When iPic Theater opened its doors in the River Oaks District last November, Houstonians were excited, and with good reason. The intimate, eight-screen, luxury cinema offers patrons leather seats in private pods, along with gourmet food and cocktails hand-delivered by “ninja” servers (their term). Premium-plus tickets, which cost a cool $28, come with fluffy blankets, fluffier pillows and free popcorn.
But the fate of iPic is uncertain. As theaters like it and Alamo Drafthouse continue to expand by combining the movie-going experience with dining and drinking, mega theater chains are starting to take notice of the competition and, some smaller theaters say, muscle it out. In November, just days after its Houston ribbon-cutting, iPic’s Florida-based parent company, which has theaters in 13 markets, sued Regal for anti-competitive practices.
According to the suit, Regal refused to show marquee movies at a nearby location, Edwards Greenway Grand Palace, if distributors also licensed the films to iPic. The goal, of course, was to block films from screening at the new theater. And the tactic worked: Since the larger multiplex boasts more screens and seats, iPic claims, distributors acquiesced to Regal’s demands and refused iPic rights to show Oscar-worthy films like The Martian and The Revenant.
Regal has justified its actions as being in line with what’s called “film clearance zones,” a practice iPic argues is not only unfair and antiquated but unlawful and potentially a deal-breaker for the company’s Houston location, which cost millions to build. “Without pictures, we couldn’t survive,” says iPic CEO Hamid Hashemi. “It’s like opening a grocery store with no produce.”
According to these zones, only one theater within an agreed-upon distance, typically three miles, may show a given movie upon its release. The custom is widespread, and dates back to 1948, when a U.S. Supreme Court decision broke up the monopolies that movie studios had previously enjoyed (companies like Paramount developed films and then showed them exclusively at their own branded theaters). Film clearance zones became the industry standard, giving upstarts a chance to compete and ensuring they received equal access to first-run films—and moviegoers could see them.
In the intervening decades, though, the upstarts became the establishment, with three theater chains growing drastically in size and stature: Regal, AMC and Cinemark now control about 42 percent of the nation’s screens. Today, some say, they’re using practices originally implemented to protect the little guy for their own ends. They’ve also gobbled up the most desirable urban real estate. Lance Gilliam, a retail broker who has worked with Regal in Houston, says that because of the distribution zones, it’s nearly impossible to find space for a new theater inside the loop, which explains why many of the city’s new dine-in theater concepts have set up shop in suburbs like Katy or Cypress.
While iPic is offering a luxury experience, it’s still—relatively speaking—the little guy. “The business is concentrated in the three major companies, and they have a lot of power,” says Hashemi. “Our entire theater can fit in one of their auditoriums, frankly.” Location, he says, is everything for the company. According to iPic’s court filing, a luxury theater should be situated in a posh zip code in order to attract well-heeled patrons, who won’t blink at a $28 seat. River Oaks fits that bill, even if the Edwards Greenway Grand Palace is just 1.7 miles away.
For the newly minted River Oaks District, meanwhile, the theater’s a big draw. The luxury shopping center needs to attract big spenders to its designer stores, and unlike a typical theater stuffed with families and teens, iPic brings a “more affluent, better-educated, adult customer,” Gilliam says. A representative from OliverMcMillan, the district’s developer, says they “couldn’t be more pleased” with iPic as a tenant and that the theater has helped the center become “a destination.” Without the foot traffic from iPic, it’s likely the other retail stores would suffer.
Jonathan Kuntz, a lecturer at the UCLA School of Theater, Film and Television, thinks there’s a clear downside to the clearance-zone practice: the potential reduction of options not only for people who like cuddling in blankets at the movie theater, but for people who want to see “films that may be saying interesting things.” “It has a negative impact in the long-run if it causes the little chains and art houses to fail,” Kuntz adds. “If all we end up with is big chains showing the same four to six movies every week, that’s a loss.”
In January, a Harris County District Court judge granted iPic a temporary injunction, which halted Regal’s use of clearances until the case goes to trial this October. Abraham Wickelgren, a University of Texas law professor who specializes in antitrust cases, says the judge will have to weigh both sides’ interests against the potential harm this policy is inflicting upon the typical Houston moviegoer. “Ultimately, that’s what antitrust is about—not protecting competitors for the sake of the competitors, but for the final consumer,” Wickelgren says.
And consumers lately have been losing out. The owners of Viva Cinema, which opened in 2013 in the revamped PlazAmericas (formerly the Sharpstown Mall), set out to show new blockbusters either dubbed in Spanish or with subtitles, catering to the largely Hispanic population in the area. In another lawsuit winding its way through court, Viva alleges that AMC demanded, and received, exclusive rights to show pictures like Iron Man 3 and Fast & Furious 6, even though the films would be run at the Spanish-language theater in a different format. Viva went out of business seven months later.
As theater companies big and small duke it out in Houston, clearances have attracted closer scrutiny on a national scale—the U.S. Justice Department’s antitrust division initiated a probe last year into Regal, AMC and Cinemark to see if their practices are violating federal law. Some smaller theaters, iPic included, are hoping the practice is struck down like the studio-branded theater monopolies were in 1948.
“A clearance doesn’t really apply in today’s world,” Hashemi says. In his view, the market is wide enough for cineplexes like Regal and niche theaters like his to coexist. He likens it to the hospitality industry, where “you have Holiday Inn, you have Marriott and you have Ritz Carlton.” Just as movies these days vary in style from big-studio blockbusters to quirky indie films, says Hashemi, “they all do business because different people have different tastes.”