Kevin Vinnink, chariman of property consultancy integra realty resources, thought it incredible that the cinema industry went on a five-to-seven-year building binge. "It's almost incredible that nobody ever thought through the implications," he said. Given the swingeing losses caused by over-lending to real estate in the lare 1980's, surely financiers would have been cautious about this property type aswell.
Evidently not, the data suggest. Currently, there are 15 US Cinema chains seeking protection from creditors under the US bankruptcy code - including eight of the 10 largest operators - while others are teetering on the brink. So far, an estimated 4,600 of the US's 37,100 theatres have been closed and far more are slated to go.
In Europe, where many Us cinema operators have tried to establish a beachhead, the problems are far less severe. Nevertheless, there are signs that Europe is not immune.
Sceen Digest, a magazine that tracks the film inductry, notees that as of last September, the UK had become the highest earning cinema market in Europe. However, the strong growth in cinema opening has undermined sales per screen, the average falling below ú50,000 sterling in 2000 for the first time since 1984.
Tom Chandos, a non-executive director at Cine-UK and also at shoppong centre specialists Capital & Regional - host to a number of cinema operators - says expantion of cinemas in the UK has been aided by the they affect the economics of shopping centres.
"If you can get night-time foot-fall," he says, "it can transform the economics for food operators." With food operators in situ, shoppers view the centre as more of a lesiure destination that a mere convenience centre.
And cinemas, combined with the right food offering, allow shopping centres to work 18 hours out of every day, rather than just 12. However, too many retail operators have had the same idea at the same time, and because UK planners tend to view state-of-the-art cinemas as a kind of "social service provision", planning permission for new schemes with cinemas has been relatively easier to come by, Mr Chandos says.
However, he says the overbuilding is nowhere near that of the US, where the industry is in turmoil. "In the US, that industry has hit the buffers some time ago," he notes. "The bankruptcy filings are the aftershocks." But it is the bankruptcy filings that are finally dumping the woes of the cinema industry into the laps of landlords.
For with bankruptcy comes the opportunity for cinema operators to extract themselves from unprofitable leases, leaving landlords with large, empty space at regional malls that cannot easily be converted to other uses.
So pressing is the issue of cinema operators that a panel was devoted to a discussion of how mall operators are coping in the present environment.
"Nuclear winter", was how one participant characterised the state of the US cinema theatre industry, telling his audience that conditions are likely to remain that way for several years to come.
What has happened in the US, in short, is that movie theatre chains have been on a loan-induced development spree that has helped the number of screens grow by more than 58 per cent. And while movie-going has risen, it has not risen nearly enough to accommodate all that extra capacity.
Mall operators seeking to finance their purchases are given little or no credit for the income generated by the cinema on site. A mall yielding 11 per cent, for example, will have the percentage of space occupied by the cinema treated as though the yield were 15 per cent- meaning it's capital value is reduced- and that is for a healthy cinema.
Mr. Vinnink says that the economics of movie houses makes closing the older ones a good choice. Roughly 80 to 90 per cent of chain revenues come from mega-plex outlets. The probem, he says, is that old ones are not easy to get rid of.
