Attack Of The Megaplex
Will a new, 16-screen theater complex be the salvation of Peninsula moviegoers, or the death knell for hometown theaters?
Thursday, September 23, 1999
It is a story with all the trappings of some cheesy, Hollywood sci-fi blockbuster. An alien entity descends upon a quiet coastal community, luring an unsuspecting populace away from their homes with promises of escape into a virtual dreamworld of fantastic sights and sounds.City leaders and town merchants stand there helpless, gnashing their teeth in anguish as this invading presence wreaks havoc on the surrounding countryside, leaving economic devastation in its wake.
Can anyone step in to rescue the unwitting townspeople, and save our hometown way of life from this nefarious scheme of domination...?!
Imagine a cross between the classic western High Noon, that classic of Cold War paranoia Invasion of the Body Snatchers, and any number of man-versus-monster flicks, and you''ll begin to appreciate the inherent drama and significant impact behind last April''s announcement by the San Rafael-based Century Theaters to open a brand new, state-of-the-art 16-screen "megaplex" at Monterey''s Del Monte Center.
From the perspective of movie fans, Century''s proposal is nothing less than a long-overdue blessing for area filmgoers who are sick and tired of putting up with second-rate, moribund theaters.
For local community leaders and industry insiders, however, the Century project also represents a potentially serious threat to the economic survival of the Peninsula''s other movie theaters, and those cities that currently rely on, or hope to rely on, movie theaters to maintain and revitalize their downtown cores.
"There will be a lot of casualties here when the 16 screens open," contends local film distributor Kit Parker, president of Kit Parker Films in Sand City. "The state of theaters here was poor and ripe for a competitor to go in. Quite frankly, most theaters around here have not provided satisfactory operation. These guys coming in will get everything first class. It will be a state-of-the-art theater with a lot of clout getting the best pictures. So to me there is no downside, only an upside. Competition gives us the cinemas we deserve."
Where Wise Men Fear to Tread
Century Theaters'' proposal to open a $6 million, 2,577-seat megaplex with stadium-style seating, digital surround sound, and Lucasfilm THX certification has already altered the movie landscape here on the Peninsula.
At the time of Century''s announcement last April, theater owners CinemaCal, which operated the Galaxy, Crossroads and Lighthouse Cinemas, and San Jose-based Camera Cinemas, which was proposing to build a six-screen art and foreign film cinema at the Osio Plaza complex on Alvarado Street in downtown Monterey, insisted that the new megaplex would have no impact on their respective companies'' current or future operations.
"We''re very committed to the market," responded CinemaCal president and CEO Dale Davison when asked whether Century''s proposal would kill the Galaxy 6 Theater, also located at Del Monte Center, not to mention CinemaCal''s other theaters. "You have many situations in the industry at this time with many 14- and 16-screen complexes being built within a few miles of each other."
"We weren''t surprised and were aware some [project] was going to happen soon, we just didn''t know where," said Camera Cinemas spokesperson Dan Orloff. "We''re confident Monterey city leaders will find a way to balance the needs of all theater operators and developments, and we''ll follow the lead of those that organize the process. We''re looking forward to and are excited about a pre-holiday opening."
Underneath all of that public equanimity and business bravado, however, it was easy to detect a sense of wariness and trepidation over the ability to compete with Century.
A little over a month after the Century proposal was made public, CinemaCal bailed on the Peninsula movie business, selling its three theaters to Resort Theaters of America (RTA) of Palm Springs. Camera Cinemas quickly followed CinemaCal''s lead, backing out of its agreement to operate the Osio complex and assigning its lease to RTA.
"We had no idea something of that magnitude would be built in that market near Osio Plaza," Camera Cinemas general partner James Zuur commented recently. "We had a study done indicating that as an exhibitor in this market with only six screens, it would have been hard for us to compete. The market is small enough that we felt with that limited number of screens we would have a hard time competing in the marketplace, whereas Resort has 70 percent of the market already. We approached Resort after we heard they purchased all the theaters in Monterey and asked if they would be interested in a joint venture."
According to documents on file at the Monterey Planning Department, Camera has contracted with RTA to assist with the theater and cafe operation, and to help with a proposed Monterey Film Festival. Camera remains the financial guarantor for the project, according to the documents.
Riding to the Rescue
Will Resort Theaters be able to challenge the hegemony of Century, which owns and operates 70 theaters in the West, including the Northridge and Century Park 7 Cinemas in Salinas?
The answer may very well be yes, given the financial clout and commitment Resort has already made to its recent theater acquisitions on the Peninsula.
