posted 10-20-2014 11:31 AM                       

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Big Chains Put a Lock on First-Run Movies
Independent Theaters Can End Up With Older Films When Powerful Exhibitors Press Hollywood

By ERICH SCHWARTZEL and BEN FRITZ

Oct. 19, 2014 2:47 p.m. ET

When Mickey Altman opened Viva Cinema in Houston in 2013, he thought the theater was a blockbuster investment. A 42,000-square-foot complex designed to appeal to the region’s growing Hispanic population, it featured eight auditoriums, a cantina serving Mexican dishes and a party room.

But it turned out he was lacking a key ingredient: Popular new releases.

AMC Entertainment Holdings Inc., the nation’s second-largest exhibitor, told major Hollywood studios that it wouldn’t play most new movies at its location about three miles away if they also played at Viva Cinema.

It was no contest: The studios agreed to AMC’s exclusivity requests on title after title, leaving Mr. Altman’s theater with scraps. Viva opened in May, when “Fast & Furious 6” was driving ticket sales. Viva’s marquee movie? Two-month old animated comedy “The Croods.” Time and again, Viva had to play out-of-date movies, such as “World War Z” in September, when it had been released in June.

Viva closed last November, after Mr. Altman said he lost millions of dollars in business on the theater.

From Atlanta to the San Diego suburb of La Jolla, more cinema operators say they are being blocked from booking hot new releases.

Called “clearance” in industry parlance, the exclusivity practice allows theater chains to tell Hollywood studios they will screen a movie in a particular market only if nearby competitors can’t.

Once widespread, clearance practices faded in the 1990s as the industry came to be dominated by a few large multiplex operators. But in the past few years, a small but growing class of independent movie-theater companies has risen, targeting specific groups such as Latinos and affluent customers. The owners of several of these cinemas claim their growth is being hampered because too often they can’t get the best movies.

“The use of clearances had been slowing in the movie industry,” said Jack Foley, a veteran studio distribution executive. “But recently they’re making a comeback.”

The practice affects millions of Americans by limiting where they can see popular movies. According to theater operators and distribution executives, the tactic has been used particularly aggressively by the nation’s three largest theater chains—AMC, Regal Entertainment Group and Cinemark Holdings . Collectively, they control about 42% of the nation’s movie screens.

The big chains argue that the trend merely follows the rules of the road for the exhibition industry and that in competitive areas, exclusivity requests are to be expected.

A spokesman for AMC said the company requests exclusivity on certain titles for only 28 of its 341 locations. In the majority of cases, he said, it is competing with locations owned by fellow titans Regal or Cinemark—not the smaller newcomers.

In a statement, Regal said exclusivity agreements allow studios to “cost-effectively distribute their movies [and] allow exhibitors to compete for film content.

Cinemark didn’t respond to requests for comment.

The renewed use of these arrangements has generated lawsuits and even government scrutiny: Two theater executives said they recently spoke with the Justice Department’s Antitrust Division, which has been seeking information on the issue. The practice isn’t the subject of a formal DOJ investigation, according to people familiar with the matter.

Defenders of the practice point out that it is ultimately up to the studios whether to grant a theater chain’s request for exclusivity. Distribution executives—the people at studios who book movies into theaters—say they typically would prefer to play a new release on as many screens as possible. When clearance requests force them to choose between multiple theaters in a market, executives say they go with the location they believe will generate the highest ticket sales—regardless of its owner.

But independent operators maintain they are too often on the losing end of such battles.

Cobb Theatres, which operates 20 theaters including one near two AMC locations in Atlanta, sued AMC in January in U.S. District Court in Georgia, accusing the theater chain of violating antitrust law and using its “world-wide and national circuit power” to “deny their competitors... fair competitive access to films so as to drive them out of business.”

AMC declined to comment on pending litigation.

Cinépolis Luxury Cinemas, a major Mexican luxury chain breaking into the U.S. market, estimates it has walked away from one-third of the 200 sites it has scouted for theaters because of clearance concerns, said the chief executive of its U.S. operation, Adrian Mijares Elizondo.

Exclusivity agreements have traditionally been most common during booms in building or renovating theaters. To protect their investments, theater owners sometimes seek to limit nearby competition, usually within a radius of three miles or so.

In recent years, a number of independent exhibitors such as iPic Theaters, Reading International Inc.’s Angelika Film Center, and Landmark Theatres, owned by billionaires Mark Cuban and Todd Wagner, have been building new high-end locations that compete for moviegoers willing to pay sometimes more than $20 a ticket, plus extra for gourmet food and drinks delivered to their seats.

AMC, meanwhile, isn’t sitting still. Fueled by cash after being acquired by China’s Dalian Wanda Group Corp. in 2012 and a public stock offering last year, it is in the midst of a $600 million effort to upgrade 1,800 of its 5,000 auditoriums with leather recliners and other amenities.

