Independent Theaters Fight Chains for Access to Hit Movies

Date: 4 May 2005 | posted in: Retail | 1 Facebooktwitterredditmail

At the request of independent movie theaters across the state, California Attorney General Bill Lockyer is investigating claims that major movie theater chains use their clout with distributors to prevent independent theaters from showing many of the most popular first-run films.

At issue is a common industry practice called clearance, whereby theaters are given exclusive rights to show a film within a certain radius around their theaters.

“Clearance used to be a good thing years ago,” explains Tom Kiefaber, who owns the historic Senator Theater in Baltimore and is an active member of the League of Historic American Theaters. “You can imagine when there were 175 single-screen theaters in the city of Baltimore. It helped guarantee more variety to the consumer by ensuring that the same film wasn’t running in the same four or five blocks.”

In those days, the theaters were relatively equally matched as they competed to show the most popular films. But now the industry is dominated by companies that own thousands of screens. According to many independents, the big chains use the threat of pulling a film from their screens nationwide to pressured the distributors into denying competing independent theaters in certain local markets access to first-run movies.

“Clearance started to be used as a tactical anti-competitive weapon,” contends Kiefaber. When General Cinemas opened an eight-screen multiplex three miles from the Senator, the company insisted that distributors not give Kiefaber any of the movies the multiplex would be showing. For the next twelve years, the Senator limped along, unable to screen many of the big blockbuster releases.

“It’s like asphyxiation,” says Kiefaber.

Finally, when AMC took over the multiplex, it dropped the demand for exclusivity, perhaps in part because Kiefaber had become a highly visible and outspoken critic of the practice. Now the Senator, a stunning single-screen art moderne movie house built by Kiefaber’s grandfather in 1939, is once again showing top new releases.

But clearance continues to undermine many independents across the country. In California, the attorney general’s investigation has focused primarily on Century Theaters, the nation’s seventh largest chain. The inquiry was initially prompted by a complaint from state Sen. John Vasconcellos regarding a Century multiplex in San Jose that had blocked distributors from giving films to Camera 12, an independent downtown theater five miles away.

Only DreamWorks refused to uphold Century’s demand for clearance in San Jose, giving Camera 12 such hit films as “The Terminal,” starring Tom Hanks. In what some industry observers believe was retaliation, Century, which operates 1,000 screens in twelve states, showed “The Terminal” in fewer than half of its locations.

Since the investigation began, independent theaters across California have come forward with similar complaints. Steve Mason, co-owner of Cinemas Palme d’Or in Palm Desert, told the Los Angeles Times that Universal Pictures recently stopped sending him films. The studio told him it could not risk jeopardizing its relationship with Century by continuing to screen popular films at the Cinemas Palme d’Or, even though the theater was one of the top grossing venues last year for Universal’s hit movie “Ray.”

Thousands of independent movie theaters have closed over the last few decades. Many of the historic theaters built before 1950 have been demolished or converted to other uses, says Kennedy Smith, executive director of the League of Historic American Theaters. She estimates that there are only a few hundred independent movie theaters left and only a portion of those show first-run films.

The top ten chains account for nearly one-third of all theaters and more than half of the total number of screens.

Smith, the former director of the National Main Street Center, believes that restoring historic theaters to their original purpose—showing Hollywood blockbusters—would provide a significant boost to neighborhood and downtown business districts by generating new consumer traffic and spending.

But those trying to restore historic theaters face multiple challenges. In addition to anticompetitive practices like clearance, many historic theaters were at one time purchased by the chains, shut down, and then sold with deed restrictions that bar the theaters from ever showing movies again. Supporters of historic theaters have called on states to enact legislation that would render such restrictions void. Indiana is currently considering a bill (HB 1308) that would do so.

Another challenge is that over-building by the chains during the 1990s has left the country with a glut of movie screens. Between 1990 and 2000, the nation added some 12,000 new screens, a jump of more than 50 percent, as the chains tried to grab market share from one another by erecting ever larger theaters. Many chains filed for bankruptcy at the end of the decade. Meanwhile, the independents have been left to try stay afloat in a market flooded with excess capacity.

In Baltimore, Kiefaber hopes that the California investigation and the national media attention that it has generated will help level the playing field and generate more grassroots support for independent theaters. Meanwhile, he recently purchased and renovated the Rotunda Cinematheque, a two-screen theater that had been abandoned by Sony and the Loews chain and left empty since 2000.

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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.