Village Roadshow Ltd.

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Village Roadshow Ltd.

206 Bourke Street
Melbourne, Victoria 3000
Australia
Telephone: (61) 39667 6666
Fax: (61) 39639 1540
Web site: http://www.villageroadshow.com.au

Public Company
Incorporated: 1954
Employees: 1,636
Sales: A$788.1 million ($542.3 million)(2002)
Stock Exchanges: Australian
Ticker Symbol: VRL
NAIC: 512110 Motion Picture and Video Production; 512120 Motion Picture and Video Distribution; 512131 Motion Picture Theaters, Except Drive-In; 515112 Radio Stations; 532230 Video Tapes and Disc Rental; 713110 Amusement and Theme Parks; 713990 All Other Amusement and Recreation Industries

Village Roadshow Ltd. Is Australia’s—and one of the world’s—leading integrated distributors, exhibitors, and producers of feature films and television program. The company operates more than 130 movie theaters, most of which are of the multi-screen multiplex variety, giving it a total of more than 1,100 screens in eleven countries, including Australia, where it has long been industry leader. Many of the company’s multiplexes also provide homes for its game room concept, Intencity. Village Roadshow is also Australia’s leading film distributor, through Roadshow Films, its 50/50 joint-venture with Greater Union Organisation (also a top Australian cinema operator). That unit distributes films to cinemas and various television outlets; it also includes Roadshow Entertainment, a video and DVD distributor, as well as its own roster of musical recording artists. Yet Village Roadshow’s most controversial unit is its Village Roadshow Pictures production arm, which has become the focus of the company’s long-term strategy in the 2000s. Roadshow Pictures, in partnership with Warner Bros, has become a major producer of feature films—including blockbusters such as Ocean’s Eleven and The Matrix. The two companies have an agreement to produce up to 40 films together by 2005. Complementing these interests is the company’s Theme Parks division, which, in a 50/50 partnership with Time Warner, is Australia’s leading theme park operator. The company’s attractions include Warner Bros. Movie World, Sea World, and Wet ’n’Wild Water World. The company also maintains a 58 percent control over publicly listed Austereo, one of Australia’s leading radio station operators. In 2002, Village Roadshow posted sales of A$788 million ($542 million). The company is led by John and Robert Kirby, sons of company founder Roc Kirby, and managing director Graham Burke.

Drive-in Pioneer in the 1950s

Village Roadshow was founded by Roc Kirby in 1954 as one of Australia’s first drive-in theater operators, in Croydon, a suburb of Melbourne (the first Australian drive-in had opened earlier that year in another Melbourne suburb). Kirby had already operated traditional indoor cinemas, under the Kirby Theaters name, but the outdoor concept, dubbed Village, was to provide the motor for the company’s growth.

The original Village featured capacity for 454 cars and later offered such features as a swimming pool and a go-cart track, as well as a walk-in area for customers without cars. Kirby’s company also built and operated a motel facing the theater.

Quick to recognize the potential of the drive-in format, Kirby rapidly expanded his business through the late 1950s and by the beginning of the 1960s operated 27 drive-ins throughout the state of Victoria. Village Roadshow, as the company came to be called, then began to expand throughout Australia, particularly after the company began adding so-called “hard-top” (enclosed) theaters in the 1960s. While drive-ins catered especially to Australia’s suburban and vast rural markets, the hardtop theaters targeted the country’s growing metropolitan areas.

Joining Kirby in the company’s expansion were sons Robert and John, who helped out by serving popcorn and soft drinks, and especially Graham Burke, who started with the company in 1960 sweeping floors at one of its theaters. Burke rapidly became one of the pillars of the business, joining the Kirby’s in Village Roadshow’s expansion beyond exhibition. In 1967, the company entered the distribution side, founding Roadshow Distributors. That operation later grew into Australia’s largest.

Village Roadshow’s distribution operation led to an agreement with Warner Bros. Films in 1971, marking the start of a long partnership between the two companies. By 1974, the company had added a television distribution component as well. Also during the 1970s, in a drive toward vertical integration, Village Roadshow turned toward film production itself. As such, the company backed a number of important Australian features of the period, including popular hits such as 1973’s Alvin Purple —considered one of the seminal films of the period and the most successful Australian film of the decade—and the “Mad Max” series, which began in 1979. By the 1980s, the company had built its own production studio in Queensland, which was one of the most modern facilities of its kind at the time.

The advent of video, however, spelled the end of the drive-in theater. Although Village Roadshow continued to operate a number of drive-ins through the 1990s, the format itself faded quickly with the growing available of videocassettes and VCRs. Cinema attendance on the whole suffered through the decade. Village Roadshow, however, responded quickly to these new trends, adding its own video distribution and video rental operation in 1985.

