90 cinemas close = 900 est. projectors/players/sound hit the second hand market?

[James Gardiner]

Hi all,
I just wanted to get your opinion on this news.
https://celluloidjunkie.com/2023/01/...tre-locations/

but in general, it estimates 90 locations close, and if you average 10 screens per location, let's say 900 Digital Cinema systems, well used, hitting the market.
How is this affecting the industry from a technical support angle? (As most readers here are support-capable agents).
Do most of this 900 screen equipment go to landfill? is there a warehouse just full of this stuff for 5+ years filling latent demand in green field areas. And will it work if the Security Manager (SM needing battery upkeep) in the DCI kit is not well maintained.

Another interesting aspect. And from my experience is what happens to all these abandoned locations.
Leaving kit behind etc.
My experience with getting up abandoned locations is that the previous owners typically destroy the location as much as possible to make it as hard as possible to open up again.
For example, any equipment left was purposefully damaged beyond repair. All cabling, even some power cables, are cut to ensure the site needs to be completely re-cabled for nearly everything. (Typically apart from power as that would be clear negligence and they could be re-percussion)

These events do have effects flowing down into other aspects of the industry.

[Jon Dent]

Our owner is currently looking into a closed AMC for purchase. They stripped out everything important when it closed down: projectors, servers, even the damn popcorn machine. When it comes to major chain theaters, I don't think any of that that stuff hits the secondary market. Most of it probably goes back to the manufacturer.

[Jim Cassedy]

My experience with getting up abandoned locations is that the previous owners
typically destroy the location as much as possible to make it as hard as possible
to open up

I saw a lot of 35mm equipment getting deliberately destroyed by installers during the "digital cinema revolution"
a decade ago. As for abandoned theaters, I've seen things go both ways- - sometimes the equipment is just
left in place, and sometimes, if the owner thinks it's worth it, it's removed and sent to a warehouse for storage
or spare parts, or sold at auction. I think it's all a matter of money for the owners. For some, they might preceive
it as better, tax-wise, just to junk everything and write it off.

Over a decade ago, I worked in an 8 story building that was being abandoned by "the phone company'. My
department was the last to go, due to the technical complexity of moving us to another location. So for two
or three years, we were the ONLY tenants left in the building. Every once and awhile I'd go on a scavanger
hunt on one of the upper floors. There was still a good stash of office supplies and electronic equipment that
had been abandoned. (Or "RIP"d- 'Retired In Place'- as the telco called it) One day, after not having been
upstairs for a couple of weeks, I went up and discovered that all the the toilets and sinks, and water fountains
had been smashed and/or pulled off the walls, and that many wires had been cut in the circuit breaker panels,
leaving only the EXIT signs and emergency lights working. There were also big holes smashed in some of the
internal office walls. At first I thought vandals had broken in and trashed everything, but I later learned that all
this was done deliberately, "for tax reasons". Apparently, by making some of the floors "uninhabitable" the
building owners were either not taxed, or taxed at a lower rate, for the square footage of the unusable floors.

[Mike Blakesley]

Most of it probably goes back to the manufacturer.

Really? Why would a manufacturer want it back, unless it was something fairly new...?

[Martin McCaffery]

Pretty sure for AMC that most of it goes into a warehouse to be cannibalized by their surviving screens..

[John Eickhof]

a lot of the larger circuits used equipment leasing companies (often owned by the circuit) for these larger capitol expenses like digital conversion, thus the primary capitol equipment would be returned to the lease company often then being sold at $.10 on the dollar back to the circuit then the tax write offs would begin....and the circuit avoided bankruptcy yet basically retained all the expensive equipment! welcome to the corporate world! and you wonder why this stuff is so expensive!

[Mark Gulbrandsen]

Regal was in the middle of converting all their locations to Laser Projection before COVID set in. So they may be moving those projectors and related gear to other more viable locations...

[James Gardiner]

Yes, I can see this large amount of equipment becoming available turbo charging green-field openings.

[Mark Gulbrandsen]

Pacific Theaters moved all equipment to one place and held a big auction a couple years ago. This could also be what's going on here. A lot of Pacific's stuff was series 1.

[Rick Cohen]

Not all of the locations Regal announced as closing will actually close. Some might be able to renegotiate their lease to more favorable terms, and be able to stay open. In today's marketplace, an 18 screen complex is too large. It will need to either reduce their footprint closer to 10 screens or close. The reality is that studios are not releasing enough product to support the square footage of an 18 screen megaplex. The business is still in a recovery phase, and may never rebound back to pre pandemic attendance levels. Some of the attrition is due to streaming, some is due to lack of product, some is due to changing consumer habits. The reality is that the exhibition industry is constricting, or right sizing itself down to a level where it can be profitable. In today's marketplace, less screens (unsupported overhead) is better.

[James Gardiner]

Not all of the locations Regal announced as closing will actually close.

I totally agree with your insight, but if they announce closing, it would have to indicate that those negotiations were unsuccessful. You wouldn't announce it otherwise if it's negative on the total valuation and makes it even harder to trade out of the problem.
I would expect, debt recovery and giving back half the screens was not agreeable. So they (The Cinema operator) are walking as they don't want to cover the dept. I also expect the issue of clearances etc was a major chip on the table as for the cinema operator to get a good deal.

