And Now, Our Digital Presentation

And Now, Our Digital Presentation – Industry Trend or Event

Laura Rich

Philip Anschutz made his fortune in oil, railroads and real estate. Now he’s poised to push movie exhibition into the wired age.

GOING TO THE MOVIES AIN’T CHEAP.

In cities like Los Angeles and New York, tickets can run as high as $10 apiece. Nationwide, prices climbed 35 cents last year to $5.35 (and that doesn’t include the $3.25 you pay for a medium soda). Nevertheless, theater owners are facing hard times. In fact, most of the major chains are in bankruptcy. Which explains why buying movie theaters turns out to be pretty affordable right now.

And that’s just the way Philip Anschutz likes it. The conservative Denver billionaire made his fortune by picking up businesses at fire-sale prices and turning them around. He did it first by buying undervalued, untapped oil fields in Wyoming in the 1960s. In the 1980s he acquired the Southern Pacific Railroad, made it profitable and then used its extensive rights-of-way to lay fiber-optic cables for his upstart telco Qwest Communications. In the process, the rarely interviewed Anschutz, 61, worked his way up to No. 6 on the Forbes 400, right behind investor Warren Buffet and Intel’s Gordon Moore. Anschutz’s net worth is estimated at $18 billion.

Now he is after theater chains. Like a 1980s-style corporate raider, he quietly bought up the debt of the bankrupt United Artists Theatres last year, seizing control of the 1,623-screen chain Jan. 22; his maneuver brought him a 60 percent interest for $65 million. Now he’s poised to get major stakes in two other financially shaky theater chains: Regal Cinemas — the largest in the United States with 4,395 screens — and Edwards Cinemas, which has 712 screens. If he succeeds, Anschutz will lay claim to about 19 percent of the nation’s 37,185 screens — more than anyone else in the country.

But there may be more to Anschutz’s shopping spree than an inability to resist rock-bottom prices. He appears to be building the first digital theater empire. With UA, Regal and Edwards he’s got the venues. With Qwest he’s got the pipes. And he even has the content: Anschutz recently launched his own family-friendly production company, Crusader Entertainment. He also owns the Los Angeles Kings hockey team and a stake in the Staples Center, home arena to the Kings as well as the NBA’s Lakers and Clippers. But what Anschutz really needs is the kind of entertainment that will fill his nationwide chain of theaters. That’s where Hollywood comes in. But will an old-economy industrialist be the force that finally pushes the entertainment industry into the digital era?

While Anschutz won’t discuss his plans publicly, those who have dealt with him and his companies will. “Phil Anschutz has a bug up his butt about this and is convinced he’s going to blaze the trail,” says Jonathan Taplin, president and CEO of Intertainer, which distributes movies over digital cable lines.

One factor that may come into play in Anschutz’s Hollywood dealings: his ties to conservative causes. His family foundation has backed right-leaning groups such as Morality in Media, and he has fought hard against gay rights in his home state of Colorado. His movie production company clearly plans to take a G-rated path. “We are committed to making high-quality movies that send a positive message and are commercial, entertaining and suitable for all age groups,” read a statement released last month by Crusader Entertainment.

Such fare may not have the widest commercial appeal, but Anschutz’s digital theater push makes economic sense, Although it’s expensive to install digital projectors in movie theaters – about $150,000 per screen – a revamped distribution system would cut delivery costs, give theater owners more flexibility and improve the quality of the pictures audiences see on the screen.

Digital distribution, moreover, beats today’s system, which hasn’t changed much in 30 years. Studios ship 35 mm prints to theaters around the country. Each print costs about $1,500. For a picture sent into wide release – as many as 3,000 theaters – the cost of prints can total $4.5 million.

With digital distribution, theaters would be able to receive movies – and potentially other content – over high-speed cable lines, via satellite or on disc. That would give exhibitors the ability to quickly switch movies, adjust schedules and adapt to audience demands. Theaters without digital capabilities would be at a competitive disadvantage.

At the moment, the industry is in no position to make the huge capital investment needed to convert movie theaters for digital projection. Indeed, there’s an oversupply of movie screens, a legacy of a mid-1990s building boom exemplified by AMC Entertainment, which built the world’s largest multiplex in the Chicago suburb of Warrenville – 30 screens complete with wide seats, an espresso bar and three restaurants. Other theaters scrambled to keep up.

Now they are staggering under tremendous debt. In the last year, four chains filed for bankruptcy. In January, Loews Cineplex, the nation’s second-largest theater chain, said it would shut about 675 of its nearly 3,000 screens. Over the next three years, AMC (which is not in bankruptcy) expects to close as many as 548 screens out of 2,790.

If the switch to digital happens, theater owners don’t want to foot the entire bill as they have done each time they’ve needed to upgrade their sound systems. After all, theater owners argue, the studios stand to save as much as $800 million a year by slashing duplication, transportation and security costs. The question is whether Anschutz and his fellow theater owners can make Hollywood play ball.

Meanwhile, the studios have been experimenting with ways to deliver digital copies of movies. Last fall, Miramax used Boeing Satellite Systems’ Cinema Connexion to beam a copy of Bounce to an AMC theater in New York’s Times Square. The idea was to test the system and gauge consumer reaction to the digital picture, says Mark Gill, president of Miramax/LA. The system worked, and Gill claims moviegoers preferred the digital projection over the celluloid version.

Even so, Miramax won’t be switching to an all-digital plan anytime soon. And citing antitrust concerns, Gill doesn’t expect studios will foot the bill for the conversion. “A studio consortium won’t get past the Justice Department,” he says, in reference to an idea within the industry that to retain control over digital distribution the studios would create their own system. “But since when could you get seven studios to agree on anything?”

And that may be just the opening Anschutz needs.

At the Cineplex: All Analog, Almost All the Time

Few theater chains have

been willing to spend the

money-about $150,000 per

screen – to convert to

digital.

NUMBER

CHAIN OF SCREENS

AMC Entertainment 2,790

Edwards Cinemas 712

General Cinema 1,041

Loews Cineplex 2,926

Regal Cinemas 4,395

United Artists Theatres 1,623

CHAIN DIGITAL PROGRESS

AMC Entertainment Nine theaters equipped for digital projection.

In November, beamed Bounce via satellite.

Edwards Cinemas No digital theaters.

General Cinema One theater in Boston equipped with digital

projector; in May screened Dinosaur in digital format.

Loews Cineplex No permanent digital houses. Showed Star Wars:

Episode I digitally in two theaters in May 1999.

Regal Cinemas Plans to test digital projectors in a small number

of theaters within a few months.

United Artists Theatres No digital theaters and the least active in building

megapiexes; tends to lag industry on innovation.

SOURCE: COMPANIES LISTED

COPYRIGHT 2001 Standard Media International

COPYRIGHT 2001 Gale Group