An Alamo Drafthouse franchisee has filed for Chapter 7 bankruptcy and closed six movie theaters in Texas and Minnesota as it deals with the headwinds facing the industry and the constraints of being a franchise.
Two is One, One is None, a Dallas-based company led by CEO Bill DiGaetano that has operated Alamo Drafthouse locations through franchise agreements for more than 13 years, abruptly shut five theaters in the Dallas area and one in Woodbury, Minnesota, on Thursday. The closings resulted in more than 600 job cuts.
The company and its affiliates filed for Chapter 7 bankruptcy because of declining numbers of moviegoers across the industry, the aftermath of strikes by Hollywood's writers and actors, franchise fees and contractual obligations with Alamo Drafthouse, according to a statement from Two is One, One is None. Cinemas have also struggled with reduced attendance after the pandemic accelerated the habit of viewing at home online.
"The first quarter of 2024 has been the worst-performing quarter in movie-going history," DiGaetano said in a prepared statement.
Unlike some of his rivals, DiGaetano's company had to pay franchise fees in a prolonged environment of significantly decreased revenue, which was not sustainable, he said. Franchise fees alone accounted for 10% of DiGaetano's company's $3.7 million in sales in 2023, according to the statement.
Contractual obligations forced Two is One, One is None to keep the "most unprofitable locations open to the detriment of our overall businesses," DiGaetano said.
To offset losses, the company's owners brought in $3.5 million of new capital for payroll and operations while attempting to reduce costs, including "repeatedly seeking relief from our franchisor to reduce the noncompetitive fee structure" and close unprofitable locations, neither of which was approved by Alamo Drafthouse, DiGaetano said in the statement.
DiGaetano did not immediately respond to an interview request from CoStar News.
A spokesperson on behalf of Alamo Drafthouse told CoStar News the dine-in movie theater chain that serves craft brews and cocktails is working on a speedy return to Dallas.
"We are heartbroken for the franchisee's teammates and the local film communities; however, we are working as quickly as possible to get Alamo Drafthouse Cinema back up and running in these cities," the spokesperson said in the statement.
All other Alamo Drafthouse locations are operating as normal, with continued expansion plans across the country, the statement said.
Alamo Drafthouse, founded in the 1990s in Austin, Texas, has also had a rough few years since the onset of the COVID-19 pandemic with the theater chain exiting Chapter 11 bankruptcy in 2021.
Here are the six theaters that closed as part of the franchisee's bankruptcy proceedings:
- Alamo Drafthouse, Lake Highlands in Dallas;
- Alamo Drafthouse, Las Colinas at Toyota Music Factory in Irving, Texas;
- Alamo Drafthouse, Cedars in downtown Dallas;
- Alamo Drafthouse, Richardson, Texas;
- Alamo Drafthouse, Denton, Texas;
- Alamo Drafthouse, Woodbury, Minnesota.
Difficult Year
This year has been a difficult one for movie theater operators, and more companies could be at risk. The industry has yet to recover from the onset of the pandemic and Hollywood strikes added to an already stressed sector, said Kade Pittman, vice president of real estate for Dallas-based Cinergy Entertainment, which operates about nine movie theaters across the nation.
"Box office sales are down year-to-date about 43% and if you account for ticket price inflation to get a comparison on attendance, it's more than 50%," Pittman said. "There's less content from studios and a lot of negative factors beyond the control of one operator."
Last year, the U.S. box office reported $9 billion in sales, falling below the typical $10 billion of box office sales seen in the country, he added. Even with an average ticket price increase of 15%, Pittman said, "we'll be lucky to get $8 billion this year," with official box office projections estimating it will hit $8.2 billion.
The onset of the pandemic also forced some movie theater operators to agree to inflated lease terms banking on revenue from future year's operations, Pittman said. With ongoing industry challenges, and those revenues never realized, it has begun squeezing operators out of business, he said. Pittman expects more movie theater operators to seek bankruptcy protection this year.
Not every theater in operation today is expected to make it as a viable business in the coming years, Pittman said, adding he believes there's a rent reckoning to come for landlords as the industry continues to struggle.
Cinergy Entertainment, which has been in expansion mode, has no interest in the former Alamo Drafthouse locations in the Dallas-Fort Worth region, Pittman said. Cinergy is working on a deal at the moment for an undisclosed location in Texas, Pittman said.