Cineplex merger
It took almost two years to complete, but the acquisition by #3 US movie theater chain Loews Cinepl3x Entertainment by #2 AMC Entertainment of #3 was finally hammered out. The resulting company, still in private hands, will own 450 cineplexes with a total of 5,900 screens in 13 countries.
In spite of the merger, the combined company will still be #2 behind industry leader Regal Entertainment, which owns 17% of the screens. The new company will have a 12% market share.
The original merger was halted when both companies were bought out. Both companies are now owned by some of the world's biggest equity groups-AMC by JP Morgan Partners and Apollo Management, and Loews by Bain Capital and the Carlyle Group. It seems that the Carlyle Group will sell its portion, but Bain will hang in.
The merger will give the larger AMC chain a better bargaining position with the studios, but the move comes in the midst of a big drop-off at theatre box offices. While some big films are doing quite well, the midrange films are attracting fewer and fewer moviegoers. Some analysts think this is the logical result of the rise of both DVDs and pay-per-view. While big "event movies" like the latest Star Wars or Marvel comic book film attract a good audience who want the full theatrical experience, that does not compensate for the lackluster showing of more middle-of-the-road films, especially at prices of $10 or $12 or more.
Consolidation should make some things easier for the theater chains, according to a Los Angeles Times story ("AMC and Loews to Merge as Consolidation Continues," 6/21/05):
Consolidation benefits theater chains by lowering their administrative and supply costs, and also by potentially giving larger chains more leverage to negotiate better "film terms" with the studios. Currently, studios keep 60% to 70% of a movie's first-weekend gross. With the DVD release timeframe shrinking from six months to as little as three months for most movies, mergers also could put theaters in a better position to push for DVDs to be released later.
In some cities, like Chicago, the move will put a majority of the screens in the hands of one company. Expect some closings to save money After all, these chains run pretty much the same films. Also, antitrust regulators may make the chain sell off some of their theatres in areas of highest concentration.
In other recent news, Canadian chain Cineplex Galaxy bought Viacom Inc.'s Famous Players, giving the buyer 60% share of the Canadian market. More US mergers are widely predicted, as small chain face difficulties.
