BUSINESS/ECONOMY

Big money at the movies

DAVID TOOLE July 28 1986
BUSINESS/ECONOMY

Big money at the movies

DAVID TOOLE July 28 1986

Big money at the movies

BUSINESS/ECONOMY

He is Canada’s leading man of film, but he has never appeared on the silver screen. Instead, Garth Drabinsky, 37, former entertainment lawyer and film producer, is determinedly and profitably restructuring the movie theatre business in North America. His name is not a household word among the people he refers to as “my public,” but the hard-driving Drabinsky, chairman, president and chief executive officer of Cineplex Odeon Corp. of Toronto, has done more to put the flash and fantasy back into a visit to the movies than anyone since the end of the glory days of Hollywood. Every week two million filmgoers file into Cineplex Odeon movie theatres located in six Canadian provinces and 16 American states. His theatres feature art-filled lobbies, cafés and popcorn drenched in real butter. They provide, declared Drabinsky, “a theatrical environment for movie audiences that has not been created since the advent of television.” Cineplex Odeon’s successful record in the international entertainment industry is rare for a Canadian company. In just seven years it has grown from one 18-screen theatre complex in Toronto’s downtown Eaton Centre to 1,176 screens in 395 locations— with more than half of its screens in the United States. That puts it neck and neck with General Cinema Corp., which has as many screens but not as many locations. Much of Cineplex Odeon’s growth is a result of Drabinsky’s purchase last November of the American Plitt Theatre Circuit, a chain of 608 movie houses located across the United States. Then, in May Drabinsky sold 50 per cent of his enlarged firm to a Los Angeles conglomerate, MCA Inc., which controls Universal Studios. Drabinsky remains the driving force behind the company, and the sale has provided the Toronto entrepreneur with access to the huge Hollywood entertainment industry.

Already, Cineplex Odeon owns a number of entertainment companies. Among them are Pan-Canadian Film Distributors, the largest distributor of commercial and specialty films in Canada, and Toronto International Studios, Canada’s largest film production facility. Early this month Drabinsky purchased Canada’s largest motion picture laboratory, Film House Group Inc. of Toronto, for $15 million, and he is cur-

rently planning more expansion. In the next five years Cineplex Odeon will grow to least 2,000 screens, he told Maclean’s, “excluding any acquisitions, which are a virtual certainty.”

When Drabinsky entered the movie

business in 1979, most theatres had only one or two screens. But he began clustering as many as 18 small-screen, limited-capacity theatres into a single complex and offering moviegoers a wide variety of films under one roof. In

its first two years Cineplex expanded rapidly, opening 111 screens across Canada. Then, three years ago Drabinsky began recreating classic movie houses, adding contemporary frills. As a result, when Cineplex unveils new complexes this week in Clearwater, Fla., and next week in Waco, Tex., and Thornhill, Ont., they will resemble the movie palaces of the 1920s and 1930s. Movie patrons are greeted by original artwork, marble floors and plush seating, arranged by a full-time staff of 60 architects, engineers and draftsmen. Cineplex’s theatre openings are usually splashy affairs, by-invitation-only parties for dignitaries, celebrities and the media. A recent opening of a refurbished theatre in Erin Mills, just west of Toronto, attracted the Toronto Star’s art critic, who wanted to review the look of the theatre. Drabinsky declared at the time, “We are determined to give back to our patrons the rush and excitement and anticipation and curiosity that should be theirs when they leave the techno-regimented world of their daily lives for the fantasy world of escape that is the movies.”

Associates say that Drabinsky enjoys the attention that he is attracting—especially in the business community, where his star is clearly on the rise. Last year Cineplex Odeon reported a record after-tax profit of $14.3 million on revenues of $171 million, which ranks it among the fastest-growing companies in Canada. This year firstquarter profits have more than doubled, and Drabinsky says that he is “comfortable” with one outside estimate that 1986 profits will reach $27 million.

