Chandler movie houses reel from pandemic, other woes - SanTan Sun News SanTan Sun News

Chandler movie houses reel from pandemic, other woes

March 25th, 2021 SanTan Sun News
Chandler movie houses reel from pandemic, other woes

By Kevin Reagan
Staff Writer

The pandemic has created hard times and an uncertain future for two of Chandler’s movie theaters.

Slammed by the pandemic like many of its counterparts worldwide, Alamo Drafthouse Chandler and its sister venues in Gilbert and Tempe are in a dogfight in bankruptcy court over an attempt to break from the national theater franchise.

Meanwhile, Flix Brewhouse – the dine-in movie house once heralded as an economic engine in downtown Chandler’s revival – remains closed amid social media reports that it is permanently closed and is looking to lease its space.

The restaurant blog Mouth by Southwest reported that Flix Brewhouse’s parent called those reports inaccurate.

Owners of the Alamo Drafthouse Chandler, as well as its venues in Tempe and Gilbert, want to rebrand their properties by severing their ties with Austin-based Alamo Drafthouse Cinemas and partnering with Blank Ink Development Holdings, a Texas investment firm.

Alamo Drafthouse Cinemas and the Arizona theaters have filed separate requests in federal bankruptcy court to reorganize.

Both cited the impact of pandemic-related theater closures and reduced occupancy regulations, among other factors.

In a statement following its bankruptcy filing March 10, Alamo Drafthouse Cinemas said, “The transaction will provide the company with much-needed incremental financing to stabilize the business during the pandemic, which has had an unprecedented and outsized impact upon the movie theater and dining industries.

“More importantly, it will position Alamo Drafthouse to return to growth and continue executing on its long-term strategic vision.”

The Arizona Alamo theaters’ bankruptcy triggered a nasty response from the parent company.

The franchise, which has 40 venues across the country, originally signed a deal with Craig Paschich in 2016 to open the Chandler Alamo near Chandler Heights Road and Arizona Avenue. Two more Alamo theaters in Tempe and Gilbert quickly followed.

Initially, Paschich had hoped to locate the theater in downtown Chandler, leading to hopes it would help create an entertainment district. That deal fell apart.

In recent court filings, Paschich said the Alamo brand has “marginal value” in Arizona and wants to end his agreement with the franchise.

The East Valley theaters also are burdened by “exorbitant” franchise fees paid to the Alamo parent, his attorney said in court.   

“The debtors believe that rejection of the franchise agreements, and the entry into a partnership with another cinema company, will have a significant and positive net effect on the debtors’ cash flow,” Paschich’s lawyers wrote in court records on March 10.

That conflicts with what the 23-year-old parent firm said in federal bankruptcy papers in December.

It is challenging Paschich’s agreement with Ernest Cunningham and Black Ink Development Holdings to provide $1.2 million to the Shoppes at Chandler Heights for rent and unspecified assistance for the Tempe and Gilbert theaters.

It said its satisfaction surveys of patrons showed the Arizona theaters had a higher rate of satisfaction than many of its venues in other states.

And it alleged Paschich’s plan “fails to present any viable business” after reorganizing, contending he “cannot operate theaters” because he would be violating a non-compete clause he signed initially with Alamo Drafthouse Cinemas.

“Continuing to operate as theaters under competing flags or no flag at all does not demonstrate that the plan has a reasonable probability of success when those operations violate the franchise agreement’s non-competition covenants, which ADC intends to enforce,” the parent firm’s attorney stated.

It also accused Paschich of violating a confidentiality agreement and acting in bad faith by “using specialized knowledge gained over the years through their relationships with ADC to operate competing theaters in the same exact locations where the debtor previously operated the ADC branded theaters.”

On March 2, the parent  entity filed a federal civil suit against Paschich, claiming he owes more than $1 million in franchise fees for his three East Valley theatres.

In a letter sent to Alamo’s headquarters in December, Paschich allegedly told executives he intended “to reject the franchise agreement and change the brand to see if (he) can achieve fiscal success in Arizona” as “changing the business is the only way for me to take care of my family and investors,” according to the suit the parent company filed March 2.

Both Alamo’s and Flix’s woes date back to the onset of the pandemic a year ago in Arizona, when Gov. Doug Ducey temporarily closed all theaters in the state.

Even after the closure was lifted, theaters struggled under regulations that reduced capacity.

Hollywood studios further crippled them by holding the release of big-budget films with big box office potential or releasing them on pay-per-view TV channels.

Similar restrictions worldwide have cost theaters hundreds of millions of dollars.

“These regulatory and supply-chain problems, when coupled with the general fear of public places that COVID-19 has created within the movie-going public, made the debtors’ prior business structure infeasible and necessitated these bankruptcy cases,” Paschich’s lawyers wrote in court papers earlier this month.

The three Arizona Alamo theaters filed for Chapter 11 bankruptcy last May.   

Flix Brewhouse, a dine-in cinema in downtown Chandler, closed its doors in November and has not yet announced reopening plans.

When Flix first opened in 2018, it was perceived as a significant step in the city’s attempt to revitalize its downtown region. The movie house was considered a major draw for attracting consumers who could then patronize the many businesses downtown.

Kim Moyers, the city’s cultural development director, said she has not heard whether Flix may reopen anytime soon, but said the theater’s neighbors have begun to adapt without the venue’s foot traffic.

“We do not know at this time if Flix Brewhouse will be able to resume operations once the pandemic is over,” Moyers noted. “The downtown businesses have made adjustments and continue to offer dining, shopping and diverse entertainment for our residents and visitors.”

Other movie chains near Chandler have encountered financial woes.

AMC Entertainment, the largest movie house chain in the world, avoided bankruptcy earlier this year with a $917 million cash infusion from investors.

But the Regal theater near Warner and Gilbert Roads remains closed after its parent, the world’s second-largest theater chain owner, shut down all 7,000 of its venues worldwide in October.

Leaders in the entertainment industry have predicted that theaters won’t recover from the pandemic and have begun to reimagine its distribution models for new content.

Disney CEO Bob Chapek has said he did not foresee a return to traditional theatrical releases for feature films once the pandemic has ended.   

“I’m not sure there’s any going back,” Chapek said during a conference earlier this month. “But we certainly don’t want to do anything like cut the legs off a theatrical exhibition run.”

In some cities outside Arizona, developers are trying to find new uses for abandoned movie houses – a challenging task given their size and shape, which make reconfiguring the buildings for other uses difficult.

Despite the uncertainty swirling around the theatre industry, some of Chandler’s leaders are optimistic about the future of the city’s cinemas.

Micah Miranda, the city’s economic development director, said he still sees a local demand for theatrical releases and believes cinemas will find a way to adapt to a post-pandemic economy.

“We’re seeing a lot of strong interest from the community (to) getting back into theaters,” Miranda said. “Movie theaters still have some life in them.”

Restaurants and shops have found ways to work around the pandemic’s challenges, he noted, so movie theatres could potentially change their business model to find new ways to generate revenue. 

“What we’re witnessing is businesses getting creative with how they maximize their value to consumers,” Miranda added.

Arizonan Executive Editor Paul Maryniak contributed to this report.