Exclusivity, as AMC points out, doesn’t always involve a David vs. Goliath scenario. Regal, for example, is currently trying to “clear” a theater under construction by Cinemark in a coastal Los Angeles neighborhood, according to people familiar with the situation.

Independents are trying the tactic against each other, too. Landmark is currently engaged in one such battle against a soon-to-launch ArcLight Cinemas location in Bethesda, Md., according to people familiar with the matter.

Still, theater operators like Rudyard Coltman often end up being the underdogs. Mr. Coltman delayed by a week the May opening of his Cinetopia 18 multiplex in Overland Park, Kan., after hearing from Time Warner Inc. ’s Warner Bros. that AMC had already requested exclusive rights in the neighborhood to “Godzilla,” the only major new release the weekend he’d planned to open.

While the studios haven’t kept every new release out of Cinetopia, they do alternate their biggest titles between it and AMC Town Center 20—a renovated multiplex about three miles away. Mr. Coltman said he has missed out on hits like “Guardians of the Galaxy,” keeping box-office revenues 30% to 50% lower than he had projected. Hamid Hashemi, CEO of the iPic luxury chain, said he was in negotiations this July to build a new location in Dallas when AMC sent a letter to studios saying it would request exclusivity on certain titles if the theater was built.

That same day, Mr. Hashemi was told by studio distribution executives, Regal called to say it would seek films exclusively if he went through with plans to build a separate iPic theater in Houston. Mr. Hashemi added that such notifications make it harder to convince real-estate developers that leasing to him will be worthwhile.

Gerry Lopez, chief executive at AMC, said representatives from his company often talk with landlords eyeing potential development and will make it known if they think a site would be subject to clearance.

In a statement, Regal said exclusivity agreements allow studios to “provide consumers with the variety of movies that they enjoy,” adding it expects the practice to continue “for many years to come.”

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posted 10-21-2014 09:34 AM                    

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In a statement, Regal said exclusivity agreements allow studios to “provide consumers with the variety of movies that they enjoy,” adding it expects the practice to continue “for many years to come.”

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Regal, AMC and any other chain involved in this unethical horseshit just need to shut their mouths when claiming exclusivity agreements are beneficial to customers. Baloney. It's only bad for customers. They're insulting our intelligence by suggesting otherwise.

The money these big chains kick back to studios in order to put the "little guys" out of business stretches already thin profit margins. It's race to the bottom economics. It puts even more pressure on them to spend as little as possible on their operations, on things like adequate staffing at ticket booths and snack counters as well as making sure they have enough people to keep auditoriums clean and orderly. Narrow margins get in the way of them properly maintaining equipment and installing upgrades to stay ahead of advances in home theater. Basically they're happy to let their customer service and movie going experience quality go to shit just to prevent a neighboring theater from playing the same movie.

I've never visited a Cinetopia location before, but I'd be willing to bet the new Cinetopia theater in the Kansas City metro is a damned sight better than the AMC location nearby that's screwing it out of a lot of first run movies.

Another news flash for chains like Regal and AMC: we don't have to see movies at those theaters. There's already a huge number of people only too happy to watch movies at home. It's expensive to watch first run movies in movie theaters. If the big chains want to apply a Walmart style business model to their strategy the results will give paying customers more reasons to stay at home.

I don't expect the DOJ to intervene and stop this anti-competitive nonsense. I certainly don't expect them to enforce a sensible solution, such as allowing all theaters to show which movies they really want to show and compete directly against each other in terms of putting on the best show and/or providing the best level of value and service to customers. Y'know, the free market, right?

Ultimately, looking at the long term big picture: I suspect movie studios are only going along with these deals that really don't benefit them in the short term as a means of slowly bleeding out the entire movie theater industry for their own ends. They would like one of two outcomes. Outcome #1: theaters go out of business and movie studios sell their movies direct to home viewers with as few retail/distribution partners in between. Outcome #2: the movie studios end up owning all the movie theaters once again.

I can actually see Outcome #2 being plausible. For the past couple decades the US government has been wishy-washy at best when it comes to enforcing anti-trust laws. The movie studios can allow the big theater chains to kill off smaller competitors and then cut each other off at the ankles until they're all in bankruptcy. When the movie theater industry is on the brink of ruin the movie studios (with the aid of their giant media corporation parents) can come riding to the rescue. They'll make a compelling case to overturn all the anti-trust legislation that split movie studios and theaters apart. Once acquisition of theater chains is complete the studios will have even more of a strangle-hold on controlling content.

When that comes to pass reading books might turn into a more appealing activity for more Americans.

posted 10-21-2014 03:54 PM                       

quote: Bobby Henderson

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I can't think of anyone other than stock investors who would benefit from the theater industry becoming consolidated, merged, vertically integrated and ultimately monopolized.

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Well, as long as you realize who ultimately matters