While not as large as Century, Resort Theaters is a regional powerhouse in its own right, with numerous theater locations in the Palm Springs/Southern California area, as well as theaters in Aspen, Colo.; Park City, Utah; and South Lake Tahoe. By 2003, Resort expects to develop 30 new theaters with more than 325 screens.
In an effort to combat and hopefully preempt the anticipated impact of the Century megaplex, RTA has already embarked on a retrofit and upgrade program at its new theaters, making improvements to the sound systems and decor, and in the case of the Galaxy, adding some stadium-style seating.
Although somewhat evasive about the potential impact of Century on their recent acquisitions-particularly regarding the Osio Complex--RTA Operations Director Craig Hyerdall says his company is committed to succeeding here on the Peninsula.
"If their site gets developed, we maintain business as usual," insists Hyerdall, who anticipates the Osio opening in early December. "We are planning a lot of remodeling of the existing theaters and, as a company, plan on doing a lot of improvements to Lighthouse and Galaxy. There''s nothing we would do differently."
One big change Hyerdall says filmgoers should notice right away with the Resort purchases is a better selection of first-run films.
"The prior ownership had been taken off-service by three major distributors, but now we won''t be excluded from the mix," says Hyerdall. "We are eligible and will start playing product from all distributors."
As to the future success of the Osio, Hyerdall expressed confidence its unique character will help it survive. RTA has signed a 20-year sub-lease on the theater and reportedly will invest $1 million in the Osio project.
"We look at Osio as a unique entity being downtown and a lot of times the best way to operate is to let [a theater] develop its own flavor," Hyerdall comments. "The Dream Theater is a great example of letting the public have a say in what they want. It will have a lot of flavor with state-of-the-art sound and seating."
Ironically, one of the likely first casualties in what promises to be a no-holds-barred movie war on the Peninsula is the Dream Theater, which will have to compete with the Osio on the art film front, and Century on the mainstream front.
"It''s going to be very interesting if the [Century] site gets developed with a theater that large," adds Hyerdall. "We''re hoping that whatever happens we''ll continue to operate and get our share of product to our theaters and go about business as usual. All competition can do is make both parties run better theaters to benefit the general public."
Getting its "share of product" will be especially critical to the success of the Osio complex, says Kit Parker. Although he supports the cinema''s concept, he thinks its future is somewhat problematic.
"Seats are the name of the game to attract the right movies. Movie companies have an allocation system and will want to play where they get the most attendance," says Parker. "An art or specialty cinema can''t survive just on little foreign language and art films. It needs crossover pictures on a fairly regular basis, films like Life is Beautiful, The English Patient, or Shakespeare in Love. Other films don''t bring enough patrons and they don''t buy concessions. What will happen is the high-profile [films] will likely go over to [Century] while the downtown guys will have a hard time surviving on what''s left.
"The downtown cinema I always thought was a risky proposition, with not enough seats and with many auditoriums holding less than a hundred people," adds Parker. "That''s fine if you''re running a hands-on art complex but for a chain to come in and take something that''s inherently marginal..."
When a new megaplex was first proposed for Del Monte Center, there were many in the community who wondered why Monterey would even consider green-lighting a new theater complex after making such a major commitment to the Osio project.
The answer, plain and simple, is dollars, lots of dollars, both for the theater operator, the Del Monte Center, and for Monterey city coffers.
A business analysis conducted last December by the Sedway Group, a consulting firm with headquarters in San Francisco and Los Angeles, indicated that a megaplex at Del Monte could staunch the flow of lost tax revenues that were going to Sand City and Salinas shopping malls.
Had a comparable theater been constructed elsewhere, as once proposed for Seaside, for example, the resulting "leakage" in retail sales could have meant a loss of $250,000 in annual retail sales taxes for Monterey.
Sedway, which described the Peninsula''s older theaters as "functionally obsolete," estimates the new complex could draw 50,000 patrons per screen, or a total of approximately 800,000 moviegoers a year. That attendance level would generate a box office gross estimated at $4.4 million, plus an additional $1.5 million from concessions. By comparison, total 1997 box-office revenue for Peninsula theaters was just under $8 million or $257,000 per screen. Countywide, patron draw ranged from an estimated high of 465,000 moviegoers for Century Park and a low of 73,000 for the Crossroads, based on an average ticket price $5.50.
According to Monterey City Manager Fred Meurer, his city, which owns the Osio complex, will work closely with RTA to see to it the theater succeeds. As part of its lease requirement, RTA has to provide its theaters for auxiliary meeting space for conventions and meetings at the nearby Doubletree Hotel in the mornings and afternoons.
"We''re trying to make this work on a number of different fronts to help us generate revenue a keep the resource working," says Meurer, who expressed little concern over the impact of Century on the new downtown theater.
