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Sony Acquires Alamo Drafthouse Theater Chain

Image: Alamo Drafthouse recently acquired by Sony.

The industry is buzzing (or should be) with the news that Sony Pictures has acquired Alamo Drafthouse Cinemas. This move is another tremor in the movie theater industry earthquake that started with COVID. Studios continue to move into location-based entertainment, but this is the first time in decades that they’ve owned a chain of theaters. Alamo is the 7th largest theater chain in the country, with 35 locations.

A Brief History of Studios Owning Theaters

Studio ownership of theaters was common in the early days. However, this changed in 1948 with the Paramount Decree.  This U.S. Supreme Court decision forced major studios to divest their theater chains, effectively ending the vertical integration that had dominated Hollywood. The rationale was to prevent monopolistic practices and ensure fair competition. However, in August 2020, during the pandemic, a federal judge in New York ended these restrictions, allowing studios to own theaters again. The industry has changed so much these rules don’t seem relevant anymore. And with theaters struggling, it opens a potential lifeline.

The Paramount Decree technically only applied to Paramount and Warner Bros; the ruling had a widespread impact on the industry immediately and for decades thereafter. The list of studios and the theater chains they divested included:

  • Paramount Pictures: Paramount Theatres
  • Warner Bros: Stanley Warner Theatres
  • 20th Century Fox: Fox Theatres
  • RKO Pictures: RKO Theatres
  • Loews Incorporated: Metro-Goldwyn-Mayer (MGM) and Loews Theatres

For the most part, modern studios were excluded but adhered to the practice. The rules began relaxing in the 80s, and a flurry of mergers and acquisitions led to theater chains becoming part of large media conglomerates. Sony (through its Columbia Pictures division) and Universal shared ownership stakes in Loews Theatres from 1982 through 2002. Warner Bros. had a significant interest in AMC Theatres until the 1980s when it divested various business interests.  

More recently, studios have strategically acquired iconic theaters to preserve the heritage of the motion picture industry rather than to dominate theatrical exhibitions. Disney acquired and eventually lovingly restored the El Capitan Theater in Los Angeles, using it for its movie premiers. Netflix has restored two iconic theaters: investing $70 million in the Egyptian in Hollywood and, to a lesser degree, the Paris in Manhattan. And Amazon acquired the ArcLight in LA, renaming it the Culver Theater, across from the 100-year-old Culver Studios, where it operates half a million square feet of production capacity.

The Struggle of Movie Theaters

They say the COVID-19 pandemic accelerated existing trends, which was markedly true for theaters. Ticket sales had been declining for 20 years when theaters shuttered. Revenue had held steady due mostly to price increases driven by alternative formats like IMAX and 3D. Theaters were just getting back onto their knees, riding the adrenaline of last summer’s Barbenheimer phenomenon. Then the actors’ and writers’ strikes hit like a kick to the groin, further delaying what may be a handful of hits another year.

Alamo Drafthouse, despite its loyal fanbase and unique food-first business model, hasn’t been immune. The chain filed for Chapter 11 bankruptcy in March 2021, though it emerged by May 2021 with new private equity investors and a streamlined operation. But even with new capital, it must contend with the long-term shift in consumer behavior toward streaming services.

An Outsider’s View of Sony’s LBE Strategy

Sony has been involved in and out of LBE operations for 50 years. It owned theaters and even opened an urban theme park (The Metreon SF). But for the last 30 years, it has mostly been a licensor in the location-based entertainment businesses. Unlike Universal and Disney, which have entire theme park divisions, and Netflix, which has run multiple IP-based LBE popups, Sony has preferred to take a licensing-first approach.

In 2022, Sony licensed a slew of IP to the former Cartoon Network-themed waterpark owners in Pattaya, Thailand. Columbia Pictures Aquaverse would become the first Sony-themed Park. Their deals with The VOID for Ghostbusters and Jumanji were early bets on the immersive location-based VR industry.

Above: Bob Surfing at Aquaverse, Pattaya, Thailand.

But they may have signaled a shift in their licensing first strategy early this year.  In January, Sony opened Wonderverse in the suburbs of Chicago. It’s a fully themed family entertainment center with a restaurant, bar, arcade, and Sony movie-themed attractions, like Hologate’s Ghostbusters VR Academy experiences and VRsenal’s Zombieland VR arcade game.

Above: Sony’s Wonderverse location in Chicago.

I have to think the acquisition of Alamo Drafthouse is another step towards becoming a location-based entertainment powerhouse. By integrating Alamo Drafthouse into its portfolio, Sony is not just buying a chain of theaters but investing in a unique brand known for its innovative approach to moviegoing. Alamo Drafthouse has distinguished itself by offering themed screenings, a strict no-talking/no-texting policy, and a full-service dining experience that elevates a night at the movies into a comprehensive entertainment outing.

Tim League, the founder of Alamo Drafthouse, emphasized that Sony’s support would allow Alamo to expand its footprint while maintaining its unique charm. “We’re excited to work with Sony to bring more of what our fans love to even more places,” League said. “This partnership will enable us to keep pushing the boundaries of what a movie theater can be.”

Innovation in the Theater Industry

Alamo Drafthouse isn’t the only player looking to redefine the moviegoing experience. Companies like EVO Entertainment and Cinergy have been combining traditional movie screenings with other forms of entertainment, such as virtual reality, arcade games, bowling, and even escape rooms. These hybrid models cater to a broader audience, offering a variety of activities under one roof to stay relevant and competitive in an increasingly digital world.

Ultimately, all theaters must awaken to the new generation’s desire to consume media on their devices, where and when they want. When they go out for entertainment, it must be more than just sitting in a dark room watching a movie. They want impact, be it great food or giant immersive screens. IMAX has been killing it since the pandemic, its revenue growing while everyone else shrinks. Cineworld and Regal are increasing their investment in 4DX. Maybe more immersive entertainment is the future of theaters.

Above: Netflix is going location-based with it’s popup.

Which studio will make the next move? Netflix has already announced its intent with Netflix Houses, hoping to lure fans back multiple times per month with a combination of food and rotating experiences. Amazon recently acquired MGM Studios and surprised nearly everyone with its 2017 acquisition of Whole Foods. Considering its Prime streaming service’s strength and ownership of Twitch, the premium gaming streaming platform, a move into LBE could prove fascinating.

Sony is a leader in VR gaming with the PlayStation VR2, and it continues to support location-based VR developers via licensing and partnerships. Now that they’ve made a bold move into LBE operations, it will be interesting to see how these strategies converge in the future. For the last couple of years, I have been meeting with theater owners about the potential for virtual reality experiences to become a bigger part of movie storytelling. If the business model works, there seems to be an appetite, at least in the smaller chains.

The Movie Theater Meets the Metaverse

As we look forward to this new era of cinema, one thing is clear: how we experience storytelling out of home is about to get a lot more exciting. Giant screens, environmental effects, motion, projection mapping, and virtual reality all strive to deliver the deeper immersion today’s customers crave.

If you want to know more and see a clear glimpse of this future, clear your calendar for August 6th and come to Dallas, where I will host a one-day event discussing how new immersive storytelling tech stands to change the economics of both the theater and FEC business (for the better!)

To get on the waiting list, reply to this email. (Sorry about last week’s bad link – oops)

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