Battle of the Titans ends in merger

Cinema distributor Planete has committed to a management takeover by Empire in a possible prelude to a buy-out

This year, more than four million cinema tickets will be sold in Lebanon, despite the offer of a cheaper alternative by hundreds of cable TV and DVD pirates. The ABC mall cinema in Achrafieh has finally thrown open its doors – after months of delay. A 12-screen multiplex north of Beirut, reportedly the Middle East’s biggest, is slated for completion by year’s end. The big story however, is the merger between Lebanon’s two major cinema distributors, Planete and Empire. The move comes after an almost ten-year battle for market supremacy, one in which Empire ultimately prevailed.

Both companies confirmed to EXECUTIVE that Planete has committed to a November 4 management takeover by Empire, in a possible prelude to a buy-out. The announcement comes after Planete saw the 65% market share it acquired in just a few years after its 1995 launch drop to less than 25% in 2004. The official announcement of the deal will come in mid-October. The decline in Planete’s share of the roughly $20 million Lebanese cinema sector was precipitated by an aggressive Empire campaign to rebuild its market share, primarily by renting more space for cinemas. Unable to follow suit, because unlike Empire it had already spent a fortune buying cinema space, Planete looked on helplessly as Hollywood studio giants Warner and UIP re-defected to the Empire camp two years ago, and revenues plummeted. “We had different strategies. We invested much more than they did. Our strategy was to run theaters we owned. Theirs was to manage theaters. Now we understand that their strategy was the right one, and we were wrong,” declared Planete Manager Gilbert Chammas.

Planete’s brisk march to success after it broke into the sector almost 10 years ago took Empire by surprise. “We hadn’t taken Planete seriously,” admitted Empire Manager Gino Haddad. “But after the first year we saw that their figures were good. They began to eat away at our market share.”

When, after only a few years, Planete had a bigger market share than Empire, the alarm bells started ringing. The problem, explained Haddad, was that Empire simply didn’t have enough screens to satisfy distributors by playing all their movies, and keeping them on offer long enough. And so, a number of the distributors had decided that their interests would be better served by Planete. Empire’s response? “We opened more cinemas,” chuckled Haddad. “And we took the prime locations: Sodeco, Dunes, and recently the ABC mall cinema.”

In the absence of a counter move by Planete, the additional high-end Empire screens quickly tilted the market share balance back in Empire’s favor. Distributors began drifting back. But Chammas contended that they didn’t move back solely to maximize ticket sales. “When UIP was with us, they used to have 400,000 to 500,000 admissions a year. With Empire they now have only 150,000,” he asserted. He refused to reveal what he believed the distributors’ true motives were, saying only that Empire benefit from the alliances.

“Planete was starting from scratch,” echoed Haddad. Empire, on the other hand, has been around in one form or another for almost a century. The business distributed Lebanon’s three highest-grossing movies ever – TITANIC (about $2 million),” The PASSION OF CHRIST (about $1.4 million), and THE MASK OF ZORRO (roughly $600,000 – and sold about 2.6 million seats in 2003.

“Planete, I think, welcomes the management takeover move because all the major movies shown in Lebanon are now shown by Empire,” declared Haddad. “This year, our market share has grown to 78%. If things had continued like this, maybe next year we would have had 85%. And that’s how it would have ended. This is actually in the interest of Planete.” “It’s a win-win deal,” agreed Chammas.

Negotiations began over six months ago, according to Haddad. Both he and Chammas declined to disclose who initiated the merger discussions, but they stressed that the talks were amicable. Asked if Empire planned an eventual buyout of Planete, Haddad said: “There is the possibility of a buyout if the price is convenient for both parties.” Yes, he added, there had been discussions about whether or not Empire would be interested in buying. Planete was valuing itself in excess of $5 million, he said. Chammas confirmed the possibility of a buyout at a later stage. Haddad claimed, though, that Empire was adopting a cautious approach to the buyout option. He said the earliest a buyout would come in a year, after Empire had had time to assess the prospects of Planete cinemas under Empire management.

“Buying today is a risk, because in ten years’ time, I can’t tell you if Abraj and Zouk will still be doing the same figures,” he said. It is still unclear, he explained, what effect the ABC mall cinema will have on other cinemas. “ABC is exactly four-and-a-half minutes’ drive from Abraj, along the motorway. For every cinema that goes up, one goes down. ABC has gone up. Either Sodeco or Abraj will go down.”

