A Reel Challenge : U.S. Firms Make Big Push Into Japan Theater Market

Seri Shigekazu, executive manager of the Fukuoka Takarazuka theater, isn’t worried at all about his new neighbor, the $5-million, 13-screen AMC multiplex that recently opened just a few blocks away.

After all, Shigekazu insists, his aging theater in this night-life district has fans so loyal that they are willing to pay $18 apiece to sink into their not-so-cushy seats. The beer and dried squid are extra.

Shigekazu does admit to having visited the AMC theater seven or eight times during its first month of operation. He said he was just checking out the seats.

Although Shigekazu seems eager to depict AMC as a minor competitive irritant, the facts tell a much different story. After eyeing Japan’s lucrative film market for more than a decade, U.S. theater operators have launched a major assault on the Japanese market--with remarkable success.

The charge is led by Time Warner Inc., which opened the first multiplex in Japan in 1993 in a joint venture with Japanese retailer Nichii Co., and Kansas City, Mo.-based AMC Entertainment Inc., which opened its Fukuoka multiplex, the largest in Japan, in April. In its first two months of operation, AMC says, it has captured 40% of the market and expanded the city’s moviegoing audience by 10%.

Later this year, UCI, a joint venture between Paramount and Universal Studios, is opening its first two theaters in Japan, with plans for 20 more by the end of the decade.

“You are going to see major changes in this market in the coming years,” said Adam Gower, president of Tokyo-based UCI Japan.

Already, Japan’s movie giants Toho and Shochiku Co.--which own or control the vast majority of Japan’s theaters--are being forced to take action. They are announcing plans to remodel aging theaters or build new showplaces and to form alliances with foreign theater operators and filmmakers.

They are even reevaluating ticket prices, which are among the highest in the world.

Between now and 2000, U.S. and Japanese entertainment companies--emboldened by the sharp drop in Japan’s real estate prices and a more open retailing climate--plan to add at least 1,000 movie screens throughout Japan, which will expand the total by a third.

“AMC is a most aggressive, strong company, and it has been able to force a kind of revolution,” said Toru Okuyama, president and chief executive of Shochiku. “We enjoyed a very good situation for 40 years. But now, this is time to change.”

Shochiku has launched the most energetic counter-campaign, with plans to add at least 100 screens to its theater chain in the next decade and to introduce modern, American-style concession stands.

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“If AMC establishes multiplexes with 13 screens, then we are going to construct multiplex theaters which are bigger,” Okuyama said.

To a much greater extent than the United States, a handful of companies in Japan control all facets of the movie industry: They make the movies, distribute them and own or control most of the theaters that run them. One result of this control is that a third of the country’s movie screens show only Japanese films.

That cozy arrangement not only has made it tougher for new companies to break into the theater business, but also has raised alarm over the future of Japan’s filmmakers.

Some, echoing the fears of their European counterparts, worry that Japan’s long-protected filmmaking industry--which produces fewer than 100 movies a year--could not survive an assault of high-budget Hollywood films and talent. Despite filmmakers’ control of most theaters here, American films already command 64% of the market.

“If the environment is completely competitive, I fear Japanese films will be defeated,” said movie maker Yoji Yamada during a break in the filming of his latest project, “Gakko II,” a drama about a school for the disabled in northern Japan.

Yamada, creator of the popular “Tora-san” series about a bumbling office worker, argues that Japan’s film industry should be treated as a special cultural asset--with government protection--because it provides a unique window into a world viewed through Japanese eyes.

But Okuyama and other theater operators argue the opposite--that opening up Japan’s theater market will benefit domestic filmmakers by providing more venues for films and expanding the moviegoing audience.

To capitalize on that, Shochiku, which is also one of Japan’s largest filmmakers, recently signed a co-production agreement with Robert De Niro’s Tribeca production company.

Okuyama’s son, Kazuyoshi, the producer of the popular Japanese movie “Rampo,” developed a friendship with De Niro when the actor toured Japan to promote his directorial debut, “A Bronx Tale.”

By teaming up with powerful, and experienced, Hollywood players, Japanese filmmakers will have a better chance of getting their films seen outside of Japan, according to the elder Okuyama.

Back in the 1950s and ‘60s, Japan was the envy of the entertainment world. Filmmakers churned out dozens of movies a year and attracted 1 billion moviegoers annually at the industry’s postwar peak.

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But, like elsewhere in the world, the introduction of television and later the videocassette recorder took its toll. To offset the decline in customers, Japanese studios raised ticket prices, squeezed their filmmakers and invested less money into their theater operations.

By 1994, the moviegoing audience had dropped eightfold to 120 million a year, and the number of movie screens had tumbled from a high of 7,457 to 1,747.

Over that same period, the U.S. theater market grew by 70%, as operators launched an aggressive campaign to get people out of their living rooms by elevating sound and cinematic technology and introducing the world’s first multiplexes.

The number of U.S. movie screens has steadily expanded from 16,354 in 1958 to 27,843 last year, when 1.26 billion movie tickets were sold.

U.S. theater operators looked across the Pacific hungrily, but astronomical real estate prices and restrictive zoning and retailing laws discouraged anyone--foreign or domestic--from challenging the Japanese film giants. They also worried whether they could compete when Japanese filmmakers controlled the distribution of movies and owned most of the theaters.

Still, the pull was strong. Even though Japan is considered drastically “under-screened”--with 10.4 screens for every million Japanese, compared with 100 screens for every million Americans as of 1994--its annual box-office revenues of $1.5 billion still rank second only to the United States, thanks to the high ticket prices.

It was only when Japan’s real estate bubble burst in the early 1990s that American filmmakers could afford to get serious. Getting in the door still isn’t cheap, even with a 60% drop in land prices. And there are still some governmental barriers, such as restrictive building codes, that have hindered theater development. But the payoff can be very profitable, according to U.S. movie executives.

