be off this year. “Now, after our scale-back program, we’ll be between 1,400 to 1,500 screens. We’ll still build an occasional theater but only to replace one or build one at an existing location.’

Despite a long-term trend of generally rising box office revenue, circuit operators have had to spread basically flat attendance among a greater number of theaters. The number of movie screens in the country has risen to 23,689 from 17,590, while the number of tickets sold has inched up only 4% to 1.05 billion.


How did so many theaters get built? One reason is that the building was tied to the development of shopping centers around the country. As malls sprouted, so did so-called multiplexes, which feature up to a half-dozen theaters on one site.

Movie theaters and even one studio are trying to counter the slump in attendance by applying the kind of flashy marketing gimmicks used by airlines or fast-food chains.

AMC Entertainment has introduced a frequent-moviegoer program that gives patrons coupons they can redeem for discounted concessions or that they can use to accumulate points that eventually provides them with free admission. This summer the chain also promoted the fact that it would eject noisy patrons and was expanding its preshow features with cartoon shorts and modern news reels produced by Cable News Network.

“Our attendance has not fallen off this summer like the rest of the industry,” said Jack Holland, vice president of marketing at AMC. “We are flat with last year. We see that as an indication of our value-added programs.”


He said the marketing programs, which include bringing summer films back for encore showings at discounted rates during the typically slow month of September, cost only about $1 million.

But Paramount’s attempt this summer to lure moviegoers into theaters to watch such films as “Regarding Henry,” “Naked Gun 2 1/2" and “Soapdish” with scratch-and-win game cards like those used by McDonald’s or sweepstakes offering prizes met with lukewarm results.

The promotion was designed to pull in moviegoers who were debating which movie to watch by holding out the possibility of winning a Corvette. Most people, however, won a coupon for a $3 discount off a Paramount video at Kmart or a free hamburger at Carl’s Jr.

“These type of things help at the margins,” said analyst Murphy. “But you can’t give a ticket away to a film that people don’t want to see.” “Naked Gun” so far has earned a blockbuster $84 million at the box office, “Soapdish” pulled in $34 million and “Regarding Henry” $39 million.


Summer box office performance is crucial because it accounts for about 40% of theaters’ annual gross. During September and October, attendance typically drops 60% below summertime levels before the year-end Thanksgiving-holiday and early-December crowds return.

Even the concession counter, which typically used to offer only stale styrofoam-like popcorn and watered-down colas, is increasingly fitted out with expresso machines and microwave ovens to warm up gourmet pizza.

The concession business, which generates about $1.2 billion in movie theaters annually, accounts for about 20% of a theater’s revenue and as much as 35% of that at a so-called art house that is showing classics. Operators say the concession stand is one of the few areas where they can increase revenues when attendance is flat.

One factor is working in favor of theater operators this year. So-called film costs--the percentage of revenue the operator must hand over to the studio--has fallen.


During the boom years of the late 1980s, the studios’ percentage of gross receipts climbed to 56% to 58% of the box office in the opening weeks. The percentage typically falls in following weeks, so that the longer a film is playing the more a theater makes.

Over the last few months, film costs have dropped to the 52% level or lower.

“There were more pictures released this summer that were not hits,” says General Cinema’s Farwell. “That has helped keep film costs down, and even though our attendance has been down too, we still made more money.”

Not all theater chains are hurting. Columbus, Ga.-based Carmike Cinemas, which operates 1,387 screens, mostly in the South, has been consistently profitable. It limits its theaters to markets of 80,000 to 100,000 people, avoiding the crowding that exists in larger cities.


“In over 60% of our markets, we are the only game in town,” explains Carmike President Michael Patrick.

Theater operators say there is nothing a few big hits from Hollywood wouldn’t cure.

But now that the traditional post-summer doldrums have set in, no one is expecting anything exciting until Thanksgiving, when studios are scheduled to release their next big slate of films. Maybe then box office will pick up and ease some of the pressures on theater owners.

“Just getting there is the problem,” said Edwards.


Squeeze at the Movie Theater The number of screens has risen 35% since 1980. . . Total screens: 1980: 17,590 1985: 21,147 1990: 23,689 . . .while the number of movigoers has remained essentially flat (up only 4%). Total admissions 1980: 1.026 billion 1985: 1.056 billion 1990: 1.058 billion Source: Motion Picture Assn. of America