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Wall street guesses 07 Feb 2001 16:14 #1195

  • Mike
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February 5, 2001

And Now, Our Digital Presentation

Philip Anschutz made his fortune in oil, railroads and real estate. Now he's poised
to push movie exhibition into the wired age.

By Laura Rich

LOS ANGELES – Going
to the movies ain't
cheap. In cities like
Los Angeles and New
York, tickets can run
as high as $10 apiece.
Nationwide, prices
climbed 35 cents last
year to $5.35 (and
that doesn't include
the $3.25 you pay for
a medium soda).
Nevertheless, theater owners are facing
hard times. In fact, most of the major
chains are in bankruptcy. Which explains
why buying movie theaters turns out to be
pretty affordable right now.

And that's just the way Philip Anschutz
likes it. The conservative Denver billionaire
made his fortune by picking up businesses
at fire-sale prices and turning them
around. He did it first by buying
undervalued, untapped oil fields in
Wyoming in the 1960s. In the 1980s he
acquired the Southern Pacific Railroad,
made it profitable and then used its
extensive rights-of-way to lay fiber-optic
cables for his upstart telco Qwest
Communications. In the process, the rarely
interviewed Anschutz, 61, worked his way
up to No. 6 on the Forbes 400, right behind
investor Warren Buffet and Intel (INTC) 's
Gordon Moore. Anschutz's net worth is
estimated at $18 billion.

Now he is after theater chains. Like a
1980s-style corporate raider, he quietly
bought up the debt of the bankrupt United
Artists Theatres last year, seizing control
of the 1,623-screen chain Jan. 22; his
maneuver brought him a 60 percent
interest for $65 million. Now he's poised to
get major stakes in two other financially
shaky theater chains: Regal Cinemas – the
largest in the United States with 4,395
screens – and Edwards Cinemas, which has
712 screens. If he succeeds, Anschutz will
lay claim to about 19 percent of the
nation's 37,185 screens – more than
anyone else in the country.

But there may be more to Anschutz's shopping spree than an inability
to resist rock-bottom prices. He appears to be building the first digital
theater empire. With UA, Regal and Edwards he's got the venues.
With Qwest he's got the pipes. And he even has the content:
Anschutz recently launched his own family-friendly production
company, Crusader Entertainment. He also owns the Los Angeles
Kings hockey team and a stake in the Staples Center, home arena to
the Kings as well as the NBA's Lakers and Clippers. But what
Anschutz really needs is the kind of entertainment that will fill his
nationwide chain of theaters. That's where Hollywood comes in. But
will an old-economy industrialist be the force that finally pushes the
entertainment industry into the digital era?

While Anschutz won't discuss his plans publicly, those who have dealt
with him and his companies will. "Phil Anschutz has a bug up his butt
about this and is convinced he's going to blaze the trail," says
Jonathan Taplin, president and CEO of Intertainer, which distributes
movies over digital cable lines.

AT THE CINEPLEX: ALL ANALOG, ALMOST ALL THE TIME

Few theater chains have been willing to spend the money – about $150,000
per screen – to convert to digital.
CHAIN
NUMBER
OF
SCREENS
DIGITAL PROGRESS
AMC
Entertainment
2,790
Nine theaters equipped for digital projection.
In November, beamed Bounce via satellite.
Edwards
Cinemas
712
No digital theaters.
General
Cinema
1,041
One theater in Boston equipped with digital
projector; in May screened Dinosaur in digital
format.
Loews
Cineplex
2,926
No permanent digital houses. Showed Star
Wars: Episode I digitally in two theaters in May
1999.
Regal Cinemas
4,395
Plans to test digital projectors in a small
number of theaters within a few months.
United Artists
Theatres
1,623
No digital theaters and the least active in
building megaplexes; tends to lag industry on
innovation.
February 5, 2001

And Now, Our Digital Presentation

(Page 2 of 2)

One factor that may come into play in
Anschutz's Hollywood dealings: his ties to
conservative causes. His family foundation
has backed right-leaning groups such as
Morality in Media, and he has fought hard
against gay rights in his home state of
Colorado. His movie production company
clearly plans to take a G-rated path. "We
are committed to making high-quality
movies that send a positive message and
are commercial, entertaining and suitable
for all age groups," read a statement
released last month by Crusader
Entertainment.