This is why I bring up site destruction as if you have to leave, it's probably in your interest no cinema pops up in its place as it bolsters your other sites still open. The customers have to go some where to see the films still.

It's not uncommon that when a community is forced to leave a town, you poison the well as you leave to make sure the invaders cannot settle in.

It looks like it is going to be quite a mess for a while.

This may actually result in considerable work for support entities.

[Mark Gulbrandsen]

More likely, they are under-performing sites they need to get out of in.order to save the rest of the chain.

[James Gardiner]

More likely, they are under-performing sites they need to get out of in.order to save the rest of the chain.

Yes, and no. Price of fuel and convenience is super important now, especially in shorter windows. It would be better to keep sites open and shrink the site to a suitable size that greatly reduces running costs. As you are leaving fertile ground for small indy cinemas to open up in those regions. I.e. companies that don't expect the profit margins the big guys do. And realistically, clearances are all about killing off these small indy locations encroaching on the catchment of a majors.

[Mark Gulbrandsen]

Yes, and no. Price of fuel and convenience is super important now, especially in shorter windows. It would be better to keep sites open and shrink the site to a suitable size that greatly reduces running costs. As you are leaving fertile ground for small indy cinemas to open up in those regions. I.e. companies that don't expect the profit margins the big guys do. And realistically, clearances are all about killing off these small indy locations encroaching on the catchment of a majors.

All of this changes when a chain enters into bankruptcy and the court is not going to be looking at gas prices, or in convenience in relation to going to see movies. Not sure how bankruptcy is handled "down under" and it could be quite different. But in this country, often the court dictates what they can and can't do after hearing reviews of accounting reports for each site, as well as the corporation as a whole..., some times the chain is asked to come up with a plan of action of their own, which often includes consolidation and or shutting down marginal sites, the court has to approve this plan. Sometimes, like in the case of Pacific theaters, the gear from those sites is auctioned off to help pay outstanding debt. Now Regal has never been a chain to write home about, at least I see no reason to dash out and see movies at their sites, nor do I envision a family sitting at the dinner table all talking about that super great Regal Cinema, and lets go see a movie after we're done eating. Anyway, each case is different, and it may be possible to look up the court documents on line to see exactly what the court required of them. Cineplex went through much the same in the States back in the early 2000's. They over built and also made their sites way too small. Very few were over 8 screens, and some were only four. One thing I can say about Cineplex is their sites built in the mid 80's to the early 90's under Garth Drabinsky were for the most part pretty nice places. Back then customers I did work for took over quite a few of their sites and are still operating them to this day. Many locations had curtains, movable masking, wool carpet imported from Ireland, and real marble flooring. One location I later serviced also had escalators and an elevator.

Here is some on line info from Kroll that you are welcome to read through and listen to from the entity that is helping them reorganize.

Edit: You will also find Bankruptcy info in there for DeLuxe Entertainment, and Frank Theaters,

[James Gardiner]

Hi Mark,
In a recent news article it has the sites and screen numbers... https://celluloidjunkie.com/2023/01/...tre-locations/
the sites listed, on average had 12 screens each. (rough guess)

I have been a director on a public company and have been through administration for companies in Australia. I imagine there is a similarity.
It really depends on the administrator. Generally, administrators are not smart in terms of understanding all the businesses they are running for the period and don;t do a great job, Incumbent boards and executives try to lead them but at the end of the day, they do what they want. In Australia, administrators are considered bottom feeders, with regulations not strong enough and they tend to do stuff in their own interest, but that's another story.

However, being in a meeting with an Administrator, it's not as sophisticated as you appear to think. Typically reports are made about the profitability and viability of sites, nothing too detailed, with some input from management on what is best, and then the administrator does whatever they like. They do not care if it has good carpet or elevators or any of that detail. It's all about numbers at this point. The Administrator will tell his team (Not the cinema management, who are only there to help at this stage) to see what can be done to mitigate dept and rental costs going forward (i.e. they negotiate the deals with landlords) and based on that, he draws up a spreadsheet and conditions for who lives and dies.

The strategic value of keeping a not-so-profitable site alive is typically not on an administrator's radar. Also, effects of Clearances and how they are used to nudge the market are also not in consideration as.. Its the type of activity that attracts DOJ attention, and an Administrator would not take those type of strategic actions into his factoring. Why would he take any risks, not his problem.

Going into administration is a role of a dice. I think it is very likely, considering we are heading into a recession, Cineworld will end up completely liquidated. I cannot see any other large major rolling that dice on spending big and getting into substantially more dept when headed into such a big unknown. Plus BO is predicted to be significantly below pre-pandemic levels for the foreseeable future. In my opinion, the lower average visit per year is down, and due to the population learning of other options, they are not likely to stop using them, and as such, this new lower average visit per year is perminent. Good content is the main factor affecting BO going forward.

Though BO will grow as a lot of the second hand equipment is rushed into greenfield areas opening up new cinemas. At the end of the day this is a supply and demand restructural issue that can be addressed over time.