Multiplexes like the new Warner Mycal Minato Mirai in Yokohama are changing the movie-going experience in Japan for good

The shock of the new
Despite a thriving movie culture (Japan is the biggest market for Hollywood movies outside of the US), and audio-visual technological brilliance, many of Japan's movie theatres are decidedly third world. You know: Tinny sound, backbreaking seats and concession stands that have nothing to offer but stale, bagged popcorn and canned green tea. Five years ago, just 1,734 screens were in operation in Japan, or one for every 70,000 people (compared to one for every 9,800 in the US). Television and longer working hours had taken its toll on the movie biz, which supported 7,500 screens and one billion annual admissions at its peak in the late 1950s. The remaining Japanese majors, Toho, Shochiku and Toei, responded to the downturn by churning out safe, formulaic fare and raising ticket prices without putting a penny back into their theatres.

The local corporations' reluctance to build finally enticed foreign chains into the market and, after years of battling high construction costs and real estate prices and restrictive industry practices, a theatre construction boom is underway that will change the whole movie-going experience in Japan. More than 150 new screens have sprouted like mikan trees this year alone, featuring such amenities as digital sound, stadium-style seating, and (can you imagine?) shows after 7pm. The new entrants are forcing wide open a market long resistant to change.

Multiplex mania
Leading the charge is Warner Mycal, a fifty-fifty joint venture between Warner Brothers International Theaters (WBIT) and Japanese retailer Mycal Corp. WM's 20 theatres grossed JY15.4 billion ($125 million) and 11.5 million admissions in 1998. However, five of those sites were added late in the year and seven additional theatres have gone up this year, which should catapult admissions to over 15 million for 1999, with 10% of the market overall, and over 20% of the take for Hollywood product.

WBIT was the first foreign company to build theatres in Japan. Their plan included finding a politically-savvy local partner, creating brand recognition with Bugs Bunny and the WB gang, and choosing suburban sites that wouldn't threaten the majors' positions in the nine key cities. WM opened the nation's first multiplex in 1993 in the Tokyo suburb of Ebina, and quietly began to expand and prosper.

"The first three years were difficult," said Millard Ochs, president of WBIT, "we didn't make any money. Then our ambitious pricing - JY1000 after 9pm, ladies day on Wednesday, bargain matinees - all started working for us. Once people see for themselves how good the theatre is, they keep coming back. Word of mouth was great."

Other exhibitors soon followed, but learned the hard way how determined Toho was to protect its interests, particularly in the big cities. Kansas City-based AMC Entertainment entered with the Canal City 13 in the key city of Fukuoka. This time Toho lashed out, using its clout with US distributors to block the theatre from getting first-run product. By July the theatre had single-handedly doubled Fukuoka's revenues, which helped AMC navigate through the barrier. Cinemark tied up with Shochiku to form Shochiku Cinemark Theaters in 1997, choosing Kobe, another key city, for its first site. Toho ruthlessly blocked the theatre, including convincing Fox to deny it the Star Wars trilogy despite having one of the nation's only highest quality THX screens. Cinemark bowed out in early 1998 when Shochiku ousted its chief, Okuyama Toru.

UCI, the joint venture of Paramount and Universal, has rolled out three theatres and 27 screens since 1996 in the cities of Otsu, Kanazawa, and the key city of Sapporo. Sources say booking problems persist in Sapporo and Otsu, where Toho opened a new five-screen theatre last year. Even Warner Mycal has felt Toho's wrath in Hiroshima, where Toho blocked its theatre for months. Toho's dirty tricks extend beyond booking pressure. The company has used its influence to try and dissuade local property owners from renting to foreign exhibitors, according to industry sources.



If you can't beat 'em, join 'em
Thankfully for the beleaguered consumer, these tactics have only delayed the inevitable. New theatres are going up all over the place now, and the majors have adopted the old adage, "if you can't beat 'em, join 'em." Toho, which has consolidated its position among the majors, has ten new multi-screen sites planned. Shochiku Multiplex Theaters, sans Cinemark, remains committed to opening 100 modern screens by the end of next year. Shochiku and Toei, both undergoing massive restructuring due to seasons of poor results, say they will operate joint multiplexes by merging their facilities in Shinjuku and Osaka's Umeda district starting in 2002. All three majors are pooling their resources to build a 12-screen theatre right at Sapporo station, scheduled to open spring of 2003.

The weakened Japanese economy is improving exhibitors' leverage in brokering real estate deals, according to Anthony Winston, General Manager of Theater Development for Virgin Cinemas Japan. Virgin just opened its first theatre in April, a huge 14-screener in Hisayama, Kyushu. "Landlords realize the value of having a cinema on their property," says Winston. "The special little extras we offer, and the value we put into each of our theatres, are taken as a big positive, helping us to attract better sites."

The success of the multiplexing boom is still dependent on theatres' ability to book first-run films. But there are signs that the majors' hold on the booking system is starting to crack. A major policy shift came late last year when Twentieth Century Fox decided to terminate an exclusive booking arrangement with Toho subsidiary Toho-Towa that dated back to 1972. The contract authorized Toho-Towa to distribute all Fox films outside of the key cities. (Fifty-three percent of Titanic's JY25.5 billion box-office revenue came from outside the key cities.) But Fox Japan, whose rentals totaled JY16.9 billion last year, must still go through Toho to book films in the key cities. "Toho will likely continue to maintain its dominant share in distribution," says Paul Smith, Senior Analyst at James Capel Pacific Ltd, Japan. "They will continue to control the markets in the inner cities. Without a presence in these huge metropolitan centers, particularly Tokyo, Osaka and Nagoya, a nationwide launch is impossible to achieve."

But in the end, Toho's tactics won't stop the invasion. "It's still a sensational market if you can get in and get theatres built," said Tim Warner, President of Cinemark International, which is currently looking for a retail partner like Mycal to re-enter the country with. Warner predicts the blocking issue will come to a head as the screen count soars. "If it doesn't get resolved, there's a potential for [a trade issue to arise]. It's a chicken or an egg thing. In order for the studios to take an aggressive stance, there has to be more theatres in place."

And Warner Mycal is doing more than its part to force the issue, begging Hollywood distributors to step to the plate. With 205 screens, theirs is now the number one circuit in Japan. "We've overcome our problem in Hiroshima, and we thank the distribution companies for their support," said WBIT's Ochs. Their new challenge is in Yokohama, where the eight-plex Warner Mycal Cinemas Minato Mirai recently opened at the base of the Yokohama Ferris wheel, just one minute from Toho's downtown complex. Will this be the battle that finally breaks down the status quo? It appears it's just a matter of time.