Local movie theater market headed for change

By Andrew Gomes
Advertiser Staff Writer

After years of explosive growth, the opening scene has been set for what experts are billing as the impending consolidation of the movie theater industry in Hawai'i.

The Cinerama theater closed in 1999 after falling victim to Hawai'i's oversaturation of movie theaters. Experts say adding more screens in Kaka'ako and Windward O'ahu may cause more closures. Advertiser library photo • Nov. 28, 1999

This summer, another 26 screens are due to open in what experts say has become a saturated market. It is those screens — 16 at Ward Centres and 10 at Windward Mall — that industry leaders say will likely be a catalyst for big changes in the market.

"Some theaters that have been here a long time," says Phil Shimmin, president of Consolidated Amusement Co., "will go away."

Which theaters might become casualties, and when, is not certain. The one thing that is certain is that the three major theater operators in Hawai'i will be forced to make tough decisions.

Ground zero

Theater operators on the Mainland have already been grappling with such decisions, some with disastrous results. Two years of declining attendance forced many of the country's largest theater chains into bankruptcy last year. Nationally, the number of screens fell from a peak of about 38,000 in the middle of last year to 36,379 at the end of 2000. Still reeling from overbuilding, exhibitors continue to close about 200 screens a month.

So far, Hawai'i has been unaffected by the Mainland trend, with dozens of new screens being added even during some of the state's worst economic years. As of 1997, the latest year for which figures are available, Hawai'i's movie exhibition business was a $62 million industry employing 1,200 people.

And the number of screens in the state has jumped 63 percent since 1995 — from 117 to 191 at the end of 2000. Consolidated, a subsidiary of California-based Pacific Theatres Corp., has expanded to 97 screens at 15 locations; Oregon-based Wallace Theatres has 73 screens at 14 locations; and Signature Theatres out of California has 30 screens at two locations.

But experts say Hawai'i may have reached its movie screen threshold. And now the addition of more screens on the Windward side and in Kaka'ako may cause a chain reaction of theater changes affecting everything from screenings to ticket prices. And possibly resulting in some closures.

At the center of the changes are Consolidated's 16 screens at Victoria Ward's growing entertainment/retail complex. Scheduled to open in late May, the theaters are slated to have all the latest features and four screens as big as 70 feet across.

Consolidated, the state's largest theater operator, has said it intends to make the 16-plex its flagship theater, giving the theater operator its first megaplex in the Honolulu urban core. For Victoria Ward, the theaters are a key part of creating a vibrant complex and helping drive traffic to the surrounding retail and restaurant tenants.

"That's ground zero," said Scott Wallace, chairman and chief executive officer of the Wallace Theatres chain. "(The Ward theater) is a neutron bomb. It will obliterate everything in its path."

Shimmin expects the Ward theaters to help Consolidated boost revenues by taking away business from nearby competitors. "The exact impact, we're not quite sure of," Shimmin said. "But we're anticipating we're going to impact heavily the Dole (Cannery) theaters, Restaurant Row, Waikiki, and to some extent Kahala."

The nearby theaters — Wallace's nine screens at Restaurant Row, Signature's 18 screens at Dole Cannery, and Consolidated's old-fashioned trio in Waikiki — will undoubtedly lose customers. An eight-screen Consolidated theater a little farther away at Kahala Mall also will be affected, though to a lesser extent, Shimmin said.

Representatives of Signature could not be reached last week. But Shimmin, who noted that Signature's Dole Cannery multiplex hurt Consolidated when it opened in 1999, said competitive battles are part of doing business.

"That's what happens," he said. "You end up spending a lot of money and hurting each other."

Industry observers said the Restaurant Row theaters might be able to survive as an art-film exhibition house, partially because of their relatively convenient downtown location in an area surrounded by restaurants and other tenants that help draw traffic. But the Dole Cannery theaters — which, while relatively new, are farther out of the urban core and have fewer surrounding retail or restaurant tenants — might be harder pressed to compete.

The older theaters in Waikiki also will be hard-pressed. Consolidated is interested in redeveloping at least part of its property there, according to Shimmin. But he emphasized that the company, which has considered proposals to redevelop the site since as early as 1990, is comfortable waiting for a proposal that maximizes the site's value.

"When the right thing comes along and emerges or re-emerges, we'll certainly be taking a look at it," he said.

Another fallout zone

In Windward O'ahu, another movie market battle is expected to play out with Signature's scheduled opening of a 10-screen complex at Windward Mall in May — just a few miles from Consolidated's 10-screen theater at Kane'ohe's Temple Valley Shopping Center.

According to Wallace, whose company operates nine screens in Kailua, 29 screens in Windward O'ahu is "insane." "The Windward side is completely overdone," he said. "Clearly you don't need 29 screens for 110,000 people."

That equates to roughly one screen for every 3,800 people, or almost double the statewide ratio of one screen for every 6,335 people.

When the Windward Mall and Ward theaters are added, Hawai'i's overall ratio will narrow to roughly one screen for every 5,600 people.

That's too many screens in the opinion of JeffreyThomison, an entertainment industry analyst who has covered some of the theater operators now in bankruptcy for the Louisville, Ky.-based brokerage firm Hilliard Lyons.

"It sounds like a lot of theaters to me," he said. "Even with some closures, it still sounds like a lot."

Thomison said one screen per 10,000 people is a general industry rule of thumb. Using that, he said, there may be as many as 5,000 to 8,000 screens nationwide that still need to go away.

Wallace, who initially planned to compete head-to-head against Consolidated statewide when he entered the market in 1992 by acquiring Holiday Theaters, said he soon realized the market was headed toward overkill. So he shifted his focus to the Neighbor Islands.

Today, Wallace Theatres is the second-largest theater operator in the state. Of its 73 screens, 53 are on the Neighbor Islands.

"We saw this coming — this overscreening — and we said we don't want any part of it," Wallace said. "It's not a game you can make money at."

All three theater operators decline to disclose attendance and revenue figures. But Shimmin says the industry locally has been faced with flat revenue and increased expenses in the past couple of years.

And while this year is still expected to get a boost in admissions from "Pearl Harbor," an anticipated blockbuster epic partially filmed in Hawai'i, the outlook for the industry as a whole isn't as positive.

"The writing's on the wall," said Wallace. "How can you build all those new theaters when attendance is dropping?"

Andrew Gomes can be reached by phone at 525-8065, or e-mail at agomes@honoluluadvertiser.com.