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Movie Per-plex: Multiplex Problems

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Ahhh, sweet megaplex, bringer of joy. Since AMC erected Dallas’ 24-screen Grand in 1995, the nation’s theater chains have been in a megaplex-building frenzy, and moviegoers have been happier than a box of dancing popcorn. Who wouldn’t be thrilled by 16 screens or more, stadium seating, ear-rending sound systems, and the obsolescence of the term ”sold out” thanks to half-hourly showtimes? In the first quarter of 2000, Edwards’ 21-plex in Boise did 50 percent of all movie business in the state of Idaho. And Hollywood is delighted moviegoers are delighted. ”This is the way we like our public to watch our films,” says Warner Bros. Pictures exec Dan Fellman.

Yep, everyone’s ecstatic … except the megaplex chains themselves, who could be facing the perfect financial storm for bringing film fans this slice of cup-holder heaven. Stocks are dropping, debts are building, and they’re sweating through a summer box office that until Scary Movie and X-Men was dipping far below normal levels, robbing them of revenue during a season that they count on to offset the year’s slow periods.

And, boy, do they need that blockbuster booty. By number of screens, first-place Regal (4,487 screens nationwide, based in Knoxville, Tenn.) lost $73.6 million in 1998 and $133.9 million in 1999 (and has built up $1.93 billion in debt as of June 29); No. 2 Carmike (2,848 screens, Columbus, Ga.) filed for Chapter 11 this month, with a $530 million debt and a stock price that had plunged to $1.94; and fourth-place United Artists Theater Circuit (1,927 screens, Englewood, Colo.) narrowly avoided bankruptcy this past April. ”It’s an industry that’s way over-leveraged, and way over-screened,” says Amy Miles, Regal’s CFO.

This gloomy outcome was hardly in focus when AMC’s Grand opening ”triggered the Oklahoma land rush; you had to step in and play or go home,” says AMC senior VP Rick King. There were 27,805 screens in 1995, and by 1999 there were 37,185, all grabbing at any share of the moviegoing market. Within the past eight months, AMC and Cineplex Loews opened megaplexes across the street from each other in Times Square, resulting in a comical 38 screens on one block: ”Let’s all go to the lobby,” indeed!

There are now more theaters for moviegoers to love but, according to an MPAA study, not more moviegoers to love them: The national box office was at an all-time high in 1999 ($7.4 billion, up 7.2 percent from ’98), but the number of tickets sold had dropped 1 percent (to just under 1.5 billion). ”The movie audience is not expanding enough to take care of all the theaters,” says Tom Sherak, chairman of Fox’s Twentieth Domestic Film Group. (That bump in revenue was primarily due to an increase in average ticket prices, up 8.3 percent from ’98 to $5.08.)

While theaters still derive the majority of their profit from popcorn, soda, and geysers of nacho cheese, ticket sales are still crucial, and this desire to serve every moviegoer has only stabbed the chains in the Goober. With blockbusters showing 20 times a day on multiple screens, nearly everyone who wants to see a film on opening weekend can. The catch-22 is that theater owners have always profited more with movies that have legs, since they split grosses on a sliding scale with studios — getting the smallest percentage in the first week and a higher percentage every week that follows. Now, even if movies gross as much as or more than they used to, they’re bled dry earlier, and the theaters end up with a smaller cut. ”They’re cannibalizing the film by making the run shorter,” says Moody’s Investors Service senior analyst Russ Solomon. ”[All] for fear that someone else will take [ticket buyers] if they don’t.”

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