Cineplex Odeon shares traded on the Toronto Stock Exchange last week at $20, up from $2.70 in early 1984. At that price, Drabinsky’s own 3.5-per-cent stake—his stockholding has steadily diminished as the company has grown and taken on more shareholders—is worth more than $30 million. Said Roland Jones, a stock market analyst and vice-president of Merrill Lynch Canada Inc.: “I am convinced this company is really going to be going places.” And a June report prepared by securities firm Prudential-Bache Securities, another brokerage firm, states, “Cineplex has brought moviegoing back to life in Canada and the United States.” Drabinsky himself declared that Cineplex “is demonstrating what has been lacking inexorably in the movie theatre exhibition industry for the past 35 years.” He added, “We will compel our competition to raise their standards which will result in a complete overhaul of an industry that was allowed to decay.”

Drabinsky’s original vision did not translate into instant success. For one thing, his lofty ambitions and brash

style tended to create enemies in the movie industry. As well, when his Cineplex Corp., as the company was then known, began expanding across Canada in 1980, it encountered a major obstacle. The two then-dominant exhibitors—Famous Players Ltd. and Canadian Odeon Theatres Ltd. —had agreements with major Hollywood studios that in effect prevented rivals from successfully bidding for newly released films. As a result, Drabinsky’s company was not able to get the firstrun Hollywood productions it needed to compete with other theatre chains. That problem, combined with the developing recession, almost forced Cineplex into bankruptcy. In 1982 it lost $15.5

million on revenues of $20.3 million.

But Drabinsky persuaded the federal Restrictive Trade Practices Commission to investigate what he claimed was a noncompetitive distribution system. As a result, in June, 1983, one day before public hearings were scheduled to begin, major Canadian film distributors voluntarily signed an agreement to institute open bidding on a theatre-bytheatre basis, allowing all exhibitors

equal access to films. At the same time, Drabinsky attracted new investment into struggling Cineplex from Cemp Investments Ltd., owned by Charles and Edgar Bronfman, who also control Seagram Co. Ltd. Cineplex then acquired one of its two rivals, Canadian Odeon, for $22 million in June, 1984. That gave it a larger number of screens than any other theatre chain in Canada. With Odeon’s 297 screens, Cineplex Odeon suddenly had a total of 446, slightly more than Famous Players. By that time the company was beginning a financial recovery. By the end of 1984 Cineplex Odeon reported a profit of $4.6 million, and the following year it made $12.5 million.

Recently Quebec’s third-largest cinema chain filed a complaint against Cineplex Odeon before the same Restrictive Trade Practices Commission that Drabinsky himself used. The Quebec firm, France Film, charged that Cineplex Odeon and another theatre chain, United Cinemas, were preventing it from bidding successfully for films to be shown in the province. It also claimed that it was unable to obtain hit movies, although its two rivals were offering less money for those films.

Meanwhile, Drabinsky is increasingly concentrating on the U.S. market. That was reflected in his purchase in November, 1985, of the Plitt Theatre Circuit, with 574 screens, ranked fourth in size in the United States. Then in March, 1986, he bought the Septum Theatre Circuit of Atlanta, and in May the Essaness circuit of Chicago. That same month MCA completed its purchase of half of Cineplex Odeon for $219 million. That deal allowed Drabinsky to acquire the remainder of Plitt. Now Cineplex has theatres in every major movie market in North America except New York—and an announcement about entering that market is expected soon. As well, Cineplex plans to open the world’s largest cinema complex next June—a 5,600-seat giant at Universal City in Los Angeles. Drabinsky says that Cineplex is contemplating expanding into a line of clothing, records and posters in the United States.

Drabinsky himself has a ready explanation for his firm’s success so far. “We were able to utilize the competitive environment we created because we were very, very, very clever,” he says. “Period.” He also predicts that revenues from Cineplex Odeon will approach $1 billion annually within five years. For Drabinsky, the rise from upstart innovator to movie-house mogul is a success he savors: “It is just a wonderful position to be in when you go to sleep at night.”

DAVID TOOLE