90 cinemas close = 900 est. projectors/players/sound hit the second hand market?

[Mark Gulbrandsen]

Leo, you bring up a very interesting aspect of how the industry is changing. For example, the head of ICA, the Australian NATO equivalent, indicated that independents have to diversify to survive. i.e. become more like what is happening in the U.S. with the aforementioned, "Entertainment Complex" that also has cinemas.

Its becoming more obvious to those who run cinemas that they need to become Entertainment entities, not letterbox themselves to just only "Cinema". As we are now in the going out business, being a one-item on the menu destination is losing out to entertainment complexes when it comes to being an entertainment destination.

So, cinemas need to diversify into other offerings. Restaurants, Bowling, laser tag, Gameing-machines, sports bars. You name it.

The big problem with this realisation is that there are many more established entertainment complexes already in existence. Many more than Cinemas. If Cinemas decide they can become more like them, can they then decide to become cinemas? (Ultimately this has not occurred as distributor policies artificially lean towards cinemas as they are today. And explains why the conditions are seen as being warped and commercially do not make sense. They do make sense if you understand what is going on here.)

Look at Las Vegas for example. NO-CINEMAS-ON-THE-STRIP. That's crazy. It is suppose to be the pinnacle of entertainment destinations in the U.S. And no Cinemas. This cannot be accidental.

This is problematic as, from what I have seen, well run and established entertainment complexes have older staff with better customer training. If I was to bet on a head to head battle between a cinema becoming more like an established entertainment site or an entertainment site adding cinemas. Who do you think is likely to win?

It will be an interesting few years to see if this situation changes. If they attempt to keep cinema to themselves, we can expect to see a significantly higher reduction in screen numbers.
As ICA CEO said, they need to diversify, but if they are restricted from doing so to protect the current majors dominance, they cannot diversify so closure is the result.

Here in the States many independents have built fairly large plex's to keep up with the Cinemark's, and often to lock the majors out of a given market.. But the Independents with single screen sites also do very well because they OFTEN offer a MUCH better movie going experience. People also love the old theaters. There used to be at least one MPX on the strip in Vegas. There is for sure one just off the strip at the Palms... It's operated by Brendan Theaters and has the largest Liemax screen in Vegas. iT'S A very nice MULTIPLEX!! I have also stayed at the gold coast, across the street from the Palms just to get away from the constant hustle bustle of the area where Caesar's Palace and the MGM Grand are at. I have also stayed at the Rio. The Rio has the best seafood buffet in town!

[James Gardiner]

Thanks to a combination of Disney and Netflix smashing the 90-day window and cheap Chinese consumer electronics, they are competing against home theaters. This, IMHO, is a big part of what drove the growth of combined movie theater/restaurant venues (Alamo Drafthouse, Flix Brewhouse, etc.) - the desire to compete by providing something that a home theater cannot (unless you have a chef and a butler).

Leo, you bring up a very interesting aspect of how the industry is changing. For example, the head of ICA, the Australian NATO equivalent, indicated that independents have to diversify to survive. i.e. become more like what is happening in the U.S. with the aforementioned, "Entertainment Complex" that also has cinemas.

Its becoming more obvious to those who run cinemas that they need to become Entertainment entities, not letterbox themselves to just only "Cinema". As we are now in the going out business, being a one-item on the menu destination is losing out to entertainment complexes when it comes to being an entertainment destination.

So, cinemas need to diversify into other offerings. Restaurants, Bowling, laser tag, Gameing-machines, sports bars. You name it.

The big problem with this realisation is that there are many more established entertainment complexes already in existence. Many more than Cinemas. If Cinemas decide they can become more like them, can they then decide to become cinemas? (Ultimately this has not occurred as distributor policies artificially lean towards cinemas as they are today. And explains why the conditions are seen as being warped and commercially do not make sense. They do make sense if you understand what is going on here.)

Look at Las Vegas for example. NO-CINEMAS-ON-THE-STRIP. That's crazy. It is suppose to be the pinnacle of entertainment destinations in the U.S. And no Cinemas. This cannot be accidental.