Japanese moviegoers are already seeing the benefits of this stepped-up competition in the form of shorter lines, expanded viewing options and reduced prices. Although the average ticket price remains $18, Warner and AMC have spurred more aggressive discounting with prices as low as $10.

“I’ve told other companies that if you’re prepared to bleed for three years, it’ll be a lucrative market,” said Millard Ochs, president of Warner Bros. International Theaters Co., which plans to have 180 screens in Japan by 2000. “But you’ve got to be prepared to commit a lot of money, because not every theater you open will be a winner.”

When Time Warner came to Japan in 1993, it located its seven theaters in suburban neighborhoods or smaller cities, where it wasn’t in direct competition with the Japanese.

“We prefer to be positioned in a nonconfrontational way,” Ochs said.

And it still took a couple of years of schmoozing with film distributors before Warner could count on a steady supply of first-run films and support for such concepts as a special discount day for women, who tend to control the purse strings and the leisure-time decisions in the Japanese family.

Ochs said it took heavy lobbying to get permission from the film distributors to cut ticket prices by $4 in Hirosaki, a city in northern Japan.

“Why should a farmer in Hirosaki pay the same price for a ticket as a guy in Tokyo?” he asked.

After the discount took effect, ticket sales in Hirosaki increased by 15%, bolstering Ochs’ faith in Japan’s growth potential.

In the United States, attendance at a new theater usually climbs 4% to 5% annually after the first year and levels off after the fourth. In Japan, Warner theaters have experienced attendance increases as high as 60% the second year and an additional 30% the third.

Tetsu Fujimura, president of Gaga Communications, a leading independent Japanese film distributor, predicts that the construction of suburban movie multiplexes will bring young people and families back to the movies. Most of the existing theaters are in the city center, often in neighborhoods featuring adult entertainment and bars.

“I have a 14-year-old daughter,” said the Japanese entrepreneur, whose company is backed by Japanese game maker, Namco. “The admittance price is too high for her age, and I also don’t want her to go to the center of the city by herself.”

AMC, America’s biggest theater operator, is no stranger to protectionist sentiment or cutthroat competition. But it faces a particularly tough time in Japan.

AMC decided to launch its Japanese expansion in Fukuoka, Japan’s fourth-largest city, because it wanted to be part of the $1.4-billion Canal City Hakata entertainment complex designed by California architect Jon Jerde, creator of Universal CityWalk.

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By selecting this busy port city, AMC entered into the dragon’s lair, going head to head with Toho, which not only is a major film distributor but also controls the majority of the city’s 13 general-audience theaters.

This placed AMC in the position of competing against the same company that provides many of its films. And Japanese film distributors wield extraordinary power in the marketplace, determining not just who gets the movies first, but also playing times, length of run and ticket prices.

In its first two months of operation, AMC has not been able to snag first-run films until a week or two after its Toho competitors, according to industry executives.

“They’re not getting first-run breaks,” Ochs said.

Toho executives refused to be interviewed for this story.

To survive, AMC must walk a fine line between competition and conciliation, at least until it builds up enough screens to have greater clout in the marketplace. The company is in negotiations to build a 16-screen theater near Tokyo Disneyland and hopes to have at least 600 screens in Japan by the end of the century.

Mark McDonald, AMC’s senior vice president for Asia, acknowledged that it has been difficult getting films from Toho and other Japanese distributors. But he disputed the common notion that Japan’s system is unique, pointing out that AMC has had similar frustrations entering new markets in the United States and England.

“There’s a dynamic that exists any place in the world where you have lengthy relationships between distributors and theaters and a new cinema interferes with that,” he said. “It’s probably harder here, but at least as far as we can tell, it is possible.”

AMC’s success lies not in stealing customers from its Japanese competitors but in convincing others to give up their televisions and karaoke machines to go out to a movie, according to McDonald.

“We’re not worried about slicing up that 5% that goes to Takarazuka” theater, he said. “We’re worried about the other 95%.”

Wooing those disenfranchised moviegoers means providing a much more pleasurable viewing experience, from offering a wide variety of movie selections and discount tickets to plush recliner seats with built-in cup holders.

The company is also importing the AMC culture, which includes freshly popped popcorn (a rarity in Japanese theaters), hot dogs and nachos, and smiling, uniformed ushers at the doors.

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One thing that didn’t make the grade in AMC’s Fukuoka operation was giant-size--and priced--containers of popcorn and soft drinks. Although American fast food is wildly popular in this country, the notion of recreational gluttony has not caught on.

In Japanese movie theaters, the concession business is typically a low-budget operation featuring prepackaged snacks, boxed candy and cans of soft drinks or beer.

Kenji Miyazaki has seen the future and likes the looks of it. On a recent summer night, he and a companion, Mieko, came to AMC’s Fukuoka theater to see the “Sabrina” remake starring Harrison Ford. It was his second visit in less than a month.

Miyazaki, whose preference is adventure films, is particularly pleased that AMC is showing half-priced films after 9 p.m. In Japan, most movie theaters show their last film before 7 p.m. because of workers’ long commutes and hours. But as a taxi driver, he could rarely get away that early.

“This is very convenient for movie fans like me,” he said.

Makiko Inoue of The Times Tokyo bureau contributed to this report.

Cinema Slide

After their 1950s heyday, movie houses and attendance plunged in Japan, which now has fewer movie screens than any industrialized nation.

(please see newspaper for full chart information)

MOVIE ATTENDANCE

In millions:

1994: 123

MOVIE THEATERS

In thousands:

1995: 1.8

Source: Motion Picture Producers Assn. of Japan