Cos. look to exploit newest projection technology

HOLLYWOOD — Imagine a chain of movie theaters featuring projectors without film — and entertainment other than movies — and you get the idea behind the budding exhib niche loosely called “private cinema networks.”

A handful of such non-affiliated outfits, one featuring concerts and sports, another concentrating on digital films, and a third targeting sponsored fare, are looking to fill the programming needs of exhibitors, who find themselves with too many screens and too little revenue from conventional films to turn a comfortable profit.

“I think their idea is just different enough and smart enough that it just might take off,” Miramax prexy Mark Gill says of one such company, Silicon Valley-based Enterprise Broadcasting Corp. “I don’t view it as competition to movie theaters at all, because they’re not showing movies, and in some cases, will promote movies.”

All of the companies look to exploit the burgeoning rollout of electronic projection technology. And some of them hope to snap up screens discarded by conventional exhibs, figuring that adding event programming to the exhibition mix can only expand the industry’s total revenue pie.

Tustin, Calif.-based InTheater Entertainment and Gotham’s Madstone Films claim to be nearing an announcement of their first locations, which will be retrofitted for digital projection of concerts, sporting events and — in the case of Madstone — some movies. Execs are negotiating initial leases and strategic agreements to secure screens — usually in revamped conventional theaters.

Enterprise Broadcasting Corp. expects to have eight screens ready for operation by the third quarter. And New York-headquartered Arenaplex projects several hundred digital locations by the end of 2002.

InTheater CEO Gary Standard says the company already has an agreement with an unspecified exhib to dedicate “hundreds” of screens to such uses, and the company will announce details of the relationship in a couple of weeks.

“The mainstay of it is going to be concerts,” Standard says. “We’re not going to be doing films at all.”

InTheater plans to have its programming in at least 50 venuesby year’s end.

“It’s a time when movie theater owners are looking for additional sources of revenue,” Standard observes. “We think this is a unique opportunity.”

Seed funding for the venture comes from unspecified strategic investors. And while InTheater has signed up only one exhib so far, Standard says it’s big enough to “put the company into a positive cash flow position.”

“Our business plan calls for us to deal with multiple exhibitors,” Standard says, adding that the company will bear the financial burden of converting all dedicated screens to digital projection.

Madstone co-toppers Chip Seelig and Tom Gruenberg recently tried unsuccessfully to buy Silver Cinemas, parent to arthouse circuit Landmark Theatres that’s currently in bankruptcy reorg.

Madstone wanted to convert part of the circuit to digital projection and program those screens with the digital video pics it finances through a movie-production division.

Madstone execs are in negotiations for an alternate source of digital screens.

But for the time being, they will say only that options include the outright purchase of some screens from larger circuits that are downsizing or from strategic alliances with exhibs to lease screens in large multiplexes.

“We’re market-driven, so as we get into the market and see what consumers want, we’ll have a business plan to deliver that,” says Seelig, a former partner at blue-chip investment bank Goldman Sachs, who adds that Madstone has 10-15 markets in which it will test its business plan, with an eye toward hundreds more. In addition to running Madstone-produced films in its digital theaters, the company sees music, sports, fashion and business as meaty niches for programming. It plans to have some number of screens up and running by the fourth quarter and is testing a Barco digital projector in an undisclosed site in Manhattan.

Meanwhile, EBC’s CEO, Tom Wade, says his company’s business plan is a bit different than the model for either InTheater and Madstone.

For starters, its screens will be placed in shopping malls, not standalone multiplexes. Though a few of those mall screens may involve conversion of screens in conventional multiplexes, most will be placed in mall concourse areas to take advantage of optimum foot traffic, Wade says.

In another deviation from other private cinema networks, EBC says most of its programming will be comprised of “sponsored” shows similar to TV specials, though the Scotts Valley, Calif.-based company figures to program some arthouse pics and sporting events as well.

“We’re almost a next-generation broadcast network,” Wade says, noting that the company will run more on distribution and advertising fees than on in-theater ticket sales.

Wade pictures programming created by some sort of conventional entertainment medium — say, a national magazine, he hints — that pays EBC a distrib fee recouped by selling sponsorships and maybe a commercial or two.

The company also expects to lease its theaters for test-screening of Hollywood movies. Seats in EBC auditoriums will be equipped with touch-sensitive monitors for easy recording of moviegoer reactions to tested pics.

EBC also intends to run movie trailers as interstitial programming, with Miramax Films already planning to provide such materials.

Ultimately, Miramax’s Gill believes the key to EBC’s success will be in the quality of its programming.

“It can’t feel like infomercials,” Gill says. “No 800 numbers running across the screen, in other words.”

Sony, JVC and Dolby have signed aboard as EBC “partners,” providing specially designed technology for a prototype theater in a “secret” location in Scotts Valley, Calif., Wade says.

Plans call for a 1,000-screen network to be in place within four years, says Wade, whose primary EBC partners are husband-and-wife fast-food millionaires Don and Jean Schrader.

Another player targeting nonfilm options for theaters, Arenaplex, was formed by a group of entertainment veterans who aim to establish and grow digitally equipped cinemas offering music, sports and other content (Variety, Feb. 12-18).

Arenaplex principals Ivan Cheah, Ross Entwistle and Alan Barson say the concept may take off more quickly in Europe, partly because U.S. exhibs’ current woes has undercut financial support for exhibition projects.

But no details have emerged yet on where its first screens will be located or with whom Arenaplex might pact.

Analysts say private cinema networks may take hold eventually, but they suggest it remains to be seen how far the fledgling concept can fly.

“I think there’s potentially a market there, but it isn’t a slam dunk,” says David Davis, senior veep and analyst at investment firm Houlihan, Lokey, Howard & Zukin in Los Angeles.

“Every time you’re putting some kind of alternative programming into theaters, it’s peeling off a movie. So it’s probably best for certain times of year when movies play less deeply, like the spring and the fall.”

(Don Groves in Sydney contributed to this report.)

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