Kerasotes ShowPlace Theaters LLC

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Kerasotes ShowPlace Theaters LLC

224 North Des Plaines, Suite 200
Chicago, Illinois 60661
U.S.A.
Telephone: (312) 756-3360
Fax: (312) 777-0480
Web site: http://www.kerasotes.com

Private Company
Incorporated: 1909
Employees: 2,200
Sales: $155 million (2005)
NAIC: 512131 Motion Drive-Ins)

Kerasotes ShowPlace Theaters LLC operates one of the ten largest movie theater chains in the United States, with nearly 80 theaters and more than 600 screens in Illinois, Indiana, Iowa, Minnesota, Missouri, and Ohio. Some of its theaters are located in the Chicago metropolitan area, but most are in small and mid-size markets where they have little or no competition. The company is run by third-generation members of the family of founder Gus Kerasotes, and is co-owned by his heirs and Providence Equity Partners, Inc.

ORIGINS

The roots of Kerasotes ShowPlace Theaters date to the earliest years of cinema exhibition in the United States. Company founder Gus Kerasotes was a 17-year-old immigrant from Sparta, Greece, who originally moved to Chicago in 1890 to work making candies and ice cream. After he was stabbed by a disgruntled customer he decided to leave the big city and head south to Springfield, Illinois, where he opened a candy store with a partner.

The turn of the century saw the first motion pictures exhibited at places like vaudeville houses and nickelodeons, primitive storefront theaters where short movies were shown throughout the day, often with live piano accompaniment, since the films were silent. Inspired by the success of a friend in St. Louis, in 1909 Kerasotes decided to convert his shop into a nickelodeon that he named the Royal. It proved so popular that he added a second—the Savoy—three years later.

Movie exhibition was maturing in the 1910s as longer-duration feature films appeared, and soon lavish movie theaters began to replace nickelodeons. In 1921 Kerasotes bought the First National Bank building next to the Savoy and converted it into a 900-seat theater called the Strand, which would feature westerns by the likes of Tom Mix and Buck Jones, as well as live vaudeville acts. Five years later he constructed a three-story building in downtown Springfield to house the firm's headquarters, and in 1929 Kerasotes bought Springfield's Gaity theater, which he renamed the Senate.

Sound movies began to displace the silents beginning with Warner Brothers' 1927 smash The Jazz Singer, and despite Gus Kerasotes' belief that they were merely a fad, his oldest son George convinced him to invest in equipment to exhibit "talkies." In 1933 University of Illinois business graduate George Kerasotes became the firm's general manager.

Under his leadership Kerasotes Theaters soon began to expand outside of Springfield into small Illinois towns like Havana, Onarga, and Highland. In 1937 the company partnered with Peoria developer J. Fletcher Lankton to build the 900-seat Beverly Theater in that city, and they later added the Varsity Theater near the campus of Bradley University.

By the mid-1940s the Kerasotes company was operating a total of 11 theaters in mid- and southern Illinois, and Gus's sons George, John, Nicholas, and Louis were all working for the firm (a fifth son, Dr. Anthony Kerasotes, died in World War II). The company continued to expand during the decade, and added theaters in Illinois towns like Chillicothe, LaSalle, Rockford, Decatur, and Champaign-Urbana.

DRIVE-INS SPUR GROWTH

The introduction of television in the late 1940s and early '50s put a damper on ticket sales industry-wide, and movie studios struggled to lure back patrons with 3-Dimensional and widescreen films while many exhibitors turned to drive-ins. The open-air theaters appealed to families with small children, amorous teens, and people who worked late shifts, and despite their seasonal nature (in northern states most were closed during winter months), for a time drive-in movie theaters became the company's most profitable business area. The company's first was added in Decatur, Illinois in the late 1940s; by 1957 6 of its 21 theaters were located outdoors.

In 1958 company head George Kerasotes was elected president of the National Association of Theater Owners, and after Gus Kerasotes' death in 1960 he was officially named the firm's president, though he had effectively been serving as such since 1935. Brother Nicholas was vice-president, Louis was secretary, and John was the company's treasurer.

Expansion continued during the early and mid-1960s, with the 50th Kerasotes theater opening in 1967. By now drive-ins had come to account for about 40 percent of the total business, and the firm had also added its first out-of-state location in Missouri.

During this period theater owners began to discover the economic benefits of showing movies on multiple, adjacent screens with staggered start times, allowing staff to keep busy selling tickets and highly-profitable popcorn and candy, rather than remaining idle for up to two hours while a single film ran. During the early 1970s some Kerasotes theaters were converted into two-, three-and four-screen configurations, while other "multiplexes" were built from scratch, including the four-screen Esquire in Springfield.

