MOVIE THEATERS GOING DARK AND THIS TIME DRAMA IS REAL.

Byline: Gregory J. Wilcox Staff Writer

The news release from General Cinema Theaters announcing the demise of the Fallbrook Mall multiplex carried the headline ``Theatre Permanently Closed R.I.P.''

A cute touch, but certainly no joke.

These days, the nation's movie theater industry is preoccupied with the ``B'' word, and it's not blockbuster.

It's bankruptcy.

Since this summer, five big movie exhibitors have filed for Chapter 11 protection, including GC Cos., parent of General Cinema. Thanks to a glut in new movie screens and changing consumer demand, the industry faces a dire future that could mean the closure of thousands of theaters, including some that were built just a few years ago.

``Basically they mismanaged this business,'' said Sean J. Egen, managing director at Egen-Jones Rating Co., a bond rating company in Wynnewood, Pa. Egen attributes the current slump to ``mass suicide'' among the major players.

``They are all heading in the same direction, building newer and more expensive theaters without considering whether they are going to be able to pay for it,'' he said. ``They all got caught up in the Hollywood disease at the same time, newer and glitzier.''

In the last decade, the theater chains have built thousands of new megaplexes with stadium seating, high-tech sound systems and other amenities at a cost of up to $1 million per screen. But the new theaters didn't create new business; instead, they cannibilized the older, smaller multiplex operations.

Much of this expansion was debt-financed, Egen said, and now these companies don't have the cash flow to service the debt.

A glance at two critical numbers - theater screens and ticket sales - support this argument.

Since 1988, the number of indoor movie screens has jumped to 36,448 from 21,632, a 68.5 percent increase, according to the North Hollywood-based National Organization of Theater Owners, a trade group.

At the same time, the number of tickets sold increased to 1.465 billion from 1.088 billion, a 34.6 percent increase. Last year ticket sales declined 1 percent. The number of screens, however, increased 9 percent.

``Basically you've had flat demand, and exploding supply and the cost of the supply has gone up,'' said Christopher Dixon, entertainment industry analyst at the investment bank PaineWebber. ``The good news for consumers is that it's a lot better to have a choice of 24 (screens) and sit in a stadium seat. It's a huge upgrade from going to the movies 15 or 20 years ago.''

But there is a price to pay. Most industry analysts believe that up to 8,000 to 10,000 screens need to go dark for the sector to come back in balance.

That's one out of every four screens in the country.

Some of that has already began. In the Greater San Fernando Valley area alone, 41 screens have gone dark since December. The list includes a seven-screen Edwards Cinemas complex in Simi Valley and the 11-screen United Artist complex in Camarillo that was built in 1995.

David Brain, president and chief executive officer of Kansas City-based Entertainment Properties Trust, a real estate investment trust that owns mostly AMC megaplexes, said the industry is basically going through the same kind of growing pains other retailer sectors experience.

One retail cycle is ending and another is beginning, so companies can't close old stores until new ones are up and running.

And this shakeout has already started. Through the third quarter of this year, 1,900 screens closed and 1,400 opened, a net closure of 500 screens nationwide.

Jeffrey Thompson, an analyst who follows the theater business at Louisville, Ky.-based JJB Hilliard, W.L. Lyons, said it's not easy to get rid of a movie theater. Multiplexes are typically one of a mall's anchor tenants, taking up a large amount of retail space. Finding a replacement retailer is difficult.

``It's going to take quite a while to get rid of these,'' Thompson said. ``Most are older facilities that the public doesn't like too much. You can't get rid of them over night and it's not easy to get rid of a movie theater.''

In the meantime, theaters face growing competition on the home front, particularly from the DVD video format, which has found great acceptance from consumers for its stunning video and audio quality on familiar CD-format discs. Add to that surround sound and wide-screen digital televisions and viewers have fewer reasons to leave their living room.

The Internet is also vying for attention with its fledgling forms of entertainment, chiefly short movies and animation. Fast, broadband connections such as DSL and cable modems will eventually deliver longer format movies and TV shows directly to viewers over the Web, fulfilling the long-promised on-demand programming.

Coincidentally, some of those same 21st century technologies may help theaters survive their financial plight.

Studios and exhibitors hope to harness digital technology to slash the costs of distributing film prints. Technology is already being tested to transmit films over satellites to dishes at theaters that will in turn screen the flawless copies through digital projectors.

CAPTION(S):

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Chart: RAISING THE CURTAINS

Source: National Association of Theatre Owners