Netflix Finally Purchases LA's Egyptian Theater

[William Kucharski]

They've been in negotiations for a while, but Netflix finally sealed the deal to purchase Los Angeles' Egyptian Theater.

American Cinematheque will be allowed to run their programming Fridays, Saturdays and Sundays, where Netflix will play whatever they want (including their own films in theatrical release) the balance of the week.

[Terry Monohan]

Thanks William for this news. Let's hope the folks at Netflix spend some needed $$ on a remodel.

Time to repair the ceiling and wall water leaks, new sound system Dolby Atmos® (hope they don't wreck the classic deco ceiling) new stage waterfall curtains that go up, fix courtyard waterfalls , re plant courtyard with tropical plants, new color LED lights both inside and outside, plus a new deco type neon marquee out side on Hollywood Blvd to let the local movie goers and tourists know what is playing in side.

Good luck Netflix on taking over this famous classic cinema. We look forward to see what you can do with the place!

[Jesse Skeen]

Netflix has zero respect for presentation at home, they have no business running a theater.

[Leo Enticknap]

new sound system Dolby Atmos® (hope they don't wreck the classic deco ceiling)

The only way you could avoid doing that is to build an RSJ frame of some description below the starburst, supported by the "building within a building" balcony structure rather than from above.

The 1998 refurb was done on a "do nothing irreversible" basis, i.e. such that the auditorium can be rolled back to its 1922 condition if desired. Well, actually, its 1950s condition after the place was remodeled for widescreen, because the proscenium was irreversibly demolished and rebuilt at that point.

Putting in ceiling speakers for Atmos is going to be seriously expensive. The starburst is not weight bearing. Above it is an HVAC plenum. To add the necessary weight bearing supports to hang speakers directly from the ceiling, you'd likely have to take the roof off and replace it.

The rest of the fabric/structure of the building is not actually in that bad a condition (or at least it wasn't, when I last worked there in 2017): the issues are mainly cosmetic. As for the tropical plants, that was tried in the early '00s (so I was told), but they kept being stolen, hence the 50ft palm trees they were replaced with.

[Jarod Reddig]

The real reason they bought this is so they can screen for Oscars right? Isn't that their main reason for searching for a theater in Hollywood to buy? I could be getting my stories crossed from memory.

[Leo Enticknap]

That has been widely speculated as being Netflix's primary motivation.

More on the deal.

One detail caught my eye:

The final deal received approval from the AG’s office May 19, and sees Netflix paying $14.4 million for the theater, with an additional $6.1 million to go into an escrow account for seismic retrofitting, and another $2.5 million into an account to pay for mechanical upgrades, roof replacements, and other repairs.

If they actually are going to take the roof off, that would possibly enable a weight-bearing structure to be added, from which immersive audio ceiling speakers could be hung.

Given the $$ figures being thrown around, it's not beyond the realms of reality to hope that the Egyptian might get an organ again. Hardly any components of the original one survive (the console and some pipes were removed and put into storage during the 1998 refurbishment, but the last I knew, it is not certain that they survived), but given Netflix's apparent willingness to write very large checks, maybe we could see the first new theater organ constructed in almost three quarters of a century?

[Carl Martin]

the castro theatre in san francisco has a new organ under construction right now.

https://www.castroorgan.org/

[Mike Blakesley]

I am pretty sure I saw "Alien" at the Egyptian. Memory could be foggy, but I believe it was in 70mm and was the first stereo surround sound movie I saw. Whatever format it was, the movie scared the bejeezus out of me.

[Leo Enticknap]

That Castro organ is a monster! 800 stops?! The largest I've ever played had 42 speaking stops and three manuals. I'm guessing that most of them (including the 32' and 64' pedal stops) are digital. Configuring the delays to enable the digital and pipe stops to be used simultaneously will be a challenge, I'd have thought.

[Sam Chavez]

Alien did not have stereo surrounds. One of the first Stereo surround films was Apocalypse Now. I believe Superman had an unpublished Stereo surround release before Apocalypse Now.