Under the terms of the management takeover deal, Empire is to assume control of Planete’s Tripoli, Zouk and Abraj cinemas, which will retain their Planete brand identity. Planete will continue to manage its Concorde venue in Verdun. Overall, Planete theaters count a total of 28 screens and about 5,500 seats. The merger will give Empire control of 60 screens in Lebanon.

Empire is to pay Planete a percentage of revenue or “rental fee.” Haddad said he was unable to reveal figures, but said the fee would represent a “good chunk of revenue,” at least equal to current Planete earnings. A product of the merger, said Haddad, will be the homogenization of cinema movie selections across Empire and Planete screens. The curtains will be drawn on an almost-10-year Empire-Planete tussle for exclusive agreements with international distributors and on the mutually exclusive Empire and Planete movie listings these fluctuating alliances spawned. Soon, choice of movies will no longer figure among the criteria used by cinemagoers to decide which cinema to head for. Instead, they will be paying greater attention to décor, surroundings, location (including proximity to home), and atmosphere. “We want to get to the point where, like in the United States, people choose the site, and not the movie,” stated Haddad. “Having all the good movies in each cinema will increase revenue.”

And once the audiences are choosing sites, not movies, Empire intends to charge more for high-end venue tickets than for others. Just as moviegoers pay £11 to see a movie at a Leicester Square cinema in the heart of London, and less in the suburbs, so, Haddad explained, Lebanese audiences will be charged more to watch a movie at the ABC mall in Achrafieh, than at a cinema in Tripoli. “We might price tickets at new sites, with the best seats, sound and screen, at $10. But we would price the same movie at an old, dying site at $5.00,” he said. Even Sodeco tickets would cost less than ABC ones.

Another product of the deal will be the amalgamation of Empire Espace and Planete Zouk, both north of Beirut, to create a 12- or 13-screen 3,000-seat multiplex venue, complete with a media store and entertainment facilities. Espace Planete, as it will be known, will be the biggest multiplex venue in the Middle East, according to Chammas, and is scheduled to begin screening before the end of the year.

Empire believes there is money to be made from the massive influx of Gulf Arabs. The company’s newly-opened cinema at the ABC mall in Achrafieh attracted flocks of Gulf visitors in July and August, according to Haddad. In part to cater to Gulf Arab visitors, Empire is pioneering a staggered show-time approach – already standard practice in America and Britain – at its ABC mall cinema. Instead of showing movies at fixed times, a new screening begins in one of the nine theaters every 15 minutes. This routine allows viewers to dispense with the bustle of getting to the cinema ‘on time,’ and to integrate their cinema visit with a ramble around the mall, or a bite to eat at one of the shopping center’s cafés or restaurants. Gulf Arab families who have come to Lebanon to relax welcome the stress-free approach.

Although Gulf Arabs still represent a fraction of Lebanon’s annual box office receipts, they spend far more than Lebanese viewers at the concessions stands. “The average Lebanese spends a dollar or two. A Gulf Arab spends $7 to $10,” observed Haddad. And concession takings constitute between 20% and 30% of Empire’s overall annual revenue, he noted.

When it comes to taste, the younger Lebanese crowd isn’t too hot on Arabic movies, apart from the iconic ones like “West Beirut.” That explains why you might see only one Arabic movie a year in an Empire cinema, observed Haddad.

And there is no hope at all in Lebanon for art house movie theaters, which are popular in the West. “We tried,” said Haddad. “But no one wants to go to those kinds of cinemas anymore here. If there was a huge library in Lebanon, like in France or England, with old, interesting books, how many people would you see in it?” Home theaters are taking a steadily increasing, but bearable, toll on cinema owners. DVD and cable TV pirates, on the other hand, have, for several years been slashing huge chunks out of cinema revenues. According to lawyer Walid Nasser, who has been tasked by major American film studios with limiting the damages to their interests caused by piracy in Lebanon, cinemas here have lost more than 50% of their audiences because of the problem. “And the government is doing nothing about it.”

Nasser said there were as many as 700 pirate cable companies operating in Lebanon, with up to 750,000 subscribers, who pay an average of $10.50 each a month. This translates into a total monthly revenue of over $7.5 million for pirates.