Village Roadshow jumped on another fast-moving bandwagon, that of the multiplex theater. A direct response by the theater industry to the rise of video, the multiplex offered a choice of screenings in a single building. Later variants featured as many as 30 screens. Village Roadshow became a pioneer in building and converting its existing theaters into the multiplex concept, investing in new sound and projection technologies and introducing new features, such as stadium seating. In this way, Village Roadshow and other theaters operators were able to attract audiences back into their theaters.

Bulding a Global Cinema Network in the 1990s

The development of the multiplex in turn boosted the film distribution market. In 1988, Village Roadshow made a move to increase its share of that sector as well, joining with rival cinema operator Greater Union Organisation to merge their distribution divisions. The resulting 50/50 joint venture was Roadshow Distributors, which became Australia’s leading film distribution house.

The company strengthened its long-standing partnership with Warner Bros, that year as well when it sold a 50 percent stake in its Queensland production studio, which was then renamed as Warner/Village Roadshow Studio. The deal also offered Village Roadshow greater access to the North American market for its Australian film and television productions.

Warner and Village Roadshow continued to extend their partnership in 1988 when they agreed to join together in a 50/50 joint-venture to build and operate a new Warner World theme park and studio tour. Opened in 1990, that park became one of Australia’s most popular attractions and led Village Roadshow and Warner to open a second park, Wet ’n’Wild World, in 1991, and later acquire a third, the popular Sea World attraction.

Village Roadshow’s rapid expansion in the late 1980s sent it to the markets for additional capital. Rather than launching its own initial public offering, the company acquired publicly listed De Laurentis Entertainment Limited in 1989. That company was then renamed Village Roadshow Limited. The Kirby family nonetheless maintained control of the company’s stock.

Village Roadshow once again turned to partnerships for expansion at the end of the 1980s, teaming up with Warner Bros, and Greater Union to develop a new chain of multiplex theaters throughout Australia. The partnership, called the Australian Multiplex Joint Venture, grew quickly through the 1990s, establishing a chain of nearly 30 theaters and nearly 320 screens.

Now led by John and Robert Kirby, who alternated in the chairman’s position, and Graham Burke, who took on the managing director’s job, Village Roadshow began expanding on its own in the 1990s, now targeting international expansion for the coming decade. New Zealand became the company’s first foreign market in 1991, when it began building up a chain of cinemas there. The following year the company entered Singapore as well.

Village Roadshow’s success in Singapore led it to step up its international expansion in the mid-1990s. In 1994, the company entered Thailand, followed by Malaysia in 1995. By 1996, the company was actively expanding its cinema circuit in 20 different markets, including Hong Kong, where the company formed the Golden Village joint-venture with that country’s Golden Harvest. In Europe, the company’s purchase of half of Warner International Theatres gave it a stake in 135 screens in the United Kingdom and 17 more in Germany. By the end of 1996, the company had added Fiji, Hungary, and Argentina as well.

Village Roadshow turned to its shareholders in 1996, raising A$216 million to fuel its expansion drive. The company added a number of new foreign markets, including Greece, Italy, and India in 1997, and Taiwan, South Korea, and France in 1998.

Company Perspectives

Village Roadshow is an international media and entertainment group focused on maximizing value from its core businesses. Our strategy of restructuring the cinema exhibition division, along with excellent film product, has produced a strong turnaround in 2001-02. Our investment in film production continues as it has the highest growth potential of all divisions. Other businesses performed well, in difficult trading conditions. Our core businesses are strategically and financially strong and we look to the future with confidence.

International growth was not the only focus of Village Roadshow’s 1990s expansion. In 1993, the company had entered radio broadcasting through the Triple M network. A year later, Village Roadshow acquired nearly 53 percent of Austereo, which operated radio stations under the Today name. Austereo then absorbed the Triple M format as well, and by 1997 Village Roadshow had acquired full control of Austereo.

Village Roadshow added a new retail format in the 1990s as well with the creation of a joint-venture, Village Nine Leisure, with Publishing & Broadcasting Limited and Westfield Holdings, to open a string of “virtual entertainment” shops. Village Roadshow also attempted to join the growing multimedia market with the creation of Roadshow New Media in 1995.

Yet the international market remained the company’s clear priority. As Burke told the Herald Sun, “We will be a worldwide entertainment giant—if we are not already—in five years.” By the end of 2000, the company had entered a number of new foreign markets, including Austria, Switzerland, and the Czech Republic. Even the company’s radio division caught the foreign expansion fever, launching five radio stations in Malaysia in 1996 and the acquisition of a 75 percent stake in a radio station, renamed Village 88 FM, in Athens, Greece.

Production Ambitions in the New Century

Village Roadshow’s rapid international expansion had not, however, convinced the investment community, and, amid falling profits and a floundering share price, the company was forced to abandon its dreams of establishing a global cinema empire. The company began exiting a number of foreign markets, with plans to drop back to just its ten more profitable country markets. Village Roadshow also began shedding a number of non-core operations at the time.