Growth was steady during the decade, and by the early 1980s Kerasotes Theaters had grown to become the ninth-largest cinema chain in the United States, with 220 screens in small- and mid-sized markets in Illinois, Indiana, Missouri, Arkansas, and Ohio. In many cases the firm owned most or all of the venues in a particular city.

GEORGE KERASOTES LEAVES IN 1985

In 1985, as several family members later told Variety, George Kerasotes made a side deal to buy the 21-screen W.S. Butterfield chain in Michigan by putting up company property as collateral. When his brothers protested the offer of a minority ownership stake, George declared the family partnership over and left to form his own company. After the split his new Springfield-based George Kerasotes Corporation (GKC) would own 75 former Kerasotes Theaters screens in Illinois as well as all 21 of the Michigan ones obtained from Butterfield.

Rocked by this turn of events, his three younger brothers struggled to carry on. With the same overhead as before, but a third fewer theaters, they decided to expand aggressively to catch up and by late 1989 had added 86 screens, including 22 acquired from General Cinema the year before. Following the breakup Louis Kerasotes served as company president until his death in 1988, then brother Nicholas took over until he passed away the next year. Louis' sons Tony and Dean and John's son Denis had by this time taken charge of the firm's day-to-day operations, with John serving as secretary and treasurer of the company and the president and CEO roles left empty.

COMPANY PERSPECTIVES

It was Gus' love of movies and his vision for the entertainment industry that began the Kerasotes legacy. We keep his vision alive by realizing that people come to the movies to have a good time. "Going to the movies" should be a special experience and we'll do our best to make sure that it is!

The mid-1990s saw Kerasotes launch an even more aggressive expansion effort that would boost it from 350 to 500 screens by the end of the decade. In 1996 the firm began constructing two new 16-screen "megaplex" theaters in South Bend, Indiana, and Rockford, Illinois, and a 12-screen version on the site of a drive-in in Pekin, Illinois, that had burned down five years earlier. The new facilities would feature tiered stadium seating with cup holders, huge screens, state-of-the-art sound systems, and large lobbies with multiple concession counters and dynamic architectural styling.

The firm's new megaplexes were often built in markets where it already had smaller theaters, and these now-outdated venues typically began to feature bargain price second-run films before eventually being closed. A few won designation as historic landmarks and were sold to civic organizations with the stipulation that they not show films, while others were demolished to make way for new office buildings or other projects. Drive-ins, which the firm had once operated 72 of, were now all but a memory as the land they were built on provided ideal locations for new megaplexes.

In early 1997 Kerasotes Theaters secured a $115 million line of credit from Bankers Trust to fund its expansion program, which now included 16-screen megaplexes in Ohio and Minnesota. 1998 saw the firm also announce plans for a new $10 million, 16-screen theater in Indianapolis, Indiana, its first in that city, as well as another in Evansville, Indiana. The company was calling many of its new locations ShowPlace Theaters, though the Evansville operation would be known as the Stadium 16, as another theater owner there already operated one called Showplace Cinemas.

By spring of 1999 the company had a total of 468 screens, while offshoot GKC had grown to 320. John Kerasotes had recently retired and Tony Kerasotes was now serving as the firm's president and CEO, with his brother Dean holding down the jobs of executive vice-president and chief operating officer.

In mid-2000 Kerasotes Theaters' headquarters were moved to Chicago, where the company was seeking to expand, though some operations remained at the Kerasotes Building in Springfield. March of 2001 saw former President George Kerasotes die at age 89, after which his daughter Beth auctioned off a number of GKC theaters and undeveloped properties. Kerasotes Theaters then had 82 locations and 525 screens.

In the early 2000s the firm began running commercials for products like Coca-Cola and video games before films, in addition to previews of coming attractions and less-intrusive ads for local businesses on slides. Because up to 90 percent of ticket revenues went to a film's distributor, exhibitors were forced to look for profits in concession sales (whose prices, to the dismay of patrons, were steadily going up) and other areas. With advertisers finding it more and more difficult to get their message through to consumers who could zap past TV commercials or avoid them entirely by watching DVDs, they began courting the completely captive audience in theaters, spending an estimated $300 million nationwide to put ads on the big screen in 2002.

PROVIDENCE EQUITY PARTNERS BUYS STAKE IN 2003

Several of the largest national movie chains had entered bankruptcy protection after a binge of new theater construction in the 1990s was followed by a ticket sales slump in the early 2000s, but Kerasotes avoided such consequences by expanding in a more measured way and in areas where it faced little or no competition. After putting growth on hold for several years, in October of 2002 the firm secured a $170 million loan guarantee from Deutsche Bank and in June 2003, Providence Equity Partners, Inc., bought a stake in the company for $75 million. Its name was later changed to Kerasotes ShowPlace Theaters LLC.

