Surplus of Movie Screens Creates Financial Woes

The neon lights of the new megaplex movie palaces lure moviegoers in, promising pulsing sound, plush seats built for two and enough amenities to convince anyone that theater chains are wallowing in cash.

But moviegoers headed to megaplexes, theaters with anywhere from 14 to 30 screens, can expect rising prices for tickets and snacks as a result of widespread financial woes in the industry.

While box-office revenues are reaching all-time highs, topping $7.45 billion in 1999, megaplex theater operators are plunging into debt, unable to support the cost of their large, lavish palaces.

"The real problem has been that there are just too many screens, and it is driving down attendance and revenue per screen," John Helms, vice president of high-yield research for APS Financial, told The Miami Herald last July.

Simply put, there are not enough films and people to fill all the theaters that large chains have built in the last few years. Attendance has been relatively flat in 2000, with few blockbuster films thus far and a lackluster performance by the summer's movies.

AMC Entertainment opened the first 24-screen megaplex in Dallas in 1995, and some industry experts say that triggered a building boom that continues today as the chains race to "out-plex" each other.

James Sullivan, a senior real estate analyst with Prudential Securities, said the number of movie screens grew about eight percent annually during the 1990s, while attendance for that period grew just 2.6 percent a year. There are now about 37,000 screens in the United States, up from about 24,000 in 1990, and "there are estimates that's about 4,000 to 5,000 too many," Sullivan said.

Despite theater chains' current woes, John Kozak, director of communications for the National Organization of Theater Owners, said he suspects the megaplex will be around for a long time.

"Teenagers have always bought more tickets per capita than anyone else, and their numbers have been increasing since 1991 - they're the fastest-growing demographic," he said. "More screens were built in anticipation of that boom, and I think we will continue to see an increase in ticket sales."

Nevertheless, each of the nation's four largest movie chains - Regal Cinemas, Loews Cineplex Entertainment, Carmike Cinemas and AMC Entertainment - lost money in the last two years, more than $340 million combined.

The movie chains have spent millions on the new theaters springing up across the country. With amenities such as stadium seating and state-of-the-art sound systems, these theaters cost about $1 million per screen.

Along with debt from building the new theaters, movie operators are shouldering huge losses at many of their smaller multiplexes, those with eight or 10 screens. Though some are only about 10 years old, these theaters have become obsolete as consumers rush to the newer, plusher movie palaces.

"Nobody in the industry anticipated how fast the old theaters would decay with the build-out of the newer theaters," said Russell Solomon, vice president and senior analyst with Moody's Investor's Service, which last month lowered the bond ratings on all the major chains to junk bond status, according to The Miami Herald.

In fact, the higher cost of operating so many screens forced Carmike Cinemas to file for Chapter 11 bankruptcy in August. Silver Cinemas International, the largest art house chain, has also filed for bankruptcy protection.

To combat dropping revenues, many chains are closing down theaters that are draining their bank accounts.

Carmike Cinemas stated in its quarterly report that it has already received approval from the bankruptcy court to forfeit leases on 112 of its theater locations. Those theaters caused millions of dollars in losses this year.

One such theater was Chapel Hill's Ram Triple, formerly located in the Bank of America Plaza on Rosemary Street. The $1.50 ticket prices combined with lagging attendance and expanding overhead resulted in financial loss, so Carmike sold the theater.

Carmike's quarterly report said the company is "continuing to review its market strategy, geographic positions and theater-level profitability."

As a result of this continuing review, the chain might consider rejecting additional leases for theaters that do not perform at or above the company's expected profitability level, the report said.

Building theaters in the megaplex format provides numerous benefits for theater operators, including allowing facilities and operating costs to be allocated over a larger base of screens and patrons, the Carmike Cinemas report states, so eliminating smaller multiplexes saves money.

Regal, the nation's largest movie operator, said it will close between 500 and 700 screens over the next three years. The company has cut back its growth from 900 new screens last year to 300 this year.

AMC Entertainment is also shutting down a number of its theaters. "We have been very aggressive about exiting our underperforming theaters, and we expect that to continue," said Rick King, a spokesman for AMC. "It's a very difficult time for the entire industry, but we're confident that we'll be able to navigate those choppy waters."

The Arts & Entertainment Editor can be reached at artsdesk@unc.edu.