"I believe the marketplace for [Osio] and that type of film is totally different, and I have no fear for the success of the downtown theaters," says Meurer.
There''s No Business Like Show Business
According to figures compiled by the National Association of Theater Owners, during the past five years alone, the number of movie screens in the U.S. has jumped by 40 percent to a total of 35,000 screens.
"We''re in the process of re-screening America," observes Bishop Cheen, a media analyst with First Union Capital Markets and a former analyst with the Carmel-based firm, Paul Kagan and Associates Inc. "We''re taking older duplex, four-plex and six-plex theaters and either abandoning them, rebuilding or converting them, or building a new 20-plex as an anchor tenant in a new mall."
The construction of a new theater complex in Monterey, although part of this larger, nationwide trend toward building megaplexes as revenue generators at large shopping malls, does represent a sizable risk for Century.
This theater-building binge comes at a time when theater owners are struggling to maintain revenues within an industry, and distribution and marketing system that favors the Hollywood studios.
Additionally, theater owners are faced with ever-increasing competition from video and DVD sales and rentals, the expansion of pay-per-view and cable, and the burgeoning digital and Internet revolution. Later this year, the world''s first feature film will be released and available for viewing directly on the Web.
From Cheen''s perspective, the building boom definitely has its trade-offs and financial risks.
"It''s the classic problem of out with the old and in with the new, but what''s being lost in the process from a pure financial standpoint is the fact that the industry hasn''t increased the number of fannies in seats in the past five to 10 years," notes Cheen. "There are still about 1.3 billion tickets sold, and if the industry is going to pay for its glitzy redo, it will have to pay with higher ticket prices. America does tend to get sticker shocked in a competitive media environment."
Century''s megaplex was originally scheduled to open in the fall of 2000, but with last week''s announcement by the Monterey Planning Commission that it was ordering an Environmental Impact Report on the project, completion of the project will likely take longer.
One of the obvious questions in the face of so many new theaters being built, including a proposed specialty IMAX theater on Cannery Row, is whether the Peninsula can support so many screens.
"Each market has different demographics," says CinemaCal''s Davison, who says the industry standard is one screen per 10,000 people within a 10-mile radius. "Some markets have a high density of people but with lower education rates, higher unemployment and lower discretionary income, while some have lower density with higher education and incomes and more families with kids, which is obviously a bonus."
Based on an approximate Peninsula population of 120,000 within a 10-mile radius, Davison''s formula should only support about 12 screens. Yet, if the Century proposal goes through, the Peninsula''s movie-screen count will jump from its current level of 19 screens to a total of 41, including the six at Osio.
"Looking at it from a comparative standpoint with markets of similar size to the greater Peninsula, realistically there has been a historic negative impact on remaining screens in the area," adds Davison on the potential impact of the Century theater.
For Pacific Grove Mayor Sandy Koffman, the Century megaplex could have the same impact on her town as the big retail stores in Sand City and Salinas have had throughout the Peninsula.
"It''s hard to conceive the Peninsula can support as many theaters as are being proposed," says Koffman. "A movie theater is a revenue generator as a driver for bringing people to the downtown area, increasing foot traffic at restaurants and stores. It has been an integral and important part of the revitalization of downtown."
Nevertheless, Koffman remains guardedly optimistic that the Lighthouse theater will survive.
"I think Lighthouse Cinema will always draw people who like to shop and stay in P.G.," says Koffman, "but of greater concern is a diminishing number of people out of the city that might be coming to Lighthouse Cinemas."
As far as other Peninsula cities are concerned, the Century project has effectively killed any hope of a similarly sized movie complex to help with their economic revitalization efforts.
In Marina, Mayor Jim Perrine says his city has had a number of inquiries from theater companies with little result.
"They indicated there wasn''t a site that was large enough or with enough visibility or concentration of people to make it worthwhile," explains Perrine. "Most are looking to fill large complexes nowadays with a minimum of eight cinemas."
And in Seaside, an exclusive negotiating rights agreement with Houston and Goldsmith from Aspen, Colo. to build a 16-screen complex near the Broadway/Fremont intersection quickly fell through on the heels of the Century announcement last spring.
"Forget Seaside," says Parker. "That isn''t going to happen economically and it would be suicide to open a major multiplex in competition with a 16-screener. You can''t have that many screens."
According to acting Seaside City Manager Rich Guillen, Sand City Mayor David Pendergrass has sent a "letter of interest" to Seaside Mayor Jerry Smith regarding joint participation on a movie project between the two cities on Del Monte Avenue. There has been no formal discussion on the letter to date, says Guillen.
