Of Movies And Big Mergers
Two major theater chains want to link up, but critics say prices, selection may suffer.
Outside of Manhattan's Cineplex Odeon on 86th and Lexington, high schooler Michelle Cutkelvin is one of the few moviegoers milling in the spring sunshine who has heard the merger news - and she didn't like it.
"I heard they were going to raise the prices and that's wrong," she says. "With popcorn and stuff, it already costs me almost $20 to go the movies."
By the end of April, Canadian-owned Cineplex hopes to have the government's blessing to merge with Sony Loews Theatres. The billion-dollar deal would create one of the largest and most powerful chains of urban theaters in the country. And more mergers are on the horizon.
"The industry is consolidating at a breathtaking clip and consumers should take note," says lawyer Clint Krislov.
Consumer activists are convinced this consolidation will crowd out competitors, usher in higher prices, and leave consumers with far fewer choices at the Saturday matinee.
The theater owners refute such concerns. They say they're just trying to improve the viewing experience by upgrading to more luxurious stadium-style mega-plexes with wide screens, unobstructed views, and comfortable seats - with more leg room. The problem is they need the combined clout and cash of more than one company to afford it.
"We're doing this to be able to bring new state-of-the-art complexes to America and the rest of the world," says Howard Lichtman, an executive vice president of the Toronto-based Cineplex Odeon. "This is all about getting more people to come to the movies, not raising prices."
Indeed, a number of chains are joining forces to bring in moviegoers. Regal Cinemas, Act III, and United Artists are about to join forces to create a megachain with more than 5,300 screens. That's more than double the 2,700 screens now owned by the nation's largest theater company, Georgia-based Carmike Cinemas. The Cineplex-Sony merger would come in just below that, at more then 2,600 screens.
Called Loews Cineplex Entertainment, the company would dominate several major cities, including New York, Chicago, Washington, and Houston. In Manhattan and Chicago, it would control about 70 percent of the screens. Consumer activists say that raises antitrust questions.
"This could be a real problem if the merger will create a situation where the consumer doesn't have choices, either in terms of how much they'll pay, the kinds of movies they'll see, or the quality of service they'll get," says Caroline Shoenberger, Chicago's commissioner of consumer services.
Commissioner Shoenberger and New York's public advocate Mark Green have both formally opposed the merger, which is being reviewed by the Justice Department and attorney general's offices in four states. The Hotel Employees and Restaurant Employees International Union has weighed in against it, contending all of their members will be affected because they go to movies.
A Chicago resident has also brought a class-action lawsuit to block the merger in it's current form on behalf of all moviegoers. "[It will work] to the severe disadvantage of consumers because it will eliminate competitive pressure to expand content and keep the price down," says Chicago-based attorney Mr. Krislov, who is representing the plaintiffs.
The theater owners say that's nonsense. They argue that even if they end up controlling a large portion of the screens, anyone is welcome to come in and compete with them at any time. They also say their goal is to woo moviegoers with a better experience.
"There is no correlation between the number of competitors in our industry and pricing," insists Cineplex's Mr. Lichtman. "You price according to the market and the consumer's ability to pay, because you want them to come to the movies."
But an analysis done by the hotel and restaurant employees union found otherwise. In Albany, N.Y., where one company controls about 70 percent of the city's screens, the prices are higher than in both Buffalo and Rochester, where there is far less concentration of ownership.
In Manhattan, ticket prices have jumped 75 percent since 1985. At $8.75 for an adult - with no discount for a matinee - the city already has the highest prices in the nation.
Meanwhile, with real-estate prices high and tough competition for the rights to show Hollywood's hottest products, Mr. Green says it's an extremely difficult market to crack. "The small chains and independents aren't financially or logistically capable of going head to head with the large chains," he says.
Many analysts predict the Justice Department will force the companies to sell some theaters in the most highly concentrated cities, if it approves the merger.
Been here before
This is not the first time the government has raised questions about the way Hollywood does business. In a landmark 1948 antitrust case, the Justice Department charged Paramount and seven other major studios with price fixing and attempting to monopolize the trade in motion pictures through theater ownership. The Supreme Court agreed and required the studios to sell off their theater holdings and restricted them from reentering the exhibition business.
In 1986, the Justice Department modified its stance, saying that it wouldn't prohibit major studios from owning theaters, but it would monitor them to ensure competition was not fettered.
Some antitrust lawyers contend the Sony-Cineplex deal does just that. Both Sony Loews and Cineplex are owned, in part, by companies that also produce and distribute movies.
"[The company's] common ownership with major motion-picture studios could give it a major advantage in securing for exhibition the most popular motion pictures," contends Green. "Decades of antitrust rulings and decrees intended to prevent such advantages would be in danger of unraveling."