In the fall of 2003 a new 12-screen theater was opened in Springfield on the site of a long-shuttered drive-in, and the year also saw openings of an 11-screen theater in Richmond, Indiana, an 8-plex in Galesburg, Illinois, and a 6-screen site in Quincy, Illinois. The company had scaled back the size of its theaters, as 16-screen and larger multiplexes were now viewed as having more capacity than the movie studios' output warranted.

In 2004 Kerasotes opened a 12-screen theater in Schererville, Indiana near a 16-plex that it already owned, plus a 14-screen site in New Lenox, Illinois, and a 12-screen theater in Indianapolis. The company added screens to its Pekin and Matoon, Illinois, theaters during the year as well.

KEY DATES

1909:: Gus Kerasotes opens his first nickelodeon in Springfield, Illinois.
1921:: The Kerasotes-owned Strand theater opens in Springfield.
1933:: Gus's son George Kerasotes named general manager of the firm.
1967:: The Kerasotes chain opens its 50th theater.
1985:: George Kerasotes splits from his three brothers to form GKC Theaters.
2000:: The company headquarters are moved to Chicago.
2003:: Providence Equity Partners buys a stake in the firm for $75 million.
2005:: The company's 600th screen is added.

2004 also saw a number of the firm's locations begin featuring special daytime shows called Matinee Movie Magic, which were targeted at parents with very young children. Auditorium lights were raised to a higher level so toddlers could safely wander the aisles, and sound was lowered so babies could sleep while their parents tried to enjoy the film. The large number of screens at the firm's megaplexes also allowed it to sometimes feature one or more special-interest "art-house" titles, in addition to the popular mainstream films.

In the fall of 2004 the firm secured an additional $300 million in funding through Deutsche Bank, part of which would be used to pay a $100 million dividend to Providence Equity Partners. Though Kerasotes had historically operated theaters in smaller towns where it had little or no competition, it was now seeking a greater share of the Chicago metropolitan market, where it had become the fourth-largest cinema chain. At this time plans were announced to add 174 new screens by 2007, some 90 of which would be in that area.

In 2005 new 14-screen theaters opened in Michigan City, Indiana, and Machesney Park, Illinois, along with 12-plexes on the east side of Indianapolis and in Muncie, Indiana, which boosted the company's total to 609 screens at 77 locations. Amenities at the new theaters included stadium seating, online ticket sales, free refills on popcorn and drinks, game arcades in lobbies, Dolby Digital sound, and large, curved screens. A typical auditorium was between 200 and 300 seats in size.

In April of 2005 the 30 theaters and 263 screens of splinter company GKC were purchased for $66 million by Carmike Cinemas, Inc., from George Kerasotes' heirs. Carmike, which had emerged from Chapter 11 bankruptcy protection, was one of the top four chains in the United States with 280 theaters and 2,173 screens in 36 states.

SALE/LEASEBACK DEAL COMPLETED IN 2005

In September 2005 Kerasotes ShowPlace sold 17 of the theater properties it owned to Realty Income Corporation for $200 million, which would then lease them back to the firm. The transaction reduced the number of sites the company owned from 65 percent of the total to 40 percent. The funds would be used for ongoing expansion and to pay down debt.

In the fall a handful of Kerasotes' theaters installed Real D digital projection systems for the opening of Disney's Chicken Little, which enabled patrons to watch it in 3-D. The industry was slowly beginning to convert to digital projection from the acetate-based film in use since the medium was born. Exhibitors would have to make a substantial investment in new equipment akin to that of the late 1920s when "talkies" arrived, but it would save distributors huge sums on manufacturing and shipping heavy 35mm film prints and theoretically enable projection of a perfect image every show without the splices, scratches, and dirt that inevitably accumulated on film.

In May 2006 the company opened a new 12-screen ShowPlace theater in Hobart, Indiana, which joined a ten-screen facility there purchased from Loew's Cineplex late the previous year. Plans for another in Chicago's Uptown area were cancelled due to the high expense of construction, but the firm was reportedly also seeking to buy several in the city from AMC Entertainment, which had been forced to sell some locations due to a merger with Loews. Kerasotes had 614 screens at 76 theaters, with new ones under construction in Naperville, Cicero, and Niles, Illinois, and Kokomo, Indiana. Six more were on the drawing board for Chicago and other locations in Illinois, as well.

After almost a century in the movie business, Kerasotes ShowPlace Theaters LLC had established itself as the dominant exhibitor in small and mid-size markets in Illinois and several neighboring states. It was seeking to boost its presence in the competitive Chicago metropolitan area, while continuing to expand in its traditional stronghold. Under the third generation of family management, the company looked poised for many more years of profitable operation.