- The Washington Times - Thursday, September 21, 2000

Six of the nation's largest movie theater chains have filed for bankruptcy protection or are having financial difficulties because they have overbuilt to lure moviegoers to huge, new theaters.

The latest to announce its problems was GC Co.'s General Cinema Theaters Inc., which told federal regulators Monday that it might file for Chapter 11 bankruptcy protection if it can't get relief from creditors. General Cinema owns the new upscale movie theater at Mazza Gallerie in Friendship Heights, as well as a 10-screen theater at Springfield Mall.

"These theaters are very, very, very expensive to build much more expensive than a traditional theater," said Paul Huang, owner of two local movie theaters. "Theater companies have had to make adjustments, and it hasn't been easy."

Over the summer, No. 3 chain Carmike Cinemas Inc. of Columbus, Ga., and No. 4 United Artists Theatre Co., a privately held Denver chain, filed for Chapter 11.

The nation's largest chain, Regal Cinemas Inc., of Knoxville, Tenn., has not declared bankruptcy but is negotiating with its creditors. And New York-based Loews Cineplex Entertainment Corp. and Missouri-based AMC Entertainment are posting widening losses.

Other movies operators that took similar actions recently include WestStar Cinemas Inc. of Encino, Calif., and Dallas-based Silver Cinemas International Inc., the nations largest art film exhibitor.

Last week, Edwards Theaters Circuit Inc., a Newport Beach, Calif.-based chain, filed for bankruptcy protection and pulled out of a large project it had planned in downtown Silver Spring.

Five of the six major chains Loews Cineplex, AMC, Regal, General Cinema and United Artists control 45 of the area's 62 theaters. Carmike Cinemas does not have any local theaters.

Yet, the industry's turmoil has not hurt consumers, said Oren Cohen, an analyst with Merrill Lynch Global Securities in New York.

"I don't see any risk of customers getting hurt by too many screens coming down," he said. "You're in oversupply right now, and the chains are only going to take down theaters that are uneconomical. So you are still going to be left with enough screens to fulfill customer demand."

Between 1990 and 1999, the number of movie screens in the country jumped 57 percent, from 23,689 to 37,185, according to the National Association of Theatre Owners. Yet, analysts estimate that the industry can handle only about 28,000 screens.

Admissions grew, too, but at a slower pace. Almost 24 percent more Americans went to the movies last year compared with 1990.

Usually, stiff competition leads to lower prices, but not with movies, "because the operators have to justify the cost of building all these theaters and they need more revenues," Mr. Cohen said.

While older theaters charge $6 to $8 per ticket, megaplexes charge as much as $2 more. This affects moviegoers in the suburbs more than those in the District, because many of the theaters outside the city are primarily new while those in the city are older.

"That's quite a choice to make," said Marie Travis, assistant professor of Film Studies at George Washington University. "We used to have to come to D.C. for good movies, but now we can just go to the neighborhood megaplex. And there are so many of them it's almost overwhelming."

An avid moviegoer, she said more than a dozen theaters are in the Maryland suburb where she lives: Two of them are megaplexes.

Ticket prices have increased since the advent of megaplexes, theaters that usually have close to 20 screens, stadium-style seating and surround sound. But as the industry shake-out unfolds, analysts predict there won't be any price increases other than the usual yearly raises.

The industry's demise began five years ago when megaplexes were introduced and theater operators raced to build them, racking up $7 billion in debt in the process, movie analysts estimate.

"The new theaters are working quite well, but the problem is that the companies that built those didn't close down the older theaters," said Christopher Dixon, an analyst with PaineWebber in New York. "So they are losing money if people go to the new theaters."

The solution? "Shut down [the old] theaters. Close them. Close the doors," he said.

But that's easier said than done because most chains are bound by long-term leases. Now they are trying to solve their problems by filing for bankruptcy protection to buy them time to pay off their debts.

Under Chapter 11, a business continues to operate, but it is protected from its creditors while it restructures.

Theater chains are trapped in a Catch-22. Their megaplexes are popular and profitable, but they are expensive to build because they require more space and have the added expenses of stadium-style seating and digital sound. And the chains are still responsible for rents on leased properties at their older theaters.

"The guys who'll suffer the most are really the landlords that are going to lose these valuable leases that they have with the theater companies since a lot of them will back out of long-term leases," Mr. Cohen said.

Meanwhile, in order to pick up extra revenue, some chains are getting creative. They make money from pre-movie advertising, and Regal Cinemas rents out some of its facilities during non-peak hours.

AMC is a perfect example of the industry's dilemma. The company closed 600 theaters throughout the country in the past four years but opened 1,500.

"Over 60 percent of AMC screens are megaplexes now versus zero five years ago, so that's been a very strong building process for us," said Rick King, company spokesman. "At the same time, we have been very aggressive about exiting older, underperforming theaters."

The chain, which has nine theaters in the area, is opening two megaplexes in the District and Alexandria next year.

Gallery Place 21, scheduled to open next fall, will be the District's largest megaplex. AMC 22 at Hoffman Center in Alexandria is expected to open next spring.

"These are both sites that we have a lot of confidence in and that we are committed to," Mr. King said.

The local movie scene area has significantly changed in the past decade. The District always has had plenty of theaters, but they are traditional, smaller theaters that usually show two to four films.

But as the suburbs gained residents, they became ripe markets for chains to open megaplexes at malls and shopping centers.

Today there are 25 theaters in Northern Virginia about 230 screens. A dozen of them have 10 or more screens, and there are only four small operators that show fewer than four films.

Loews Cineplex is the most prominent chain locally, with seven theaters in Northern Virginia suburbs, 11 in Maryland and nine in the District.

With about 23 theaters or 190 screens Maryland has seen many new theaters open in recent years. Ten of the area's theaters have 10 or more screens, and only three have three or fewer shows.

In contrast with the suburbs, megaplexes are new to the District. Mazza Gallerie, General Cinemas' theater in Friendship Heights, was the first megaplex to come to the city. The seven-screen upscale theater opened earlier this spring.

Brian Callaghan, a spokesman for the General Cinema, said the chain is neither building nor closing any local theaters.

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