Business: Movie industry projects bottom

Movie industry projects bottom

Beleaguered theater owners suggest the worst is yet to come as the industry remains heavily overbuilt.

By MARK ALBRIGHT

Beleaguered theater owners suggest the worst is yet to come as the industry remains heavily overbuilt.

LAS VEGAS -- After boarding up 14 percent of its theaters, you might think the worst of the movie industry's overbuilding binge is over.

You would be wrong.

"It's already been ugly, but now it's going to get worse," said Keith Thompson, onetime top real estate executive with Regal Theaters, the nation's biggest theater operator. "This industry will take at least another 24 months to stabilize."

The theater industry's debt-induced hangover was a hot topic at the International Council of Shopping Centers annual convention here this week. In some ways, the industry's deep troubles shifted attention away from the fact that all but a few national retailers have grown cautious about opening many new stores during the economic slowdown. Uncertainty over interest rates, the stock market and consumer spending was mild compared with an ongoing bloodbath in the movie theater.

One speaker described the scene as "nuclear winter."

Since 1998, when the debt-laden movie theater industry was declared overbuilt and unable to compete with its own better mousetrap -- hundreds of flashy, new stadium-seat theaters -- here's what's happened. More than 4,600 of the nation's 37,100 theater screens were closed. Fifteen theater chains, including eight of the 10 largest, are in Chapter 11 bankruptcy proceedings. Regal, the industry's biggest player, is flirting with bankruptcy after shuttering 90 theaters with 1,125 screens, including a state-of-the-art Hollywood 20 in north Tampa that was only 3 years old.

Their excesses are one of the few problems theater owners cannot blame on Hollywood. While attendance was down for four months in 2000, by year-end the industry set a record at the gate.

That's because the theater industry remains heavily overbuilt. How many more have to go is anybody's guess. So far the oldest and most dated theaters have been closed. Yet in the rush to open new theaters, the nation's screen count had increased a staggering 58 percent between 1996 and 2000. So a 14 percent drop in the number of screens isn't very much.

"This industry was driven by the philosophy "I have to build new before you do,' " said Ralph Cram, executive vice president of Theaterplex Entertainment Properties Inc., a Chicago company that invests in theaters. "The next few years will be nuclear winter."

Dragging it out will be the fact that the same theater companies that overbuilt their collections of state-of-the-art theaters also are the biggest owners of dated four-, six- and eight-plexes. While customers continue heading to new megaplexes, banks are resistant to finance construction of more. Some experts say the industry must shrink the number of screens to one for every 10,000 residents -- the ratio of screens in 1990 -- from today's one for every 7,000.

During a panel discussion here, all sides joined the hand-wringing. There were developers who lured theater operators into ill-conceived locations as a shopping center drawing card. Theater owners failed to notice how quickly the newfangled-style theater caught on before they could ditch their old ones. Bankers picked up the tab and accepted overly rosy feasibility studies that frequently were written by theater owners themselves.

"The banks have never really fessed up that they were co-conspirators in this debacle," said Jay Shapiro, a senior vice president with Trammel Crow Co. in Boston.

"None of us connected the dots quickly enough to realize that people were driving past old theaters we had financed to get to the next generation of theaters we had also financed," said James Muir, a real estate division manager with Wells Fargo Bank in Atlanta.

A few new small chains, such as Fort Lauderdale-based Muvico Theaters Inc., have been able to build new theaters because they have no old ones. Muvico operates four complexes in the Tampa Bay area, including new ones at BayWalk in St. Petersburg and Centro Ybor in Tampa.

Some industry veterans see opportunity.

Robert Cobb, whose family sold Birmingham, Ala.-based Cobb Theaters to Regal, has started another chain from scratch. Thompson is an industry consultant in Knoxville, Tenn., who hopes to rise from the ashes operating new theaters under the Phoenix Theaters banner. Other operators are getting fees to run theaters that developers don't want to let go dark, such as Tampa's Channelside.

Still, some see light at the end of the tunnel. General Cinema expects to be out of Chapter 11 by the end of the year. Denver billionaire Philip Anschutz took control of United Artists and Edwards Theaters and has been buying up Regal Theater's debt.

The industry is abuzz about Anschutz's intentions. Is he just bottom fishing buying up real estate assets on the cheap? Or is the mogul who controls Qwest International Communications Inc. serious about bankrolling the next generation of theaters through satellite and digital projections beamed to a huge collection of theaters? Hollywood studios recently indicated they might help the tapped-out theater industry pay for digital movies, but the industry has not picked the technology.

"I don't want to invest in something that could end up being the next Betamax," Victor Castillo, vice president of development for Century Theaters in San Rafael, Calif., said, referring to Sony's failed version of a home VCR system.

-- Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.