This is problematic as, from what I have seen, well run and established entertainment complexes have older staff with better customer training. If I was to bet on a head to head battle between a cinema becoming more like an established entertainment site or an entertainment site adding cinemas. Who do you think is likely to win?

It will be an interesting few years to see if this situation changes. If they attempt to keep cinema to themselves, we can expect to see a significantly higher reduction in screen numbers.
As ICA CEO said, they need to diversify, but if they are restricted from doing so to protect the current majors dominance, they cannot diversify so closure is the result.

[James Gardiner]

James, This is why large companies hire experts in corporate investigation and risk to handle their woes. Kroll is but one company that specializes in handling bankruptcies for really large corporations and helping figure out weather a given entity can become solvent again or if they should be liquidated.. They have to get it right because if there is a second go around with in a certain time frame, then the court will order the corp will be dissolved.

In my experience, the cinema exhibition industry is full of a more than typical level of "mate-ship-deals". You know, it's all about relationships, and that's very true in this industry. This also leads to more than usual business decisions made that are not based on commercial common sense. It will be some one-sided discussions on certain aspects of how the business was run and Kroll, as an example, doing due diligence on moving the company forward.

For example, many independent cinemas in Australia have secret ownership to allow them access to content on a more commercial basis. It gets very messy very fast.
And I would not be surprised if it is not similar in most of the rest of the world.

[Leo Enticknap]

I wonder what the moviegoing experience would be like if cinemas had been forced to compete with home theaters other over the years, rather than rely on the "monopoly" provided to them by release windows?

Thanks to a combination of Disney and Netflix smashing the 90-day window and cheap Chinese consumer electronics, they are competing against home theaters. This, IMHO, is a big part of what drove the growth of combined movie theater/restaurant venues (Alamo Drafthouse, Flix Brewhouse, etc.) - the desire to compete by providing something that a home theater cannot (unless you have a chef and a butler).

[Mark Gulbrandsen]

Thanks Mark,

Yes, interesting point Mark on how they need to justify a site staying open. Remember they are trying to convince an older person/judge, who typically has general business intelligence (As they deal with every type of business on a day-to-day basis) and so need to present it under that limitation to convince the judge. In cinema, people, from my perspective, have a lot of faith in how they make financial decisions. I don't expect a judge to have the same faith. i.e. can they demonstrate that attendance levels will improve? Not really, I expect the judge was listening to this and only after the Christmas period and the persistent lower attendance levels did the judge go with the fundamentals and push the extra locations into closure.

8mil = 13 km. I am not against regional isolation regulations, but there needs to be legislative detail on what is acceptable and what is not. I would welcome such written-down conditions as it makes it hard to start a business when you are not sure exactly where you stand on these issues. But competition issues in general, like a coffee shop can set up next to another coffee shop is acceptable under consumer law everywhere as to allow competition, there needs to be some type of mechanism for cinemas too.

I tend to like the general rule, cinemas are not recommended if setting up within a 15 min drive of another cinema. And/Or better still, the number of seats/screens in an area being a calculation of the census/population of that area.

I set up cinemas in regional areas and a few times I have gotten interest but rule them out straight away due to census/population metrics.

James, This is why large companies hire experts in corporate investigation and risk to handle their woes. Kroll is but one company that specializes in handling bankruptcies for really large corporations and helping figure out weather a given entity can become solvent again or if they should be liquidated.. They have to get it right because if there is a second go around with in a certain time frame, then the court will order the corp will be dissolved.

[Geoff Jones]

But competition issues in general, like a coffee shop can set up next to another coffee shop is acceptable under consumer law everywhere as to allow competition, there needs to be some type of mechanism for cinemas too.

I wonder what the moviegoing experience would be like if cinemas had been forced to compete with each other over the years, rather than rely on the "monopoly" provided to them by clearances?

I wonder what the moviegoing experience would be like if cinemas had been forced to compete with home theaters other over the years, rather than rely on the "monopoly" provided to them by release windows?

[Leo Enticknap]

Pacific Theaters moved all equipment to one place and held a big auction a couple years ago.

We bought (at that auction), refurbished, and resold some of it. No Series 1 stuff, though.

