Muvico: Judgment Day
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With just $700 to his name, 19-year-old Hamid Hashemi left his native Iran during its 1978 Islamic revolution, found his way to Boca Raton, got into real estate investing and in 1984 bought a small movie theater in nearby Coral Springs.
With radio and TV investor and arts philanthropist Joseph Amaturo and others, Hashemi built a six-screen theater in Miami-Dade in 1988 -- one of the first with high-end sound and stadium seating rather than traditional sloped floors.
He was just warming up. By 1998, the first of his signature luxury theaters opened in Orlando and south Florida. His Muvico chain would become the Neiman-Marcus, as Hashemi liked to say, of the theater business. He aimed for unsurpassed luxury and service: Wider seats and more legroom, 20-plus screens, child care, balcony seating for high-paying customers, champagne and shrimp along with Raisinets -- all housed in over-the-top, individually themed splendor. In Broward, Muvico's palace featured an Egyptian motif. In Orlando, it held a 23-foot flying ship.
"They outdo everybody in terms of quality," says theater owner Robert Bucksbaum, president of California-based industry tracking firms ReelSource and Exhibitor Relations. Muvico "put a lot of money in their theaters. I know as a theater owner, it takes a long time to get a return," Bucksbaum says.
Ah, the money. To fund his vision as it grew, Hashemi surrendered control. "I can give some advice to up-and-coming entrepreneurs," he says ruefully.
Muvico: Now Playing Theaters: 13, in Boca Raton, Davie, Estero, Hialeah, Orlando, Palm Harbor, Pompano Beach, St. Petersburg, Tampa, West Palm Beach, Hanover, Md., and Memphis |
Cue the wistful music.
In 2000, a group led by private equity firm Fleet Equity Partners (now known as Nautic Partners) of Providence, R.I., invested $41.5 million in the chain. Others in the group included existing Muvico investors Amaturo and BCI Partners,
a Teaneck, N.J., venture capital outfit. The share of ownership held by Hashemi and his wife, Deane, Muvico's vice president of operations, fell to about 15%.
The cash enabled Hashemi to finish several theaters and move into the Tampa region, Tennessee and Maryland. As he opened more theaters, revenue jumped to $102 million in 2001, good enough to debut at No. 164 on Florida Trend's listing of the state's largest private companies. He topped the chain out at 12 theaters, small by national standards but the envy of the industry for its style and attendance. Three of the 12 theaters routinely number among the most visited in the nation. Meanwhile, the rest of the movie industry slumped, with ticket sales falling and six chains seeking bankruptcy court protection at the turn of the decade to escape debt incurred in a 1990s expansion race.
As that happened, Hashemi's vision grew more grandiose. In 2003, he announced Muvico Empire, theater-anchored attractions offering movies, bowling, billiards, a bar, a restaurant, video games and more.
Against the backdrop of Hashemi's expanding plans and an industry breakdown, strife developed among Muvico's investors, and in 2003 the company's management committee quietly began shopping the company, according to a later lawsuit by Hashemi. Revenue fell 3% to $123 million in 2004. By 2005, Muvico was in a bind.
The theaters still glowed, with an article in the New York Times calling Muvico "pretty close to the gold standard" for luxury. But Muvico's revenues fell nearly 1% to $122 million. Compared to the rest of the industry that was a strong performance, but the company's debt was maturing, and it was short of capital to meet its expansion commitments.
Hashemi tried to seize the moment. Working with Stuart Miller, CEO of the nation's largest home builder, Miami-based Lennar, Hashemi bid a reported $136 million for his company. But he had competition. AmStar Stadium Cinemas, a seven-theater, Alabama-based chain, bid $125 million. AmStar's investors include Muvico investor BCI Partners' Theodore Horton.
The AmStar/Horton bid won. Even though Hashemi's offer was higher, Muvico's governing committee apparently didn't view his bid as serious, according to court filings.
Hashemi was put on leave from his $325,000-a-year job on Dec. 30, 2005, and sacked less than a month later for what the company calls "scurrilous and fraudulent behavior" -- false claims, he says in court pleadings. Hashemi's wife, diagnosed with cancer in August 2005, also got the boot. Hashemi filed three suits related to the struggle, and his wife filed one for wrongful termination.
Hashemi alleges improper conduct in assessing the competing bids and complains of malice and "a predisposition to replace him as president in a 'revolutionary' power struggle." Deane Hashemi's suit was settled on undisclosed terms. Hashemi's suits remained pending as of early January.
In an odd subplot, Joseph H. Shook, 36, a Muvico information technology director whose job was eliminated a month after Hashemi's dismissal, was subsequently indicted on a charge of sabotaging Muvico's computers for the May 2006 opening of Mission: Impossible III by preventing credit-card purchases at six theaters, costing the chain $100,000 in ticket sales. His case is pending. Bruce Udolf, Shook's lawyer in Fort Lauderdale, says Shook "categorically denies that he hacked into Muvico's computer system. The government's theory in this case is wrong and will be proven wrong at trial."
