Exhib biz watching closely

It will be several more months before the industry’s many bankruptcy reorganizations are completely sorted, and longer still before true stability returns to exhibition.

But already there are intriguing glimpses of possible trends to come, including consolidation, multipurpose theater uses and digital projection. And a single name figures in any discussion of all three areas: Philip Anschutz.

A well-established entertainment entrepreneur after earlier consolidation moves in the railroad biz, sports franchises and arenas have been Anschutz’s core businesses in recent years. But more attention is being given in Hollywood to his burgeoning hold on theater assets and coinciding control of Qwest Communications, a fiber-optics networker.

With his Qwest holdings, the acquisition last year of United Artists and other recent moves in exhibition, some observers suggest the low-profile billionaire may have a digital cinema play up his sleeve.

But it’s no use asking Anschutz or anyone connected to the media-averse tycoon whether such speculation is accurate. He never talks to the press and keeps tight rein on business lieutenants.

Other areas of feverish guesswork involve Anschutz’s aggressive acquisition of the distressed debt of ailing Regal Cinemas and his involvement in an offer for struggling Edwards Theatres. Should Anschutz turn his Regal debt holdings into equity — that’s what he did at UA — he’d immediately vault to an unprecedented market share among U.S. exhibs.

Add Edwards or other theater assets to the mix, and some say Anschutz might acquire enough clout to tilt the balance of film-licensing distrib negotiations his way.

Questioning objectives

“I don’t know for sure if he’s a strategic investor or a financial one at this point, but when someone is involved in three situations, you have to start wondering,” muses a top investment community insider.

In the Edwards situation, Anschutz and vulture fund Oaktree Capital entered into a preliminary “recapitalization” agreement that a well-placed source says would give Anschutz and Oaktree a majority stake, and the Edwards family a minority interest. Negotiations are under way to follow up with a definitive agreement for bankruptcy court review.

Elsewhere, exhib watchers are looking for additional players to enter the scene, similarly snapping up discounted theater assets for big business plays.

One such entrant recently surfaced in an auction for arthouse parent Silver Cinemas with an intriguing bent toward digital cinema. Madstone Films, a small Manhattan-based film producer, is negotiating to buy the Landmark Theaters parent for about $37 million with the intent of converting at least some of its venues to electronic projection.

The proposed purchase price compares with the $65 million Silver paid a few years back just to acquire the Landmark arthouse circuit. (Most of the Dallas-based parent’s other holdings are discount theaters with low screen counts.)

Madstone execs have quietly confirmed that a digital cinema vision drives their quest. And unlike what’s assumed to be a long time for any Anschutz move into digital projection, Madstone is hot to trot on such a transition.

That’s because the company produces motion pictures shot exclusively in digital video. Still, it remains to be seen if Madstone can satisfy a bankruptcy court that its takeover offer adequately compensates Silver creditors.

Meanwhile, a group involved in a recent agreement to restructure No. 2 U.S. exhib Loews Cineplex also has a digital cinema connection. The group is led by Canadian businessman Gerald Schwartz and has agreed to take an 88% stake by converting to equity some $250 million in debt and assuming hundreds of millions in other loans.

Other participants in the group include Pacific Capital, an investment firm headed by fiber-optics entrepreneur Gary Winnick. That’s led some observers to suggest that the group’s taking over Loews could speed the circuit’s introducing digital projection to its theaters with help from Winnick’s Global Crossing, a fiber-optics networker.

“Winnick’s proposed involvement suggests that digital cinema could be coming sooner rather than later,” figures analyst David Davis, senior VP at investment firm Houlihan, Lokey, Howard & Zukin in Los Angeles. “Digital cinema also would benefit from consolidation in general in the exhibition sector, because of the deep pockets necessary to finance the installation of digital projection.”

New source of revenue

Over at Anschutz Rumor Central, there’s speculation that — in addition to possible digital conversions — the entertainment financier may introduce the first meaningful diversification of content into his theater properties. To date, only some skimpy revenue from venue rentals for corporate conferences has been added to the mix at various U.S. circuits.

But some see Anschutz as uniquely positioned to introduce concerts and other entertainment events into theaters. Others even suggest he could play movies in his sports arenas, though few suppose any of the multipurpose applications will gain significant hold in the near term.

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