By David Lieberman

Eager for a thrilling drama this summer? Check out The Phantom of the
Megaplex. But don't look for it on the marquee next to Kiss of the
Dragon, Scary Movie 2 or Cats & Dogs.

The action is taking place in corporate boardrooms and bankruptcy
courts where three groups of investors, run by or taking cues from
secretive Denver billionaire Philip Anschutz, are amassing control of
most of the big theater chains.

They're snapping up debt in chains that couldn't make ends meet after
they built too many megaplexes in the 1990s. During that decade, the
number of screens leapt 58%, to more than 37,000 in 2000, while
tickets grew 20%. When this round of deals is complete, the three
investor groups could control about a quarter of all movie screens,
including those that dominate most major cities.

There's suspense here because nobody really knows what Oaktree Capital
Management, Canada's Onyx and Anschutz Co. will do with the chains
they've either won or are in the process of taking over in different
partnerships. Nor is it clear at what point, if ever, antitrust
officials might step in.

But nearly everyone believes the new owners will revolutionize local
movie houses. Anschutz is expected to set the pace by replacing
celluloid films with digital projection and offering audiences
supersized, closed-circuit broadcasts of live concerts and sporting
events.

''The exhibition business will change more in the next 5 years than it
has in the last 75,'' says independent securities analyst Andrew
Lipman.

Anschutz hasn't discussed his plans publicly. He hasn't granted a
major interview in years, although he has quietly been deeply involved
in conservative political causes, including Colorado efforts to throw
out gay rights laws and block a move to legalize marijuana.

Yet it's easy to imagine Anschutz's strategy for the movie theaters
when you look at some of his other far-flung business interests.

Digital projection would be a natural for an investor who used his
position as the owner of the USA's largest railroad, Southern Pacific,
to become an Internet and telecommunications mogul. He laid
fiber-optic lines along the railroad's rights of way to build the
foundation for telecom giant Qwest Communications, of which Anschutz
is the top shareholder and chairman.

Anschutz could help Qwest by jump-starting the move to digital
projection, something that theater owners and movie studios have
waited for each other to subsidize. Studios might easily transmit
films to theaters via Qwest's lines.

''There's a huge glut of bandwidth and a shortage of uses,'' Lipman
says. Besides, he adds, ''Five to 10 years out, movie exhibition will
be largely digital. The technology is here and the economics work.''
Studios stand to save the $1 billion a year it costs to make films on
celluloid films. Also, theaters would need fewer projectionists.

Anschutz also has access to content -- live entertainment -- that
could use his distribution capacity. His holdings include Los Angeles'
Staples Center and arenas in London and Berlin, plus several pro
soccer and hockey teams and a piece of the Los Angeles Lakers.

He undoubtedly salivates at the thought of packing theaters with fans
who'd pay a couple of bucks to see the Lakers in a playoff.

Other elements of the new theater owners' game plans are easier to
figure out.

Like most in the industry, they're shuttering theaters. Since most of
the companies had filed for bankruptcy protection, the owners have
latitude to break long-term leases for older, underperforming
multiplexes. Industrywide, Lipman expects the number of screens to
drop to 32,500 by the end of 2002.

These changes will give the new theater owners leverage when they
negotiate with Hollywood over how they'll split box office revenue.
Studios that don't like the terms that the local Bijou offers may not
find a Roxy across the street that will show their new films. Even if
they do, they may still find themselves competing with the Bijou as it
packs audiences in for a larger-than-life broadcast of, oh, a
Backstreet Boys concert.

Yet there's a limit to the new theater owners' power. Competition from
other forms of entertainment, including home video, will probably keep
them from raising ticket prices too steeply. Admissions declined in
1999 and 2000 as chains raised prices 8.3% and 6.1% to a national
average of $5.39 -- and, in major cities, $10.

Before they can make any of these changes, though, the investors must
complete their deals.

Early this year, Anschutz and Oaktree won control of United Artists,
and a bankruptcy judge has approved a plan for the Anschutz-led group
to buy 51% of Edwards Theaters. Anschutz and Oaktree also own most of
the debt at Regal Cinemas, the USA's largest theater chain, but the
company hasn't turned over the keys yet.

Last month, the parent of General Cinemas agreed to sell to Oaktree
and Onex, pending bankruptcy court approval. In February, the two
agreed to buy Loews Cineplex, although several creditors are
challenging the deal in court.

The right director might have a hit by putting all this great drama on
the screen. But don't count on it. Anschutz, the phantom of the
megaplex, would have to speak.

 

Sometimes I am amazed at how some rich people become rich. Brains do not seem to be a prerequisite. How did these theater takeover artists make their money? It certainly could not have been by running movie theaters.