Meanwhile, back at the main plot, Muvico returned Hashemi's fire in court with a counterclaim alleging malfeasance by Hashemi. It says Hashemi, "in apparent violation" of campaign finance law, solicited employees for political donations to candidates and reimbursed them, himself and his family from company funds. He also used company assets as his own and was "materially dishonest" with the Muvico committee and managers, according to the claim. Hashemi and Muvico and its investors and managers, in court pleadings, deny the allegations of wrongdoing against them.
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Veering from the script
The AmStar/Horton deal never closed. Michael Whalen Jr., Muvico's CFO of five years, became president.
Whalen and his team have dumped Hashemi's Empire concept as too risky and off point. In a December interview in the upscale restaurant at Muvico's Boca theater, Whalen outlined the company's core business: Creating entertainment venues combining movies, a restaurant, bar and perhaps interactive gaming. The aim is to make the movie itself, as Whalen says, "part of the experience; it's not the experience."
Whalen appears as captivated as Hashemi by a luxury vision as he shows off the theater's new carpet, the balcony love seats and the fresh flowers in the men's room. Revenue and attendance in Boca have risen for six years, an unheard of run in an industry where attendance at new theaters tends to fall off quickly. Industry attendance declines by 1% to 2% a year, Whalen says, evidence of a "structural flaw" in the business model that Muvico will address by removing the barriers that keep people other than the ubiquitous teens from theaters.
Muvico will continue to offer on-site child care, restaurants and adult-only premium seating. Muvico is testing infrared cameras as a way to combat misbehavior by patrons.
Whalen, however, plans significant departures from Hashemi's script. Gone will be the expense of individual themes for every theater. Whalen will stick to a more cost-effective, single Grand Palace template for new construction. High-margin seating for those 21 and older will continue, but balconies will give way to a stadium club level configuration at eye level with the screen. Whalen also favors smaller theaters of generally no more than 14 to 16 screens.
"Hamid's vision for the industry is on," Whalen says. "I think where it falls apart is the size of the box is too big." Smaller theaters need to sell only 500,000 to 700,000 tickets a year to be profitable rather than the 1.3 million that 20-screeners need. Smaller theaters also can double the percentage of high-margin premium seating to as much as 20% of total seating. As the industry converts to digital distribution, showing live sporting events and concerts in 3-D may come, Whalen says.
Muvico has $18 million in the bank, the highest operating margins in the industry, generates $17 million annually in cash flow before interest, depreciation and amortization and is covering debt service, Whalen says. Muvico opened a theater in Estero, south of Fort Myers, in December. In a less ambitious schedule than Hashemi's, Whalen expects to open theaters this year in Boynton Beach and Chicago. In 2008, he hopes to open a Meadowlands, N.J., theater, featuring floor-to-ceiling window views of the Manhattan skyline and a rooftop outdoor screen -- but without the helipad Hashemi envisioned.
The sequel
Hashemi, meanwhile, will launch his ambitious new concept, IPic Entertainment -- "The Great American Destination" -- this summer in Milwaukee. Hashemi, as he did at Muvico, says you must give people a reason to leave their homes. "The theaters that are going to survive are the ones that give you an experience," he says. "You have to offer service and amenities they can't find in their homes."
Hashemi thinks the industry needs to change -- fast. He forecasts the window between a movie's theater and DVD releases shrinking to essentially nothing, and he readily cites the numbers, Wall Street studies and studio executives' comments to buttress his point. In IPic, he believes he has a draw. It will combine in a single facility a tony restaurant, bar, luxury bowling, a live stage auditorium with cabaret-style seating and also will have six to 10 luxury movie theaters, with every seat a love seat and every row 54 inches behind and 24 inches higher than the row in front.
"The theater is a small portion of the revenue in this facility," Hashemi says. "It's about a night out of entertainment and about having options to choose. I want to build a product that's around for the next 20 to 30 years."
Tickets -- priced double the local going rate -- for assigned seats will be purchased online along with concessions that will be delivered to patrons at their assigned seats. Popcorn and valet parking will be free with ticket purchases. The live stage will be used for comedy, music or meeting events.
Children and teens will be allowed in only for shows before 6 p.m. and will be allowed to bowl only until 9 p.m. His entire focus is on the profitable demographic ages 21 to 45. He intends to avoid drawing teens, whose presence works against the image and ambience of upscale shopping and dining centers where he plans to locate. He anticipates opening four in 2008 and six a year thereafter in the
nation's top 50 markets.
For capital, he has tapped south Florida investors. Developers are fronting construction costs.
Hashemi says his wife is recovering. "Thank God she's doing well," he says. "Once my wife's treatment was done, I got on this full time. I've been working like a dog since then."
To be continued ...