Yet investor concerns ultimately appeared to play only a small role in the company’s about-face at the turn of the century, when Village Roadshow had become determined to become a major player in the high-risk—but potentially high-reward—Hollywood film production community. In 1998, the company formed a co-production partnership with Warner Bros, that called for a production run of 20 films. In order to finance this new activity, Village Roadshow arranged a revolving credit facility of $750 million through Canadian Imperial Bank. The partnership had its share of successes right off the bat, including the blockbuster hit The Matrix in 1999, as well as Analyze This, also 1999, and Space Cowboys in 2000. By the end of that year, Village Roadshow and Warner Bros, had extended the original production deal to 40 films by 2005.

In 2001, Village Roadshow spun off Austereo in a public offering, valued at A$l billion, as part of the company’s continued streamlining effort. Village Roadshow nonetheless retained a 55 percent stake in Austereo. Elsewhere, the company continued its international retreat, selling off its Swiss, Hungarian, and Athens theaters that year. Germany and France followed, and, by the end of 2002, the company had sold off its cinema businesses in Malaysia, India, and Thailand as well. Not all of the company’s cinema business was in regression, however, as the company added new theaters in the Czech Republic, Korea, Taiwan, and the United Kingdom that year.

Yet Village Roadshow had definitely, if discretely, hitched its wagon to its Hollywood ambitions. In June 2002, the company surprised and angered its shareholders when it announced that it would suspend it dividend payments that year—in part because it needed the cash for its planned expansion of its production operation.

In the meantime, the company sought to appease shareholders by cutting the pay packets of its top executives, including the Kirby brothers and Burke. The company also sold off its South Korean interests in September 2002.

At the beginning of 2003, Burke and the Kirby brothers at last came clean and admitted that they saw the company’s future in production, particularly given the seemingly saturated status of the exhibition market. In February 2003, the company stepped up its rolling credit with Canadian Imperial to $1 billion, and agreed with Warner Bros, to extend their production agreement to a further 40 films through to 2006.

The move impressed observers, in part because of the company’s willingness to risk its future on its fortunes in Hollywood. However, adding that kind of debt burden promised to squelch the company’s profits, at least in the near term. Indeed, under the complicated financial structure of the Hollywood production market, Village Roadshow would be unable to declare its film profits—if any—until the co-production agreement had come to an end.

Key Dates

1954:: Roc Kirby, a cinema operator, opens his first drive-in theater in Croydon, outside of Melbourne.
1960:: Graham Burke joins the company, which by then has 27 drive-ins.
1967:: Kirby and Burke enter the distribution market, creating Roadshow Distribution.
1971:: Roadshow enters a distribution agreement with Warner Bros. Films and begins film production.
1985:: Roadshow enters the video distribution and rental market.
1989:: The company acquires De Laurentis Entertainment, changing its name to Village Roadshow, and forms a multiplex partnership with Warner Bros and Greater Union.
1991:: Village Roadshow expands into the New Zealand cinema circuit.
1996:: International expansion is stepped up, bringing the company’s cinema operations to 20 countries by 2000.
1998:: The company enters into its first co-production agreement with Warner Bros.
2000:: Village Roadshow begins exiting many of its international markets and extends its co-production agreement with Warner Bros.
2003:: The co-production agreement is extended by 40 more films, as the company refocuses on being a major film producer.

While the company continue to back a number of hit films, including 2003’s Matrix Reloaded and the third installment in the Matrix Trilogy scheduled for release later that year, it also had its share of losers. Meanwhile, the company’s minority shareholders, who had signed on to the company when its focus had been its exhibition division, became alarmed at the prospect of losing out on short-term profits. The company defended itself, claiming that its production agreement enabled it to build up a strong and lucrative library.

Village Roadshow continued in its attempt to sooth disgruntled shareholders, particularly its institutional shareholders. In July 2003, it announced a proposal to buy back its Class A preference shares, which were issued during the company’s 1990s cinema expansion. Many observers saw the offer as a prelude to taking the company private, where it could pursue its film-production strategy unfettered by shareholder discontent.

Principal Subsidiaries

All Asia Radio Technologies Sdn Bhd (Malaysia; 50%); Ballarat Cinemas Pty. Limited (50%); Radio Newcastle Pty Limited (50%); Roadshow Distributors Pty. Limited (50%); Roadshow Unit Trust Film (50%); Sea World Property Trust (50%); Sydney FM Facilities Pty. Limited (50%); Tri-Village Developments BV (50%); Village Roadshow Greece SA; Village Twin Cinemas (Morwell) Pty. Limited; Warner Roadshow Film Distributors Greece SA (50%); Warner Village (D&B) Limited (49.99%); Warner Village Cinemas SPA (45%); Warner Village Exhibition Limited (49.99%).

Principal Competitors

News Corporation Ltd.; Village Roadshow Ltd.; Southern Star Group Ltd.; Television and Media Services Ltd.; Motion Picture Company of Australia Ltd.; Entertainment World Ltd.; Ten Network Holdings Ltd.