[James Gardiner]

Thanks Mark,

Yes, interesting point Mark on how they need to justify a site staying open. Remember they are trying to convince an older person/judge, who typically has general business intelligence (As they deal with every type of business on a day-to-day basis) and so need to present it under that limitation to convince the judge. In cinema, people, from my perspective, have a lot of faith in how they make financial decisions. I don't expect a judge to have the same faith. i.e. can they demonstrate that attendance levels will improve? Not really, I expect the judge was listening to this and only after the Christmas period and the persistent lower attendance levels did the judge go with the fundamentals and push the extra locations into closure.

8mil = 13 km. I am not against regional isolation regulations, but there needs to be legislative detail on what is acceptable and what is not. I would welcome such written-down conditions as it makes it hard to start a business when you are not sure exactly where you stand on these issues. But competition issues in general, like a coffee shop can set up next to another coffee shop is acceptable under consumer law everywhere as to allow competition, there needs to be some type of mechanism for cinemas too.

I tend to like the general rule, cinemas are not recommended if setting up within a 15 min drive of another cinema. And/Or better still, the number of seats/screens in an area being a calculation of the census/population of that area.

I set up cinemas in regional areas and a few times I have gotten interest but rule them out straight away due to census/population metrics.

[Mark Gulbrandsen]

In the USA reviving a not so profitable site would require a sound plan that would be presented to the court for approval. It would need to show that there exists a sound plan to turn a given site back to profitability. The court is also most likely want to know how profitable it was over a given number of years before COVID hit. The entire plan may also involve new investors to pump money in and help make things work.

In this country, distribution usually likes a minimum of an 8 mile clearance between sites. There have been past execptions to that. In a Western Chicago suburb in the late 80's General Cinema built a new 8 Plex as part of a shopping mall development. Then 4 months after that opened Cineplex built a brand new free standing 8 Plex right across the street. I don't think either theater grossed very well and eventually Cineplex filed bankruptcy and that site was shut down. I believe that the AMC is now a Hollywood Boulevard Cinema. Apparently the Cineplex was either repurposed or torn down. Here in the U.S., bankruptcy courts won't allow an iffy plan to float. It's easier and safer for all involved to just let it all sink.

[James Gardiner]

Hi Mark,
In a recent news article it has the sites and screen numbers... https://celluloidjunkie.com/2023/01/...tre-locations/
the sites listed, on average had 12 screens each. (rough guess)

I have been a director on a public company and have been through administration for companies in Australia. I imagine there is a similarity.
It really depends on the administrator. Generally, administrators are not smart in terms of understanding all the businesses they are running for the period and don;t do a great job, Incumbent boards and executives try to lead them but at the end of the day, they do what they want. In Australia, administrators are considered bottom feeders, with regulations not strong enough and they tend to do stuff in their own interest, but that's another story.

However, being in a meeting with an Administrator, it's not as sophisticated as you appear to think. Typically reports are made about the profitability and viability of sites, nothing too detailed, with some input from management on what is best, and then the administrator does whatever they like. They do not care if it has good carpet or elevators or any of that detail. It's all about numbers at this point. The Administrator will tell his team (Not the cinema management, who are only there to help at this stage) to see what can be done to mitigate dept and rental costs going forward (i.e. they negotiate the deals with landlords) and based on that, he draws up a spreadsheet and conditions for who lives and dies.

The strategic value of keeping a not-so-profitable site alive is typically not on an administrator's radar. Also, effects of Clearances and how they are used to nudge the market are also not in consideration as.. Its the type of activity that attracts DOJ attention, and an Administrator would not take those type of strategic actions into his factoring. Why would he take any risks, not his problem.

Going into administration is a role of a dice. I think it is very likely, considering we are heading into a recession, Cineworld will end up completely liquidated. I cannot see any other large major rolling that dice on spending big and getting into substantially more dept when headed into such a big unknown. Plus BO is predicted to be significantly below pre-pandemic levels for the foreseeable future. In my opinion, the lower average visit per year is down, and due to the population learning of other options, they are not likely to stop using them, and as such, this new lower average visit per year is perminent. Good content is the main factor affecting BO going forward.

