Theaters’ Projections Optimistic

Industry leaders at this week’s annual ShoWest cinema convention are trumpeting the idea that the worst is over for the beleaguered movie theater industry.

An influx of new investors, a recent upturn in movie attendance and a declining screen count bode well for the nation’s exhibitors. Bankruptcy protection has enabled a number of major theater chains to begin the process of resuscitating their businesses.

But others in the theater ranks caution against a false euphoria.

“I think there’s been a bit of a false sense of optimism in the last several weeks,” said Kurt C. Hall, president and chief executive of United Artists Theater Co., which last August became one of the first of nearly a dozen theater chains to file for Chapter 11 bankruptcy protection over the past year and Friday became the first to emerge.

Hall warns that exhibitors aren’t out of the woods yet.

“Business has been very good,” he acknowledged. “But I think we have to be cautious at this point in time.”

Hall also cautioned that possible strikes by Hollywood writers and actors could cripple any nascent recovery for theater owners. Contract talks between the writers and the studios broke off last week.

At least 10 theater circuits are still scrambling to reorganize their businesses and shrink their crippling debt load.

Christopher Dixon, a Wall Street media analyst at WBS Warburg, shares Hall’s caution. “Before we turn the corner, three things have to happen,” Dixon said. “More theaters have to close. Capital structures have to improve by replacing debt with equity. And theaters have to decide how to migrate to digital delivery.”

Dixon predicts it will take at least another 15 months “just to get a clearer picture of what the exhibition industry will look like over the next 10 years.”

John Fithian, head of the National Assn. of Theater Owners, and Jack Valenti, president of the Motion Picture Assn. of America, used the Las Vegas gathering of thousands of exhibitors this week to paint an upbeat picture.

“The recovery has begun,” said Fithian. “The last 4 1/2, five months for us have been phenomenal.”

There’s no question that holiday blockbusters such as “How the Grinch Stole Christmas,” “Cast Away” and “What Women Want” helped drive 2000 to a record year with $7.7 billion in box-office receipts.

And Fithian and Valenti are jubilant over the recent bump in admissions and box-office revenues for the first six weeks of this year, thanks to such hits as “The Wedding Planner,” “Save the Last Dance” and “Hannibal,” not to mention the promise of a strong lineup of upcoming films.

But admissions have been relatively flat for several years, dipping 3% last year to 1.42 billion paying customers.

And while box-office revenue set a record in 2000, it was also a time in which the theater business suffered its worst economic thrashing ever, with 11 circuits--including UA, Carmike Cinemas, Loews Cineplex, General Cinema and Newport Beach-based Edwards Theatres--running for bankruptcy cover.

The theater chains filing Chapter 11 actions represent more than half the country’s more than 36,000 screens. That’s not to say that there aren’t a number of healthy and profitable operators, from some mom-and-pop theaters to larger circuits like Viacom Inc. parent National Amusements, headquartered just outside Boston, and Century Theaters of San Rafael, Calif.

“Bankruptcy is a bitter pill,” said Raymond Syufy, CEO of Century Theaters. “People have started to take their medicine, so the cure has to be on the way.”

Doug Cooper, part owner of Raleigh, N.C.-based Rialto Theaters, which operates 12 screens in four theaters, said that while the downturn “has affected us some, since we’re a small outfit, we don’t have a lot of vice presidents--that’s what saved us.”

Don Evans of Sun South Cinemas, which operates three drive-in theaters in Florida, says that since the business as a whole--”even drive-ins”--survived the television era, “I think it’s a phase the industry’s going through.”

Late last week, United Artists became the first theater chain to rise from the ashes, thanks to a rescue plan led by Denver billionaire Philip Anschutz.

Anschutz, whose Los Angeles sports investments include the Kings, the Lakers and Staples Center, is poised to become the largest theater operator in the country as he also tries to wrest control of financially strapped Regal Cinemas--the nation’s largest circuit with 4,000 screens--and Edwards Theatres.

Many expect Regal to be the next operator to file for bankruptcy protection. Regal CEO Michael L. Campbell acknowledged that “that is certainly an option” as the company continues to restructure.

Anschutz isn’t the only bottom-fisher looking to scoop up distressed theater assets. Others include Canadian businessman Gerald Schwartz and an investment firm headed by entrepreneur Gary Winnick, head of fiber-optics giant Global Crossing, who have teamed up in a bid for Loews Cineplex.

The idea is that the troubled theaters will emerge from bankruptcy leaner and fitter with clean balance sheets.

“The reorganizations produce healthier companies, and that will continue to happen throughout the year,” Fithian said.

The theater business is in dire straits today because of a historic building spree of state-of-the-art multi-screen complexes that strained the financial resources of even the largest circuits. The nation’s screen count peaked in the middle of last year at 38,000 screens, up from 27,000 just five years earlier.

New complexes--offering such comforts as stadium seating--have rendered many older theaters obsolete. Over the last year, troubled operators have been shutting down money-losing theaters and extricating themselves from expensive leases in shopping malls.

The good news, according to Fithian, is that the number of active screens across America has dropped back to a little more than 36,000. Some 200 screens a month, on average, are being shuttered.

Industry experts believe the number still needs to be pared back to no more than 25,000 screens. Fithian says he does not disparage exhibitors for building better theaters. Where they went wrong, he says, is “they didn’t close older properties fast enough.”

Most encouraging, Fithian said, is the combination of a declining screen count and accompanying upsurge in box-office revenues and attendance. According to Paul Dergarabedian, head of Exhibitor Relations Co., revenue is up 26% and attendance is up 20% so far this year over the same period last year.

“We had a tremendous first quarter with a late year rally that continued in calendar year 2001,” Dergarabedian said.

Exhibitors are also buoyed by the prospect of a number of potentially high-earning upcoming films. These include “Pearl Harbor,” “A.I,” directed by Steven Spielberg, a “Planet of the Apes” remake, animated features “Atlantis” and “Shrek,” “Spy Kids,” a James Bond action film for kids, and sequels to such blockbusters as “The Mummy,” “Jurassic Park,” “Rush Hour” and “American Pie.”

Fithian said he is not going to underestimate how “tough it was last year. But we’re optimistic about where it’s all going now. . . . We’re in the beginning of a revival.”

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BOUNCING BACK

Jack Valenti says the movie business is showing signs of recovery. C6

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Will There Be a Happy Ending?

Bankruptcies of 11 nationwide movie theater chains are helping clean up the beleaguered business, reducing the screen glut and reorganizing huge debts. A two-year decline in movie attendance--by as much as 60 million tickets since 1998--had the industry worried. But now the combination of a lower screen count and an early 2001 surge in ticket sales has exhibitors feeling optimistic. *

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Theater chain bankruptcies ...

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Bankruptcy Screens as Chain filing date of June 1 Carmike Aug. 8, 2000 2,821 Loews Cineplex Feb. 15, 2001 2,726 United Artists* Sept. 1, 2000 1,858 General Cinema Oct. 11, 2000 1,060 Edwards Aug. 23, 2000 743 Silver Cinemas May 16, 2000 540 Wehrenberg Jan. 26, 2001 245 CinemaStar Jan. 4, 2001 8 Resort Theaters Oct. 12, 2000 71 WestStar Sept. 17, 1999 NA Dickinson Oct. 2, 2000 NA

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... Reduced the glut of screens ... (In thousands)

2000: 36,379

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... but ticket sales took a dip. (In billions)

2000: 1.42 billion

* Emerged from bankruptcy March 2

Sources: National Assn. of Theater Owners, Times research Popcorn is dishe d up at the Edwards theater at the Irvine Spectrum.