Look Cinemas learns that it’s deemed a threat

Veteran theater industry executive Tom Stephenson and his partners invested $20 million last year to open a luxury 11-screen theater in an affluent suburb of Dallas where patrons can order food and drinks in plush recliners.

But the future of his Look Cinemas was thrown into question when Stephenson recently learned that he would not be getting the third installment of the hugely popular “Hunger Games” franchise next month. Instead, the movie will be first shown at a new AMC Theatres multiplex less than a mile away.

Stephenson was even more stunned to learn that his theater was placed on a list of cinemas from Harlem to La Jolla that AMC deemed “predatory competitors.”

According to a confidential memo obtained by the Los Angeles Times, the world’s largest theater chain singled out Look Cinemas and a dozen other mostly independent theaters nationwide as threats to its business.

AMC asked studios to grant it “clearances,” a long-standing practice in the exhibition industry in which theaters seek to “clear” certain markets, ensuring rivals in proximity cannot play new releases at the same time.

“They are trying to use their leverage to get the good pictures at AMC and let the guys like us play bad pictures, and that’s a recipe for disaster,” Stephenson said. “Our position is, let’s compete for the business.”

AMC said its request was both rational and customary.

“For decades, standard industry practice has been that distributors allocate their movies between theaters that operate in close proximity to each other,” said AMC spokesman Ryan Noonan. “The two theaters in Dallas, located less than a mile away from each other, were in development at the same time, and it should have been everyone’s expectation that this standard industry practice would apply. That’s the way the industry works.”

The dispute is just the latest sign of growing friction between independent theaters and big chains like AMC. As The Times reported last week, owners of small-town theaters have aired their frustrations with studio executives over delays in securing first-run movies, complaining that the current distribution model favors big circuits. The Wall Street Journal this week reported on independent theaters battling AMC over clearances.

Acquired by China’s Dalian Wanda Group in 2012, AMC is the second-largest theater chain in the U.S., with 342 theaters. Based in Leawood, Kan., AMC has been investing heavily in upgrading its theaters with new amenities as well as opening cinemas that offer premium food and beverage service.

The expansion has put it at odds with new independent theaters like Look that also are targeting affluent customers with luxury services.

“Close proximity competition leaches attendance from AMC theaters and undermines AMC’s ability to operate and reinvest in theaters that deliver strong consumer experience/value and maximize both attendance and box office revenue,” according to the memo, which was circulated to studio executives.

The use of clearances developed after a landmark Supreme Court decision in 1948 that required studios to divest their ownership in movie theaters. Clearances were initially seen as a way to guarantee that small independent theaters would gain access to first-run films, allowing the industry to grow rapidly.

But as the industry has increasingly consolidated — about half of all theater screens are owned by four companies — tensions between large chains and independent theater chains have escalated. Because they control so many screens, big chains have more leverage with studios in terms of where and when movies play across their circuits.

In 2006, the owners of the Palme d’Or, a seven-screen specialty theater in Palm Desert, sued Cinemark, the nation’s third-largest chain. The Palme d’Or owners alleged that Cinemark, which operates a 15-screen River Cinema in nearby Rancho Mirage, was illegally muscling them out of the marketplace by threatening to retaliate against movie studios that book films in Palme d’Or. The case is pending.

Another legal dispute erupted in January when Cobb Theatres sued AMC in U.S. District Court in Georgia. Cobb, which operates 20 theaters, accused AMC of seeking to block its access to films and drive them out of business.

Stephenson said he first found out about AMC’s campaign after he received a flier that one of the chain’s film buyers sent to distributors in September.

The flier touts the Oct. 31 soft-opening of the AMC Village on the Parkway 9, with its “luxurious plush leather recliners” and bar service, and mentions that Look Cinemas is less than a mile away. “As such, we will not be licensing films day-and-date with this theatre.”

Stephenson noted that it was AMC that chose to open a new theater a year and a half after Look debuted. “By their own definition it has to be predatory,” he said.

Now he is threatening legal action against AMC over the matter. His lawyers recently sent a letter to the chain saying it is violating federal antitrust laws.

AMC countered that clearances are a “well-established industry practice” and that fewer than 10% of AMC’s 342 locations have an allocated film zone. Many clearance zones also include other large chains such as Cinemark and Regal.

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