Though BO will grow as a lot of the second hand equipment is rushed into greenfield areas opening up new cinemas. At the end of the day this is a supply and demand restructural issue that can be addressed over time.

[Mark Gulbrandsen]

Yes, and no. Price of fuel and convenience is super important now, especially in shorter windows. It would be better to keep sites open and shrink the site to a suitable size that greatly reduces running costs. As you are leaving fertile ground for small indy cinemas to open up in those regions. I.e. companies that don't expect the profit margins the big guys do. And realistically, clearances are all about killing off these small indy locations encroaching on the catchment of a majors.

All of this changes when a chain enters into bankruptcy and the court is not going to be looking at gas prices, or in convenience in relation to going to see movies. Not sure how bankruptcy is handled "down under" and it could be quite different. But in this country, often the court dictates what they can and can't do after hearing reviews of accounting reports for each site, as well as the corporation as a whole..., some times the chain is asked to come up with a plan of action of their own, which often includes consolidation and or shutting down marginal sites, the court has to approve this plan. Sometimes, like in the case of Pacific theaters, the gear from those sites is auctioned off to help pay outstanding debt. Now Regal has never been a chain to write home about, at least I see no reason to dash out and see movies at their sites, nor do I envision a family sitting at the dinner table all talking about that super great Regal Cinema, and lets go see a movie after we're done eating. Anyway, each case is different, and it may be possible to look up the court documents on line to see exactly what the court required of them. Cineplex went through much the same in the States back in the early 2000's. They over built and also made their sites way too small. Very few were over 8 screens, and some were only four. One thing I can say about Cineplex is their sites built in the mid 80's to the early 90's under Garth Drabinsky were for the most part pretty nice places. Back then customers I did work for took over quite a few of their sites and are still operating them to this day. Many locations had curtains, movable masking, wool carpet imported from Ireland, and real marble flooring. One location I later serviced also had escalators and an elevator.

Here is some on line info from Kroll that you are welcome to read through and listen to from the entity that is helping them reorganize.

Edit: You will also find Bankruptcy info in there for DeLuxe Entertainment, and Frank Theaters,

[James Gardiner]

More likely, they are under-performing sites they need to get out of in.order to save the rest of the chain.

Yes, and no. Price of fuel and convenience is super important now, especially in shorter windows. It would be better to keep sites open and shrink the site to a suitable size that greatly reduces running costs. As you are leaving fertile ground for small indy cinemas to open up in those regions. I.e. companies that don't expect the profit margins the big guys do. And realistically, clearances are all about killing off these small indy locations encroaching on the catchment of a majors.

[Mark Gulbrandsen]

More likely, they are under-performing sites they need to get out of in.order to save the rest of the chain.

[James Gardiner]

Not all of the locations Regal announced as closing will actually close.

I totally agree with your insight, but if they announce closing, it would have to indicate that those negotiations were unsuccessful. You wouldn't announce it otherwise if it's negative on the total valuation and makes it even harder to trade out of the problem.
I would expect, debt recovery and giving back half the screens was not agreeable. So they (The Cinema operator) are walking as they don't want to cover the dept. I also expect the issue of clearances etc was a major chip on the table as for the cinema operator to get a good deal.

This is why I bring up site destruction as if you have to leave, it's probably in your interest no cinema pops up in its place as it bolsters your other sites still open. The customers have to go some where to see the films still.

It's not uncommon that when a community is forced to leave a town, you poison the well as you leave to make sure the invaders cannot settle in.

It looks like it is going to be quite a mess for a while.

This may actually result in considerable work for support entities.

[Rick Cohen]

Not all of the locations Regal announced as closing will actually close. Some might be able to renegotiate their lease to more favorable terms, and be able to stay open. In today's marketplace, an 18 screen complex is too large. It will need to either reduce their footprint closer to 10 screens or close. The reality is that studios are not releasing enough product to support the square footage of an 18 screen megaplex. The business is still in a recovery phase, and may never rebound back to pre pandemic attendance levels. Some of the attrition is due to streaming, some is due to lack of product, some is due to changing consumer habits. The reality is that the exhibition industry is constricting, or right sizing itself down to a level where it can be profitable. In today's marketplace, less screens (unsupported overhead) is better.