[Marcel Birgelen]

The first wide-spread "5.1" release was indeed Apocalypse Now. But even "monaural surround" can be pretty impressive when done right.

There is this continuing trend of giving those movie folks ever more tools to play with, meanwhile they tend to forget how to correctly use the tools they already have.

[William Kucharski]

That has been widely speculated as being Netflix's primary motivation.

Indeed. To have their films qualified for OSCARs they need a theatrical run, even if only at one theater.

[Leo Enticknap]

More on the deal. This story is two months old, but I've only just seen it - sorry. It contains some of the text from the article I posted above, but adds a lot more.

When Netflix Paid $14.4 Million for Egyptian Theatre, It Saved an Ailing American Cinematheque — Exclusive

Documents reveal a trove of details about the 99-year deal, Netflix's awards strategy, and how AMC was interested in countering Netflix's offer.

Faced with over $8 million in essential renovations at the Egyptian Theatre, the American Cinematheque faced closing the historic Hollywood movie palace and ceasing to exist as an organization. And then, Netflix bought the theater.

That was the blunt assessment offered by Cinematheque president Mark Badagliacca in recent letters to the California Attorney General’s office, through which the Cinematheque sought sale approval — technically, non-opposition — in accordance with state law.

“Your approval of the proposed transaction is fundamental to the long-term viability of the Cinematheque as a charitable organization,” Badagliacca wrote March 12. “Without the Egyptian Theatre, AC will be unable to continue its charitable purpose, and it will likely dissolve altogether.”

The correspondence, which IndieWire obtained through public records requests, are part of some 500 pages of documents that pull back the curtain on previously unpublicized details of the unusual deal between Netflix and the American Cinematheque. Announced last month, it allows the Cinematheque to continue programming the theater on weekends, gives Netflix a prime Los Angeles venue to showcase its award pictures, and offers both groups a freshly renovated historic theater.

The deal comes after a challenging decade for the Cinematheque. While the annual American Cinematheque Awards and fundraising gala were once nationally broadcast on ABC, it lost TV sponsorship after the 2010 edition. Since then, the group has “struggled to raise sufficient funds to cover its operating costs,” including its debt. On top of that, it faced a 2015 city mandate that required an estimated $6.1 million in seismic retrofitting, Badagliacca wrote in a November letter to the AG’s office.

The Cinematheque’s 2018 financial statement show it had $1.8 million in cash (part of a total of $6.8 million in assets) and $4 million in liabilities.

In November 2019, Netflix submitted a non-binding offer for the theater for $30 million, matching the value of the building outlined in a 2018 appraisal. The state took issue with that: In a December 26 letter, supervising deputy attorney general James M. Toma noted that the appraisal did not account for seismic retrofitting, deferred maintenance, and refurbishment, costs that brought the price down to $14.4 million.

A new appraisal offered several assessments of the theater’s value. Theoretically, the building alone is worth $12 million (including the repairs and retrofitting). However, the building is attached to the Cinematheque’s 99-year tenancy, which brings down the value to $6.6 million. The final deal received approval from the AG’s office May 19, and sees Netflix paying $14.4 million for the theater, with an additional $6.1 million to go into an escrow account for seismic retrofitting, and another $2.5 million into an account to pay for mechanical upgrades, roof replacements, and other repairs.

Netflix will also spend several million more on audio upgrades and theater restoration, amounting to a total investment that could be in excess of double the purchase price.

Although the deal between the Cinematheque and Netflix lasts for 99 years, Netflix is allowed to sell the building after 12 years — and a new owner would be able to kick out the Cinematheque a year after that. Netflix is making an enormous investment in the theater, which might make such a sale unlikely.

Under the terms of the deal, the Cinematheque gets free rent as well as a monthly reimbursement of $44,520 for staff salaries. This will be renegotiated annually.

The Cinematheque will program the theater autonomously Friday, Saturday, and Sunday, and may host outside events on those days. It can also work with Netflix to swap days. However, the nonprofit cannot host screenings of Netflix competitors’ films during awards season, from September to February, without the streamer’s consent. (In accordance with its mission, the Cinematheque may also program historic or educational screenings of competitors’ films at all times.) Documents specify competitors as Amazon, Apple, Disney, and WarnerMedia — oddly absent are majors Universal, Paramount, and Sony.

