AMC Entertainment Inc., the second-largest movie theater chain in the United States, is buying Loews Cineplex Entertainment Corp., the companies said yesterday, banding together to keep once-loyal customers from staying at home and waiting for the DVD.
Once, theater owners could put huge multiplexes in the suburbs and watch customers flock to the summer blockbusters. But this year, Hollywood hasn't come through with those big, irresistible movies. And too many movie lovers are settling into their easy chairs and watching films in their living rooms on their new flat-screen TVs rather than heading out to the theaters.
"It's a durable business, not a growth business," said Matthew Harrigan, managing director at Janco Partners Inc., an investment banking firm that follows the telecommunications industry. "We're going through a dry patch at the box office."
Those dry patches mean less revenue for the theaters, which pay for movies upfront, meaning the longer they run, the more money they make.
AMC did not say how much it was paying for Loews, the third-largest theater chain in the country. The new company, AMC Entertainment Inc., will have its headquarters in Kansas City, Mo. It will operate or have interest in about 450 theaters with 5,900 screens worldwide. The new chain will remain second-largest behind Regal Entertainment Group, which operates more than 6,000 screens.
AMC said it is too soon to tell whether it will close any theaters. It has eight theaters in the D.C. area; Loews has 12.
Peter C. Brown, chairman, chief executive and president of AMC, said in a written statement that the merger would give AMC the opportunity to "blend the best practices of two remarkable organizations as we create an extraordinary company."
Both companies are privately owned. AMC is owned by Marquee Holdings Inc., which is controlled by affiliates of J.P. Morgan Partners LLC and Apollo Management LP.
Loews is owned by LCE Holdings Inc., which includes affiliates of Bain Capital Partners, the Carlyle Group and Spectrum Equity Investors.
After the merger, which is expected to close in six to nine months, Marquee will be the holding company for the new theater chain, and LCE will hold about 40 percent of the stock.
Some analysts say mergers are the way for movie theater chains to stay more competitive in a fragmented industry. The AMC and Loews merger will give the new company a greater market share and lower overhead.
But it will still have to fight to draw moviegoers. Fewer people are willing to shell out $8 to see the weekend's newest release in the theater when they can wait for it to come out on DVD. Attendance at movie theaters has declined for the past 17 weekends in a row, Harrigan said. "This has been a disappointing summer," he said.
One thing keeping moviegoers at home is the comfort of their home theaters, Harrigan said. As more consumers invest in flashy home-viewing systems equipped with big-screen TVs, they decide they'd rather watch a movie from their couch.
"People still want to go to movies, but HDTV and DVR and DVDs have siphoned off customers somewhat," Harrigan said.
The movie theater industry needs to scale up theaters by adding new technology, such as more Imax films, he said. "It'd be nice to have a new toy, because there's a lot of competition for viewers out there."
At the same time, movies don't stay in theaters as long. Analysts say more of them are opening big but then fading away shortly afterward, preventing theater owners from reaping much profit once they've paid for the movie.
The ideal movie would bring in a steady stream of viewers over a few weeks. Harrigan listed "Titanic" and "The Passion of the Christ" as examples of the kinds of movies that keep the people coming and the cash registers filled.
Business has been declining since a peak in 2002, when movies such as "My Big Fat Greek Wedding" and "Harry Potter and the Chamber of Secrets" just kept on going.
Although nothing this summer has quite measured up, there is still time for a box-office hit to turn the year around, said Tom Adams, president of Adams Media Research, which follows the entertainment industry.
The merger comes after both AMC and Loews were bought out by groups of private investors in 2004, and both deals were paid for largely with debt. AMC's holding company, Marquee Holdings, has more than $1.3 billion in debt.
Last year, Marquee Holdings reported a loss of $93.6 million on revenue of $1.8 billion for the year ended March 31.
In 2004, Loews lost $14.5 million on revenue of $923 million.