“You can buy fake DVDs from Malaysia here for $2. We have pirated cable TV providers who play all the new movies. It’s a huge problem. In other countries they are finding solutions, but not in Lebanon. There are too many people involved. There’s too much money being made by people who control the market and have an interest in keeping things as they are,” lamented Haddad. “It’s like the electricity problem. In Jounieh, everyone pays. In Dahieh, no one does. It’s simple: politics. At the border, when they bring over pirated DVDs, someone gets $100 and a phone call. And even if pirates do get arrested, nothing happens to them. They have to pay $400 or $500, or another phone call is made.”

“There was one case in Sidon, where we went to raid a major pirate,” recalled Nasser. “He had a Kalashnikov on his desk. That put an end to the raid pretty fast.”

Asked if some pirates were protected by powerful public figures, Nasser said: “Frankly, I wouldn’t be surprised because of the amount of money that’s collected on a monthly basis – $7.5 million is a lot of money.”

If piracy was being combated properly in Lebanon, Haddad said, Empire would double its DVD sales. On a positive note, though, in contrast to other Arab countries, censorship in Lebanon is no longer proving too much of a headache for cinema industry professionals. “We have come a long way from the days when you couldn’t show a breast,” remarked Haddad.

TYRING TO REMAIN INDEPENDENT IN A CHANGING MARKET

Cinema runs in the blood of the Fathallah family. Since its inception in the age of silent movies, the Fathallah family cinema business has been passed down from generation to generation. Today, the Fathallah Films Co. rests in the hands of A.K. Fathallah, independent owner of the one-screen Aresco Palace and Montreal cinemas in Sanaya and Hamra respectively. Unable, though, to compete with Empire and Planete in the English-language film market, or to survive on Arabic film screenings alone, A.K. is battling the unthinkable: an inauspicious shutdown of the family’s cinema business interests.

Years ago, Fathallah Films used to distribute to cinemas across Lebanon, from Tripoli to Sidon, and throughout Beirut and its suburbs. Today, it finds itself confined to two locations in Beirut.

“There used to about 20 theaters in Hamra. We are the sole survivors. We’re trying to continue,” mused A.K.. “These days, we can show only Arabic movies, because Empire and Planete, who own all English-language film distribution rights for Lebanon, won’t give us any movies. Sometimes they say they don’t have enough prints, sometimes that they are waiting for confirmation from America. But the truth is they have their own cinemas and have no interest in letting anyone else show their films.”

A.K.’s audience numbers have been given a modest boost by the increase in Gulf Arab visitors. This year, A.K. opened a cinema for two months in Bhamdoun, to tap into the summer Gulf market up there. But there just aren’t enough popular Arabic movies, or Gulf tourists, around to pack A.K.’s cinemas consistently. During the lulls, he rents out his theaters for plays and shows. A mark of desperation? “It’s difficult,” A.K. concedes.

Increasing cable piracy since the end of the war in 1991 has only made matters worse. “The last five years have been terrible,” declared A.K.. “Everything is working against cinema. And no one is helping. They ask me for my certificates. Why does no one ask the pirates for theirs? People can watch 100 stations at home and pay nothing. Nowadays, to get someone out of their chair to go to the cinema, you need to offer a big choice or a big movie.”

Fathallah Films’ plight has been aggravated by changing audience preferences. Today’s younger generation in Lebanon is shying away from Arabic movies and one-screen cinemas, in favor of action-packed American blockbusters and multiplex venues. Back in 1980, Fathallah Films drew audiences to one of its cinemas for a year with the same Arabic movie. Today, that would be inconceivable. A.K.’s cinemas draw about 55,000 viewers (or roughly $260,000 revenue) a year, a far cry from Empire’s 2.6 million. No one has offered to buy out Fathallah Films’ cinema interests – an ominous indication, maybe, that, from a market perspective, they are simply not worth buying. This explains why the company has, in recent years, placed ever-greater emphasis on its non-cinematic interests. “We are shifting from cinema to television,” stated A.K. Fathallah Films distributes programs, including documentaries and cartoons, to television broadcasters like MBC and Dubai Television. Asked if Fathallah Films could survive today on cinema alone, A.K. responded: “Never. It’s impossible to survive on our two cinemas and low audiences.”

“I hope we don’t have to close down our cinema interests altogether,” he added. “I love cinema. My brother loves cinema. Our family started this company with cinema.”

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