BUSINESS

THE SCREEN WARS

FAMOUS PLAYERS WILL UNVEIL A FLASHY NEW THEATRE IN ITS BATTLE WITH CINEPLEX ODEON

JOHN DALY May 29 1989
BUSINESS

THE SCREEN WARS

FAMOUS PLAYERS WILL UNVEIL A FLASHY NEW THEATRE IN ITS BATTLE WITH CINEPLEX ODEON

JOHN DALY May 29 1989

THE SCREEN WARS

FAMOUS PLAYERS WILL UNVEIL A FLASHY NEW THEATRE IN ITS BATTLE WITH CINEPLEX ODEON

BUSINESS

This week, Indiana Jones and the Last Crusade will arrive in North York, Ont. The third instalment in Paramount Pictures’ blockbuster adventure saga will have its Canadian première in the newest theatre in the country’s largest movie-house chain, Famous Players Inc. And, among the guests invited to sample the opening-night champagne and cocktail snacks with company chairman Walter Senior is Garth Drabinsky, the beleaguered chairman of Famous Players’ arch business rival, Cineplex Odeon Corp. Famous Players is in the middle of

an ambitious five-year building and renovation program, and the glittering new six-screen theatre incorporates many design features that are clearly a response to innovations introduced by Drabinsky over the past decade. But last week, as Famous Players pressed ahead with its expansion plans, Drabinsky’s grasp on the chairmanship of the company he cofounded appeared to be slipping.

In many ways, the roles in the battle between the two giant Toronto-based exhibitors are now the reverse of what they were in 1986, when Cineplex was rapidly closing in on thenstagnant Famous Players. At that point, the board of Famous Players called in Senior, 45, an aggressive, U.S.-born film distributor with extensive experience in Central America and Japan, to revive the company’s fortunes. He quickly commissioned a detailed survey of moviegoers’ attitudes toward both his theatres and Drabinsky’s and, based on the results, he launched his ambitious renovation and building program. Meanwhile, Cineplex’s debt soared as it acquired more theatres in the United States—becoming North America’s secondlargest theatre chain, after New York Citybased United Artists Theatre Circuit. And last month, Drabinsky became embroiled in a legal

At Toronto’s Uptown, a Famous Players theatre: an ambitious building drive

dispute with Cineplex’s largest shareholder, California-based entertainment conglomerate MCA Inc., after he tried to gain voting control of the company by arranging the sale of Cineplex stock to a group of supporters. Now, he and vice-chairman Myron Gottlieb are trying to raise the roughly $800 million they will need to buy all of Cineplex’s shares.

But last week, Cineplex’s board of directors made that task more difficult. It curbed Drabinsky’s authority by creating a new, threeman office of the chairman to review all of the company’s major decisions. Aside from Drabinsky, the office consists of two other directors: Charles Paul, a vice-president of MCA, which owns 49.1 per cent of the company’s shares and which has a 33-per-cent voting interest; and James Raymond, representing a group of investors, associated with Montreal financier Charles Bronfman, which owns about 30 per cent of the Cineplex shares. The new alignment paved the way for Drabinsky’s and Gottlieb’s possible exit by guaranteeing them a severance payment—a so-called golden parachute—of $9.5 million should the board accept

a bid for a majority of Cineplex’s shares from another party.

Maintaining his public silence on recent developments, Drabinsky declined to be interviewed by Maclean’s last week. But Senior, who was closely following Drabinsky’s battle, acknowledged that Cineplex’s difficulties may weaken its ability to compete. He added that Famous Players will continue to expand regardless of what Drabinsky does. Senior said that it now plans to expand to about 620 screens across Canada over the next three years from its current total of 448.

Much of the building activity was a result of the competitive challenge posed by Drabinsky. As Drabinsky expanded Cineplex, he was widely hailed for such innovations as multiscreen theatres, plush art deco lobbies, real butter on popcorn and separate snack bars offering such nontraditional fare as cappuccino, quiche and spinach salads. But in the Famous Players survey of 1,000 Canadian moviegoers, fewer than one per cent of Cineplex patrons said that they drank cappuccino or ate cakes and cookies, while more than half drank soft drinks and ate popcorn or candy. And most said that such things as elaborate lobby decor, attractive marquees or signs were unimportant. Instead, they said that they put a much higher value on bigger screens and better sound quality.

Still, in addition to larger screens and elaborate Dolby sound systems, the new Famous Players theatres contain many design features that Drabinsky first introduced. The terraced lobby in the new complex in the Toronto suburb of North York has floor-to-ceiling windows, and each theatre in the multiplex has its own name and lighted marquee. Senior estimated that those frills increase admissions by only five per cent, but he said that there is a danger of losing customers to Cineplex by doing without them.

Senior noted that most people chose a theatre solely on the basis of the movie playing there. And because Famous Players has long-standing relationships with the studios that produce most of the hits, it continues to dominate the Canadian market. Famous Players is

wholly owned by Gulf + Western Inc., which in turn owns Paramount Pictures. And Famous Players exhibits movies in Canada by Warner Brothers, MGM-United Artists and Walt Disney Co.'s Buena Vista Canada Inc. Cineplex has historically exhibited all the films of Twentieth Century Fox Film Corp., Columbia Pictures and Universal Studios, which is a division of MCA. A breakdown between the studios shows that, in 1988, Famous Players exhibited eight of North America’s Top-10-grossing films.

Still, Cineplex reported a profit of $10.7 million for the first three months of the year. But the company included as part of its operating income $47.5 million of the $148.3 million it realized from the sale in March of its 50-percent share of Universal Studios Florida, an amusement park near Orlando. Patrick Slattery, an analyst with Toronto-based Maison Placements Canada Inc., said that, compared with the first three months of 1988, Cineplex’s

real operating revenues grew by only 1.5 per cent, while its expenses jumped by one-third, mainly because of distribution rights purchased on some unsuccessful U.S. movies.

Famous Players’ financial performance is harder to evaluate. Because it is a private company, it releases only total revenue figures. On May 3, it reported that total revenues for the first six months of fiscal 1989 totalled $77.2 million, compared with $78.5 million for the same period last year. But a prospectus issued by the company for an abortive 1987 public share issue showed that it was earning a respectable net income of about seven per cent of total revenues, and had little long-term debt.

But many analysts say that the movie industry as a whole is near the end of a four-year upward cycle that could squeeze all exhibitors’ box office receipts. At the same time, they add that one successful blockbuster movie often causes a ripple effect that benefits the entire industry. Said Senior: “If Batman is the next E.T., the attendance figures are going to shoot up. It only takes one picture to do that.” And if Indiana Jones and his crusade are successful, it could benefit both Cineplex and Famous Players in their heated battle for top billing in Canada.

JOHN DALY