Company reaches 'critical mass' in Gotham
NEW YORK — Cablevision Systems Corp. doubled up on its bet in exhibition by agreeing Thursday to buy 31 theaters in New York and Chicago from Loews Cineplex Entertainment Corp. for $92 million.
The acquisition comes just weeks after Cablevision jumped into theatrical exhibition by agreeing to buy New York-metro exhib Clearview Cinemas for $160 million, hoping to use Clearview’s theaters to cross-promote its cable systems and other live-entertainment offerings, such as Madison Square Garden and Radio City Music Hall. (Cablevision owns Radio City Prods., which operates Radio City).
The addition of the Loews theaters, 20 of which are in Gotham or its suburbs, “is a natural extension” of the Clearview deal, giving Cablevision a “critical mass” in New York exhibition, said Cablevision CEO James Dolan.
The 20 New York theaters include seven suburban plexes not in the original sale package that Cablevision wanted and Loews was willing to sell for $6.7 million (included in the $92 million price). These suburban theaters are in Long Island, Connecticut and New Jersey, all areas where Cablevision is the cabler.
Not the last acquisition
Cablevision comes out of the acquisition with ownership of 65 theaters, with 310 screens operating through Clearview. And this is not likely to be the last exhib acquisition for Cablevision, execs indicated.
Cablevision had been seen as a frontrunner in the bidding for the past 10 days (Daily Variety, Aug. 19) although it faced serious competition. Sources said a consortium of real estate and financial players offered a higher price than Cablevision, but the group’s offer was based on a complicated financing structure that was seen as riskier than Cablevision’s straightforward cash offer.
Cablevision’s offer was also seen as more likely to pass scrutiny with the Department of Justice, which mandated the sale of the theaters as a condition of agreeing to the merger of Loews Theaters and Cineplex Odeon last spring. Real estate groups were expected to develop some of the theaters for other uses, whereas the antitrust regulators wanted to bring in a new operator to compete against Loews Cineplex.
A spokeswoman for Loews confirmed that “certainty of closing and the credibility of financing” were important components in deciding on the winning bidder, rather than just the price level.
“We are pleased to have been able to comply with the Department of Justice and to now have this process behind us,” said Loews Cineplex CEO Lawrence Ruisi, who added that the cash raised from the sale would be used to reduce debt. CS First Boston advised Loews on the sale.
Willing to take Chi theaters
In addition to the real estate group, other bidders included New York exhibs United Artists Theaters and City Cinemas, sources said. But Cablevision’s offer was both higher and involved a willingness to take the Chicago theaters. Most other bidders were interested only in the New York properties.
Not that Cablevision plans to stay in the Windy City. Dolan said “we will sell the Chicago theaters,” although he stressed “we won’t sell … in a fire sale.”
The big question about the deal for Cablevision is the ability of the Gotham theaters to withstand forthcoming competition from five megaplexes scheduled to open in Gotham in the next year or two, including a 24-screen megaplex under construction by AMC Entertainment at 42nd Street and a new plex at Kips Bay on the East Side of Manhattan. Most New York movie theaters are old, one- or two-screeners.
Clearview CEO Dale “Bud” Mayo, who will run the theaters, said Cablevision took into account the competitive implications of those megaplexes when formulating its bid. But discussion of the subject at a press conference highlighted the subject’s sensitivity for Cablevision.
“We have satisfied ourselves that we will have a very competitive position and continue to do so in all but a handful of theaters,” Mayo said. Asked to clarify, he said it was “obvious” that the 34th Street Showplace theater would be “seriously impacted by the pending Kips Bay” megaplex.
But when asked how Cablevision would deal with that competition, Mayo’s boss, Madison Square Garden CEO Dave Checketts, abruptly cut off the discussion.
Hurt by megaplexes
Many industry observers believe the theaters will be substantially hurt by the megaplexes, but Mayo has long argued that older people in particular dislike the crowds at megaplexes and will stick with smaller neighborhood theaters if they are properly run and offer quality amenities.
That has been Clearview’s strategy outside New York City, and Mayo said it would continue to be the plan for these theaters. Mayo said the budget for renovating the theaters had not been determined “but we know it’s going to be substantial.”
The theaters are now generating cash flow of about $10.8 million, although outsiders believe the theaters could be more profitable if renovated.