Rick Nicita, chairman of the cinematheque board, pointed out that hosting outside events at the Egyptian has long been a part of the cinematheque’s financial equation. Last year “The Fanatic” and “The Curse of La Llorona” premiered at the theater, and more recently it hosted premieres for many Netflix shows and movies.

“This agreement with Netflix will result in approximately the same number of programs at the Egyptian as before,” he said in a statement emailed to IndieWire. “Our most highly attended days by far at the Egyptian are traditionally Friday, Saturday and Sunday. For most weekdays, when there isn’t an American Cinematheque program, we worked hard to rent out the theatre for outside events to augment our income and this deal basically guarantees us that income during the week.”

The Cinematheque also has a 10-year lease on the Aero Theatre in Santa Monica.

When Netflix proposed its deal last fall, the AG flagged that the Cinematheque did not market the theater to other would-be buyers. In response, Badagliacca wrote that extensive press coverage of the talks did alert other suitors — including AMC Theatres, but CEO Adam Aron withdrew the company from consideration after understanding the need for 99-year tenancy.

The transaction will also see the Cinematheque make good on its civic obligations. The city of Los Angeles sold the theater to the nonprofit in 1996 for $1, under the condition that it be renovated as part of the effort to revitalize a then-shabby central Hollywood. The renovation was also funded in part by public funds.

The Cinematheque will repay a city redevelopment agency nearly $1 million, the Jamie and Steve Tisch Foundation $605,000, and Morgan Creek Prods. $1.3 million. It may also need to repay the city some $100,000 for an outstanding grant; it’s hoping it can satisfy conditions for forgiveness. Other sale proceeds will be reinvested in the Cinematheque’s nonprofit mission.

Documents show that Netflix chief content officer and Cinematheque board member Ted Sarandos recused himself from voting on the deal. The board unanimously approved the deal in November.

All in all, this sounds to me likely the least worst option, if the reported state of the Cinematheque's financial health (i.e. an existential threat) is complete and accurate. It's just a pity that the Board wasn't open with the membership over the details, and it took a journalist dragging them out via the public records route for them to emerge.

I am disappointed, however, that the journalist didn't also address why the Cinematheque went from being a self-sustaining nonprofit in 2010, to on the brink of implosion by 2018. Full disclosure: having worked for it between 2014 and 2017, I have my own opinions on that subject, but I don't feel able to state or discuss them on a public website, beyond opining that losing network TV coverage of the awards show is not a complete explanation. It looks like the Cinematheque still needs to address those issues, though, because the subsidy from Netflix (free rent of the Egyptian on weekends, and $44k of staff salaries covered) is only guaranteed from year to year.

[Frank Cox]

I don't understand enough about how real estate works, apparently.

CEO Adam Aron withdrew the company from consideration after understanding the need for 99-year tenancy.

Is the building is on a long term lease from someone else not mentioned in the article? Or something else?

I'm trying to understand what "the need for a 99-year tenancy" actually means and how it affects something like this.

[Leo Enticknap]

Before the Netflix purchase, my understanding is that the Egyptian was owned outright by the American Cinematheque, but that a legally binding agreement existed with the City of LA, from whom the building had been sold to the Cinematheque for a token sum in 1998. This agreement does not seem to be in the public domain, and there has been lots of speculation as to what its conditions actually are. One of them was that the place couldn't show any porn: I remember this, because we had one private rental for the launch of a music video while I was working there that was certainly borderline pornographic, and the management were worried about accepting the rental for that reason (not least because the people doing it wished to "erect" a 20-foot tall inflatable representation of female genitalia in the courtyard!). My guess is that there were strings attached to if and under what circumstances the Cinematheque could sell the building, and the provision for a 99-year lease was in order to satisfy those. But there again, if Netflix can sell the place in 2032 and the buyer can kick the Cinematheque out a year later, the 99-year lease provision would appear to be largely symbolic.