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Movie Star Adding Glitz to Sale of Theater Chain

Sundance Cinemas has built its business on pricey upscale amenities such as rocking-chair seats and craft beer, as well as a combination of independent films and commercial blockbusters. That has allowed the Westlake Village movie theater chain, an independently operated entity of Robert Redford’s Sundance Group Inc., to ride the premium movie-experience trend and boast five consecutive years of revenue and cash-flow growth. But for all its success, it’s still subject to the cycles of the investment firm that finances it. Its major funder, downtown L.A.’s Oaktree Capital Management, is in a divestment period and Sundance Cinemas announced last month it has hired West Los Angeles investment bank Salem Partners to help it find a buyer. The sale could signal an opportunity for a new investor to inject more cash into the chain and allow it to continue to expand beyond its current five locations – or make it a target for consolidation among art house-style theaters. “I don’t think Regal (Entertainment Group) will be a buyer for Sundance,” said Leo Kulp, an RBC Capital Markets analyst who follows large exhibition chains such as Regal and AMC Theaters. “You may see a larger art house chain step in and potentially bid for this. I suspect there are some synergies from consolidation.” The Sundance chain was formed as an extension of Redford’s Sundance Film Festival. After the success of his first few festivals in the 1990s, he wanted to distribute those independent films nationwide. It didn’t make sense back then to open a theater, so he started the Sundance Channel instead. But about eight years ago, frustrated with the state of audience experience in theaters as a movie-goer and a filmmaker, Redford revisited the idea of opening a movie chain and founded Sundance Cinemas with financing from Oaktree. At the very least, the potential sale of the chain has drawn attention to the state of the movie exhibition industry. Despite a slow year in 2014 and increasing competition from home entertainment options such as video-on-demand, overall cinemas are having a strong year. Big movies so far for this year include “Jurassic World” and “Furious 7,” from NBCUniversal; “The Avengers: Age of Ultron” from Walt Disney Co. and “Inside Out,” from Disney’s Pixar Studio. The summer movie season that started May 1 has grossed $2.4 billion domestically as of the Fourth of July weekend. “The theater business is actually very robust,” said Paul Dergarabedian, senior media analyst at Rentrak. “We are having a banner year and are on pace for what could be the first $11 billion year in America and $40 billion worldwide.” The strong box office is helping publicly traded exhibition chains see revenue growth as well, Kulp added. Premium service Sundance opened its first cinema in Madison, Wisc., eight years ago. Since then it has added four more locations in Houston, San Francisco, Seattle and West Hollywood, for a total of 37 screens. The company has plans to open an eight-screen theater in a new $150 million mixed-use project in Dobbs Ferry, N.Y. next year – its first on the East Coast. The cinemas boast luxury seating, bistro fare such as fresh salads and flat breads, hand-crafted mixed drinks as well as large indoor or outdoor lounge areas and art galleries. Last week’s showings included indies such as “Infinitely Polar Bear” and blockbusters such as “Jurassic World.” Tickets run between $7 and $19. As a privately held company, Sundance doesn’t disclose its finances, and Sundance, Salem Partners and Oaktree all declined to comment for this story. But last year Arthouse Convergence, a national organization of independent movie theaters, surveyed 129 private arthouse theaters about their operations. Three-fourths reported higher attendance in 2013 than the previous year, for a median total of about 70,000 visitors. The arthouses reported average revenue of $1.1 million in 2013, according to the most recent survey. About half of that was generated from the box office, amounting to about $260,000 per screen or $521,000 per theater. “The arthouse world was up and doing well in 2014 so the Sundance sale is going to be a reflection of the business dynamic of that particular niche exhibition,” said Russ Collins, founder of Arthouse Convergence and director of an arthouse cinema in Michigan. Local theaters similar to Sundance Cinemas include the Laemmle chain, and independents New Beverly Cinema, programmed by director Quentin Tarantino; Nuart Theatre; and the Egyptian and Aero theaters operated by the non-profit American Cinematheque. If Sundance sells, its future depends on who buys it. If it’s another investor, it’s likely the company continues to operate in the same fashion. It may pursue further expansion. If another chain steps in, such as Landmark Theatres, it could mean a consolidation. “What we saw in the larger theater industry is consolidation,” Kulp explained. “There are now four massive nationwide chains that control 50 percent of the industry and it’s an opportunity for arthouses to do a similar consolidation.” The types of amenities Sundance offers are all the things that larger commercial chains are starting to incorporate into their theaters to make them attractive to audiences. Most notably, AMC has renovated some of its theaters with reclining lounge chairs and offering full bar services; attendance increased more than 80 percent in those theaters. Sundance’s premium approach could be attractive to a theater chain looking to cash in on the success of such an environment – which most experts think is going to keep audiences in movie seats for years to come. “Audiences want an outside-of-the-home experience especially if the weather is bad,” said Dergarabedian. “We all have kitchens but we still go out to eat.”

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