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l\~\Y To: Subject: Michael Church and Pat Webb Redwood City Theater Analysis October 26, 20ûO Page 2 . Movie production for first-run movie theaters is a viable industry. According to the Motion Picture Association of America, the number of new movies released annually has exceeded 350 each year since 1982, with an average of 421 new releases per year. On the supply side of the equation, the emergence of the megaplex theater complex (with anywhere from 14 to 30 screens in one location) has been widely recognized as making "going to the movies" a more positive experience for the movie-going public. Although movie attendance is at a 40-year high, there is an oversupply of movie screens today. From 1980 to 1995, 10,168 new screens were added in the U.S., an average of just fewer than 700 annually. But the explosion in megaplexes added another 10,000 screens from í 995 to 1999 (more than 2,000 per year). Therefore, despite the overall health and expansion of the theater industry, severàl major film exhibitors have recently filed bankruptcy petitions or are considered to be at risk. The bankruptcy filings are a consequence of the confluence of a number of factors, including: . New state-of-the art megapfex theaters causing older movie theaters to be noncompetitive; . Difficulty in closing alder, non-competitive cineplexes; and . Chains being too aggressive in opening new megaplex theaters and entering into unsupportable leases. In retrospec!, many of t~ese difficulties were caused by either the operator's over-expansion, or conversely, operators that did not expand sufficiently/did not strategically expand. In both extremes, certain operators have become out positioned in the marketplace. The industry anticipates that the turmoil will continue for 2+ years, and will be marked by further closing of obsolete theaters, possible mergers and bankruptcies, and restructuring of expensive leases. It is overwhelmingly believed that the end result will be a stranger, more viable film exhibition industry. Below is a snapshot review of the current status of several major operators. Bankruptcy Petitions Filed (Geographic area of influence) United Artists Theatres (nationwide) Carmike Cinemas (midwes!, southeast, northeast, ncr1hwest) Edwarcs Theatres Circuit, Inc. (Southern Califomia) Silver Cinemas (Landmark art houses) (nationwide)