Bloomberg News

U.S. Drive-In Theaters Face Demise Without Funds for Digital

December 20, 2012

Cinedigm Presses Digital Plan for Drive-Ins

Movie goers sit in lawn chairs in front of their cars and watch a film at Bengies Drive-In Theatre in Baltimore, Maryland in this Aug. 20 2005 file photo. Photographer: Paul J. Richards/AFP via Getty Images

Drive-in movie theaters that scraped by during the surge in modern multiplexes are edging closer to extinction as Hollywood phases out the 35-millimeter reels they need to show films.

Most of the remaining 368 U.S. drive-ins, down from more than 4,000 in 1958, must decide whether to pay as much as $70,000 to install digital projectors for their large outdoor screens. About 10 percent have, and the United Drive-In Theatre Owners Association anticipates studios will move to electronic delivery only as soon as the end of next year.

“It’s a pain,” said Thomas Epps, who is trying to sell the Swingin’ Midway Drive-In Theatre outside the eastern Tennessee town of Athens, population about 13,000. “It’s an expense to us and it’s not going to bring in another dollar. Nobody is going to say, ‘Let’s go to the drive-in tonight because they’ve got a little better picture.’”

The digital conversion, which spares studios the cost of buying and shipping thousands of heavy reels of film for every movie they release, has created a dilemma for drive-in owners, who typically operate one screen and depend on a mix of nostalgia and novelty to attract patrons in warm summer months. While large chains and smaller exhibitors were aided by financing plans, drive-ins don’t have that option yet.

The cost is challenging cash-strapped owners to find a solution. At 75, Epps plans to retire once the Swingin’ Midway is sold. In the meantime, he is leasing a used 2004 digital projector to attract a buyer for his 500-car cinema. Once he sells the theater, he’ll pay the balance due on the equipment with the proceeds. His total cost will run about $40,000.

Conversion Rate

“It’s hard to justify,” said John Vincent, president of the drive-in association and owner of the single-screen Wellfleet Drive-In Theatre in Cape Cod, Massachusetts, which is converting. “About 10 percent converted last summer. It’s too early to tell how many will ultimately make the switch.”

Vincent is working with Cinedigm Digital Cinema Corp. (CIDM:US), a provider of digital equipment for theaters, on an deal with film studios that would help owners obtain and repay loans to cover the conversion. Under a similar program for indoor theaters, the Morristown, New Jersey-based company arranges financing and makes money installing and servicing equipment.

To help cover upgrade costs and repay loans, studios pay exhibitors a fee based on the number of times a film is shown in digital format. The fee comes from money the studios save by not making and shipping film prints, Chris McGurk, Cinedigm’s chairman and chief executive officer, said in an interview.

Cinedigm, Studios

Cinedigm is trying to work out the details of a plan within the next six months, according to McGurk, who said he’s making progress. That would give drive-in operators time to make the conversions, which often require some remodeling of projection rooms, McGurk said. His goal is to convert as many as 400 of the remaining 611 screens.

“Everyone in this industry needs to be really focused on trying to figure out ways to help this unique part of Americana survive and thrive,” McGurk said.

The company has two other business: distributing independent films to theaters and home-video outlets, and piping live events such as sports and opera to theaters. Cinedigm fell 1.5 percent to $1.33 at the close in New York and has declined 2.9 percent this year.

Studios are also exploring options, including a fee and the sale of used, older-generation digital gear from indoor theaters undergoing a second upgrade, said one studio executive who asked not to be named because the deliberations are private.

Car Culture

Representatives from each of the major Hollywood studios, owned by Sony Corp. (6758), Walt Disney Co. (DIS:US), Time Warner Inc. (TWX:US), News Corp. (NWSA:US), Comcast Corp. (CMCSA:US) and Viacom Inc. (VIAB:US), declined to comment.

Drive-in movie theaters gained popularity in the U.S. after World War II, peaking at 4,063 in 1958, when gasoline was cheap and Detroit churned out big, comfortable cars. Before the latest crisis, rising land prices and development, along with the growth of multiplexes had already thinned their ranks.

Those that remain tend to be outside of urban cores, where land is cheap. Survivors have added family-friendly features like playgrounds and grassy areas in front of parking spaces that can fit lawn chairs.

Double-features are still typical, with a popular, big- budget movie playing first, said Lee Burgess, owner of the Highway 18 Outdoor Theatre near Jefferson, Wisconsin.

‘Terrible Business’

Burgess paid for digital conversion out of his own pocket two years ago by raising prices and barring patrons from bringing their own food and beverages. While the policies riled some customers, he saw it as necessary to stay in business.

Last summer, he charged $8 for an adult and $5 for children. Concession prices included $5.50 for a large popcorn, $5 for a cheeseburger and $18 for a 16-inch pepperoni pizza, according to the theater website. There’s a supper club with a bar behind the screen, Burgess said. No alcohol is allowed in the viewing area, Burgess said.

While the digital conversion didn’t increase attendance, Highway 18 remains profitable, Burgess said. Many drive-ins aren’t, because owners aren’t willing to take a hard-nosed business approach, he said.

“It’s a terrible business financially,” he said. “None of the major cinema companies, like AMC, own drive-in theaters. There’s a reason for that. They don’t make money.”

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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Companies Mentioned

  • CIDM
    (Cinedigm Corp)
    • $1.61 USD
    • 0.02
    • 1.24%
  • DIS
    (Walt Disney Co/The)
    • $95.28 USD
    • 0.86
    • 0.9%
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