Such fare may not have the widest
commercial appeal, but Anschutz's digital
theater push makes economic sense.
Although it's expensive to install digital
projectors in movie theaters – about
$150,000 per screen – a revamped
distribution system would cut delivery
costs, give theater owners more flexibility
and improve the quality of the pictures
audiences see on the screen.

Digital distribution, moreover, beats today's
system, which hasn't changed much in 30
years. Studios ship 35 mm prints to
theaters around the country. Each print
costs about $1,500. For a picture sent into
wide release – as many as 3,000 theaters
– the cost of prints can total $4.5 million.

With digital distribution, theaters would be
able to receive movies – and potentially
other content – over high-speed cable
lines, via satellite or on disc. That would
give exhibitors the ability to quickly switch
movies, adjust schedules and adapt to
audience demands. Theaters without
digital capabilities would be at a
competitive disadvantage.

At the moment, the industry is in no
position to make the huge capital
investment needed to convert movie
theaters for digital projection. Indeed,
there's an oversupply of movie screens, a
legacy of a mid-1990s building boom
exemplified by AMC Entertainment (AEN) , which built the world's
largest multiplex in the Chicago suburb of Warrenville – 30 screens
complete with wide seats, an espresso bar and three restaurants.
Other theaters scrambled to keep up.

Now they are staggering under tremendous debt. In the last year,
four chains filed for bankruptcy. In January, Loews Cineplex, the
nation's second-largest theater chain, said it would shut about 675 of
its nearly 3,000 screens. Over the next three years, AMC (which is
not in bankruptcy) expects to close as many as 548 screens out of
2,790.

If the switch to digital happens, theater owners don't want to foot
the entire bill as they have done each time they've needed to
upgrade their sound systems. After all, theater owners argue, the
studios stand to save as much as $800 million a year by slashing
duplication, transportation and security costs. The question is
whether Anschutz and his fellow theater owners can make Hollywood
play ball.

Meanwhile, the studios have been experimenting with ways to deliver
digital copies of movies. Last fall, Miramax used Boeing Satellite
Systems' Cinema Connexion to beam a copy of Bounce to an AMC
theater in New York's Times Square. The idea was to test the system
and gauge consumer reaction to the digital picture, says Mark Gill,
president of Miramax/LA. The system worked, and Gill claims
moviegoers preferred the digital projection over the celluloid version.

Even so, Miramax won't be switching to an all-digital plan anytime
soon. And citing antitrust concerns, Gill doesn't expect studios will
foot the bill for the conversion. "A studio consortium won't get past
the Justice Department," he says, in reference to an idea within the
industry that to retain control over digital distribution the studios
would create their own system. "But since when could you get seven
studios to agree on anything?"

And that may be just the opening Anschutz needs. Source: companies listed

Mike Hurley
www.bigscreenbiz.com
Michael Hurley
Impresario
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Re: Wall street guesses 07 Feb 2001 16:21 #1196

  • Mike
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It's funny when people write about something they know nothing about.

Quoted from the article......

That would
give exhibitors the ability to quickly switch
movies.... "is this a big issue? we currently move prints in a few minutes. Take down and make-up still take time but compared to 150,000.00 per digital screen?" ", adjust schedules and adapt to
audience demands."Oh yes! I cans see this being no problem with the distribs who already are insane about creative programming by theatre operators."

Mike Hurley
www.bigscreenbiz.com
Michael Hurley
Impresario
The administrator has disabled public write access.
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