Megaplex Monopoly


When might a monopoly be a good monopoly? When it’s in the megaplex business. Movie theaters are, indeed, upgrading. True, no one‘s swapping straight-backed seats for velvet chaises so movie patrons can prop themselves in the grape-peeling poses of the ancient Romans. But small screens, sticky floors and thin walls are giving way inside the new exhibitor chains to a cooler big-screen experience. That’s one reason -- along with Spidey and Stitch and Sandler -- that box office has taken off this year like Vin Diesel. With ticket sales from May till September historically accounting for nearly 40 percent of the year‘s total receipts, year-to-date box office is already up 19 percent over 2001, and heading toward $5 billion.

In a sane business, only idiots would tamper with a successful formula. But, hey, this is the movie industry, where the inmates run the asylum. So Hollywood is poised to straitjacket the new exhibitor circuits at the slightest sign they’ll turn out to be as greedy as the studios. ”The film companies are waiting with great interest to see if and when one of these big players tries to change the film-billing dynamics,“ says a major studio‘s president of worldwide distribution and marketing. ”When they put a gun to our head, I’ll call you. So far they haven‘t. But the cold hard truth is, they will.“

Number-one circuit Regal Entertainment Group, whose successful IPO in May combined Regal Cinemas with United Artists Theater Company and Edwards Theaters for 5,790 screens in 545 locations, isn’t gunning for the studios yet. But senior vice president of marketing and advertising Dick Westerling stays cagey: ”Our film terms are negotiated on a case-by-case basis. We negotiate the best terms we can on our behalf.“

Sources tell the Weekly that the studios are audibly muttering the M word about recently formed movie-theater chains that took advantage of exhibitors‘ economic woes and bankruptcies dating back to 1998, purchasing the debt, then converting it into majority stock interests in reorganized companies. Specifically, the moguls are worried about investor groups controlled separately by Oaktree Capital Management, Canada’s Onex, and Denver billionaire Philip Anschutz, the media-shunning phantom behind Staples Center, Carson‘s sports complex, Hollywood’s Kodak Theater (the new home to the Oscars®) and, now, Regal Entertainment Group. By last summer, studio sources say, this trio was positioned to become the single most dominant presence in movie exhibition in North America, controlling shareholders of circuits that accounted for 9,402 screens, or almost 47 percent of the 20,080 screens of the 13 largest motion-picture chains. Today, those numbers are now slightly out-of-date, but the point is the same: Big is big.

As far as the studios are concerned, this exhibitors‘ acquisition strategy appears to have been devised to avoid antitrust scrutiny and to keep a low profile with government agencies in general. By purchasing debt, it made an end run around Section 7 of the Clayton Act, which prohibits any ”person“ from making acquisitions of stock or assets where the effect might be substantially to lessen competition or to create a monopoly. But Section 7 does not regulate the acquisition of debt; thus, any antitrust challenge is avoided. By the same tactic, the chains avoided notification rules requiring the disclosure of its acquisition activities and their market impact.

The studios themselves are always under scrutiny because of the old Paramount Consent Decree, and what sources say they fear most is that, insulated from antitrust analysis, this new movie-theater monopoly will result in collusion, price-fixing and even higher ticket prices for consumers. Variety reported this week that Warner Bros. and Paramount may have blocked Regal’s bid to buy Mann Theaters‘ 171 screens, which fell into the studios’ hands during the 1999 bankruptcy. A source close to the current owners suggested to the trade that the studios hesitated to hand over Mann‘s prime Westwood screens to a company with as much market clout as Anschutz’s Regal. Also in the case of Anschutz, who as the largest shareholder in Qwest Communications has access to a highly advanced fiber-optic network with more excess capacity than it knows what to do with, studios suspect an unfair technological advantage for digital delivery of theatrical film releases to all Anschutz-controlled screens. (Talk about a screwy system. It‘s not just that, in this digital age, film rentals still arrive at movie theaters in 80-pound cans on the backs of trucks. It’s also that percentages of ticket receipts are still weighted in favor of the studios, sometimes with 90-10 terms for tent-pole pictures deemed can‘t-miss blockbusters.)

The new circuits portray studio whining as a ploy by motion-picture distributors who are unwilling to see the playing field leveled when negotiating with theater owners about who gets what share of the box office. And anyway, the circuits shouldn’t have to survive by gouging moviegoers at concession stands. It‘s not their fault the studios are so spendthrift on budgets, marketing and promotion, or so foolish as to give away massive amounts of first-dollar grosses to the Cruises, the Spielbergs, the Bruckheimers . . . and even some writers.

After all, no one put a gun to Hollywood’s head to do that.

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