One organization that is encouraged by the Century project is the State Theater Preservation Group, which sees the competition from the megaplex putting pressure on United Artists to finally sell the State Theater.
"We''re going ahead with our plans to purchase, restore and operate the State Theater," confirms Ron Weitzman, president of the State Theater Preservation Group. "Right now United Artists is asking $3.2 million, more than the appraised value for the theater, but I believe they will [lower the asking price] when the other theaters go in operation. It will create real competition for first-run movies."
If all goes according to plan, Weitzman says his group will continue to show feature films and try to capitalize on the charm and ambiance of the State.
"We plan to continue to run the theater as a cinema particularly during the summer months," confirms Weitzman. "We will lease it to an operator like Resort Theaters."
According to Tom Adams, a media analyst and owner of Adams Media Research based in Carmel Valley, about 150 to 180 theatrically released films are produced for general release by the six major film studios annually; another 100 are made and released by independents to small art houses and specialty theaters. In 1998, approximately 220 of these films opened in Monterey County.
Despite plenty of product, Adams says theater owners are having a tough time benefiting financially, given the marketing structure of the film business.
"Theatrical revenues are heavily weighted to the majors," says Adams. "The studio goal is to drive a huge opening day hit, and the deal the studio cuts is front-loaded to benefit the studio so it keeps a bigger percentage [of the revenues] the first couple of weeks. Theaters like films that last longer to get into juicier profits later, but they''re fighting a losing battle there."
According to Cheen, theater owners only get 30 cents out of every dollar during the first five to eight weeks of a theatrical run, with the balance going to the distributor. After that initial period, the theater owners keep 70 cents on the dollar.
"The common rap in the business is it''s over-screened, but one reason you want to have lots of screens from a theater owner''s point of view is if you''ve got a lot of screens you can keep a film around long enough to get into that fatter profit margin and generate more popcorn sales," adds Adams. "What inevitably happens, however, is a good thing gets pursued until it''s no longer a good thing, and that may be already happening."
Among the bigger challenges the studios and all theater owners are facing, besides competition with each other, is increasing film production, advertising, and distribution costs.
"Films have a higher cost per film and that becomes problematic shouldering the capital expenditure to pay for high film cost as a percentage of revenue," explains Cheen. "I''ve never seen a situation in the theater business where the owners seem to have the least influence over the kind and distribution of product.
"There used to be an unwritten communication that theater owners could deal with the studios, but no longer," adds Cheen. "There''s been tremendous consolidation and roll up in the theater industry, with the old-name theater owners selling and moving to that great release in the sky. Now you''ve got 27-year-old, bottled-water guys in suits making bad decisions."
One factor that may help boost studio and theater profit margins in the near future is the use of digital technology for film projection. Some select theaters have already shown regular feature films like the latest Star Wars movie projected from a digital disc, and there is talk of eventually showing films digitally from satellite transmissions.
"I predict that in the next five to seven years theaters will go all digital," says CinemaCal''s Davison, "although ultimately there will have to be consideration from the distribution sector for the financing of that technology to widely penetrate as many screens as possible. There''s tremendous opportunities out there as technologies and presentation change."
To the degree that theater owners and studios can look to technology to save their financial bacon, Cheen insists the key element remains quality storytelling and entertainment.
"The entire theater industry had to hook its star to be saved emotionally by a Hollywood outsider this year," notes Cheen in reference to George Lucas'' new Stars Wars film. "Until May 19, except for The Mummy, there was no reason to go to the theaters. At the same time, building has been going on at a rampant pace while revenues showed blood all over the first quarter.
"What theater owners also need is to have distribution schedules that aren''t bunched up 40 percent in summer and 25 percent from Thanksgiving to Christmas," adds Cheen. "You can get 75 percent of your product flow in four and a half months, and that''s not conducive to theater operators. They don''t want to say they had a great year this week.
"Hollywood has got to even up product flow and bring some normalcy to all these new theaters. They have to prove they can compete with DirectTV, HDTV and NBC, not to mention Blockbuster and DVD. As far as digital production goes, amen--if it can reduce the cost of distribution and can enhance the quality of the product. That''s why people are there, for that uncanny experience, the big screen surround sound experience."
As for the future economic viability of the film industry, Cheen says the jury is still out.
"If the studios put out compelling product, moviegoers will come," says Cheen. "I think the strength of the industry is there, and you always have a chance to get both Armageddon and Shakespeare in Love with The Blair Witch Project. That''s when the industry is at its best from the consumer and investor standpoint.
"At the end of the day ''it''s the films, stupid.'' If you put out great films people will go to the theaters."