Most of the major U.S. cinema chains are facing bankruptcy. And that's just the way Philip Anschutz likes it. The conservative Denver billionaire is in the market for movie-theatre chains, with plans to turn them into digital distribution centres for the latest releases.
Anschutz made his fortune by picking up businesses at fire-sale prices and turning them around. He did it first by buying undervalued, untapped oil fields in Wyoming in the 1960s. In the 1980s he acquired the Southern Pacific Railroad, made it profitable, and then used its extensive rights-of-way to lay fibre-optic cables for his telco, Qwest Communications International Inc. Now his net worth is estimated to be US$18 billion (19.5 billion euros).
Last year, he quietly bought up the debt of the bankrupt United Artists Theatre Circuit Inc., seizing control of the 1,623-screen chain on 22 January. Now he's poised to take major stakes in two other financially shaky movie-theatre chains: Regal Cinema Inc. - the largest in the US with 4,395 screens - and Edwards Cinemas, which has 712 screens. If he succeeds, Anschutz will lay claim to about 19 percent of the nation's 37,185 screens - more than anyone else in the US.
But there may be more to Anschutz's shopping spree than an inability to resist rock-bottom prices. He appears to be building the first digital-cinema empire. With UA, Regal and Edwards, he's got the venues; with Qwest he's got the pipes. And he even has the content: Anschutz recently launched his own production company, Crusader Entertainment. What he really needs, though, is the sort of content that will fill his nationwide chain of theatres. And that's where Hollywood comes in.
Anschutz won't discuss his plans publicly. But one factor that may come into play in his Hollywood dealings is the extent of his ties with conservative causes. Anschutz's Family Foundation has backed right-leaning groups such as Morality in Media, and he has fought hard against gay rights in his home state of Colorado. Crusader Entertainment told the world last month that it was "committed to making high-quality movies that send a positive message and are commercial, entertaining and suitable for all age groups".
Such fare may not have the widest commercial appeal, but Anschutz's digital-cinema push makes economic sense. Although digital projectors are expensive to install - about US$150,000 per screen (163,000 euros) - a revamped distribution system would cut delivery costs, give cinema owners more flexibility and improve the quality of the pictures audiences see on the screen.
And digital distribution beats today's system, which hasn't changed much in 30 years. Studios ship 35mm prints to cinemas across the US, each print costing about $1,500 (1,630 euros). For a picture sent into wide release - to as many as 3,000 screens - the cost of prints can total $4.5 million (4.9 million euros).
With digital distribution, cinemas would be able to receive movies - and potentially other content - over high-speed cable lines, via satellite or on disk. That would give exhibitors the ability to switch films quickly, adjust schedules and adapt to audience demands. Cinemas without digital capabilities would be at a disadvantage.
At the moment, the industry is in no position to make the huge capital investment needed to convert movie theatres for digital projection. Indeed, there's an oversupply of screens, a legacy of a mid-1990s building boom that left the chains crippled with debt.
If the switch to digital does go through, cinema owners won't want to foot the entire bill - as they have done each time they've needed to upgrade their sound systems. After all, argue cinema owners, the studios stand to save as much as $800 million (870 million euros) a year by slashing duplication, transportation and security costs.
The question is whether Anschutz and his fellow cinema owners can make the Hollywood studios play ball. Mark Gill, president of Miramax/LA, doesn't expect that studios will pay for the conversion. "A studio consortium won't get past the Justice Department," he says, in reference to an idea within the industry that in order to retain control over digital distribution the studios would join forces to create their own system. "But since when could you get seven studios to agree on anything?"
And that may be just the opening Anschutz needs.