Regal CFO Hints That Theater Owners Will Fight If DOJ Challenges Clearance Deals

Regal Entertainment Group

The controversial agreements that give big exhibition chains a monopoly in a local territory on showings of some blockbuster films have “always been upheld” in courts, Regal Entertainment CFO David Ownby told an investor gathering this morning. And the nation’s largest theater owner believes “clearances are good” for customers and the industry.

That suggests Regal might fight back if the Justice Department raises antitrust objections to the deals that independent theater owners say unfairly puts them at a disadvantage in trying to compete with large chains. DOJ has asked Regal, AMC Entertainment, and Cinemark for information about the terms they negotiate with studios, often a precursor to a challenge.

Ownby declined to go into detail about the information requests, although he says that “obviously we’ll comply” with them. Meanwhile, Regal execs “look forward to the day when that’s behind us.”

The CFO also seemed nonchalant about another hot industry issue: negotiations with studios over revenue splits for potential blockbusters.

“Obviously the studios are going to negotiate tooth and nail for every dollar,” Ownby says. “We’re going to do the same. We have the size and scale, so they need our screens. And we need their films.” He predicted that splits will continue to hover around 50/50.

Studios appear to have backed away from efforts to offer movies to video on demand audiences in the period shortly after their release when they’re still in the theaters. After a few skirmishes –including Universal’s aborted 2001 plan to show the Ben Stiller-Eddie Murphy film Tower Heist on premium VOD —  “the windows have been very stable,” Ownby says. Studios are “much more focused on how they sequence home windows” with DVDs, subscription and pay TV. “That has left the theatrical window in a very stable place and a very good place.”

In making an investment case for his company, Ownby called Regal “the industry leader in a stable and mature business…You don’t always get that from the day to day press” that focuses on the ups and downs of weekend box office sales. The chain continues to look for theaters to buy and build.

In addition he says that Regal is “in the middle innings” of an effort to install luxury seating for as much as 30% of its screens. AMC led the charge on this strategy. “We were a little surprised at how successful some of the initial premium seat initiatives were,” Ownby says. It costs as much as $225,000 to upgrade a venue. But it results in attendance growth rates that range from 30% to 100%. “With those numbers, its easy to see why you would plow dollars into that.”

Do upgraded theaters cannibalize someone else’s attendance — potentially creating a costly arms race for the industry?  Yes, but he adds that “we’ve also seen market growth.” As a result, he doesn’t worry as others also invest in cushy recliners and other amenities. “We believe that’s an all-boats-rise situation.”


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