In 2000, when just about no one was looking, the 60-year-old bought up the all-but-worthless bonds of United Artist Theatres, converting them into a majority stake in the country's fourth-largest theater chain. Now he is said to be negotiating to do the same thing with the debt of Regal Cinemas, the nation's largest chain, with some 4,100 screens. And he's also in talks to buy Edwards Theater Circuit, a large Western U.S. theater chain.
In all, that would give Anschutz the largest number of screens -- some 6,400 in all, making him the king of a business that has been in the tank for most of the past two years. Just about every major chain, in fact, seems to be in bankruptcy or heading there.
WHEELER-DEALER. So, what's Anschutz up to? As anyone who has ever bought a house in a distressed market can attest, a lousy house can look awfully spiffy in the right kind of market. And this is just the kind of market for a wheeler-dealer like Anschutz, who made his first fortune at age 27 when he came across some priceless Western American art in the basement of the Santa Fe Railroad headquarters building in Chicago. Anschutz bought them for a song then and sold many of them for millions.
That's just about what he appears to be doing in the theater business right now. For instance, the word is he's offering to pay Regal $345 million for the circuit's $1 billion debt load, which he would then convert into a controlling interest in the chain.
In the right hands, the theater business could be a money machine. After all, in what other line do you have someone else paying most of the costs for making your product, and then you get half the revenue when folks line up at the box office? Heck, movie theaters don't even pay much of the promotional costs to get folks to the box office in the first place, since Hollywood pays $21 million in advertising each time it sends one of its flicks out into the marketplace. And then there are those outrageous markups for Coke and popcorn.
OVERBUILT. Where theater owners went wrong is in the wild amounts they've thrown around the past three or four years to put up the grandest movie houses on the block. They've overbuilt like crazy: According to the most recent numbers I could find, in 1999 there were more than 37,000 screens in the U.S., a staggering 34% hike over 1995. During the same period, the percentage increase in tickets sold at those theaters increased only 17%, to 1.5 billion. Even a jump to $8 a ticket ($9 in New York City) couldn't generate enough dough to pay for all the loans theaters took out to build all those palaces.
So Anschutz figures he's buying a gussied-up bunch of theaters for a song. He has gone bargain-hunting before. Back in the early '90s, he sold off his struggling Southern Pacific Rail Corp. for $5.4 billion. But as part of the deal, he kept the rights of way alongside the tracks, giving him the foundation for the 16,000-mile telecom network he turned into Qwest. With $55 million of his own money and an $400 million more in debt, he started laying fiber along those tracks and rode the Internet explosion into a fortune. Today, after an initial public offering and several deals, his 10% stake in Qwest is worth a cool $13 billion.
Better yet, there are rumblings that he wants to align his two interests, finding a way to use Qwest's superfast fiber lines to deliver films digitally rather than in metal cans. A couple of studios have already experimented with the concept of digital films, most notably George Lucas with his upcoming Star Wars film. No one knows whether it will work, probably not even Anschutz. But he may be able to help himself there. He also owns a small film-production company, called Crusader Entertainment, which just signed a minor deal with Paramount Pictures to make some films. He could use Crusader to experiment with making and delivering digital films, or more likely he simply got the Hollywood bug and wants to capture every last nickle by distriubting Crusader's flicks in the
theaters he owns.
DUKE AS RED. Maybe Anschutz has simply gone Hollywood. He did this once before, when he was a wildcatter in the '60s in the oil fields of Wyoming. When a fire threatened to ruin his major well, he brought in fabled firefighter "Red" Adair. He also sold the rights to watch Adair do his stuff to Universal Pictures, which at the time was getting ready to make a film starring John Wayne as Adair. For that, Anschutz got a cool $100,000.
That's chump change these days, of course. But Hollywood appreciates a man with money who knows how to make money. Anschutz has plenty of that. And he's throwing a small chunk of it at a theater industry that sure could use the cash infusion. Grover is Los Angeles bureau chief for Business Week. Follow his weekly Power Lunch column, only on BW Online