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From paperbacks to popcorn, power couple strikes again
By RICHARD BLACKWELL
Tuesday, June 14, 2005 Page A1
With a report by Marina Strauss

Toronto power couple Gerry Schwartz and Heather Reisman, who already sell the majority of books bought in Canada, have boosted their take of the country's entertainment dollars by creating its biggest movie theatre business.

Cineplex Galaxy LP, controlled by Mr. Schwartz's Onex Corp., announced yesterday it will gobble up rival movie theatre chain Famous Players Inc., to form a blockbuster business controlling almost two-thirds of the Canadian market.

Cineplex will pay about $500-million to U.S. media giant Viacom Inc. for Famous Players.

They are the majority owners of Indigo, by far the largest book retailer in Canada with more than 250 stores under the names of Chapters, Indigo, Coles and others, ringing up about $800-million a year.

After absorbing its rival, Cineplex will have about 1,300 screens in 132 theatres in six provinces, or between 60 and 65 per cent of the Canadian industry. The only market where the merged entity will have no theatres is Eastern Canada, which is dominated by the Sobey family's Empire Theatres Ltd. chain.

It's been less than five years since Mr. Schwartz and Ms. Reisman, who have a private movie theatre in their Toronto mansion, swallowed the struggling book chain Chapters Inc. and merged it with Ms. Reisman's smaller, ailing Indigo Books and Music.

The Cineplex takeover of Famous Players has some parallels to the Chapters buyout.

To get approval of the deal from the federal Competition Bureau, Cineplex had to promise to sell about 35 theatres in 17 cities where the combined company was deemed too powerful. Those theatres -- in cities ranging in size from Toronto and Montreal to smaller centres such as Lethbridge, Alta., and Kingston -- could fetch as much as $100-million, analysts say.

When Indigo bought Chapters, the bureau said the new company had to sell 23 stores to other booksellers. In the end there were no takers, and Indigo shut some outlets.

The movie theatre transaction has sharp contrasts to the book deal, however. Mr. Schwartz and Ms. Reisman bought Chapters with their own money, and Ms. Reisman is chief executive officer of the bookseller. Cineplex, on the other hand, is controlled through Mr. Schwartz's public vehicle, Onex, and he is not directly involved in managing it.

Onex got into the movie game in 1999, when it helped form the Galaxy Entertainment Inc. chain with the goal of setting up theatres in underserved small and medium-sized markets.

Then in 2002, Onex got control of the North American-wide Loews Cineplex chain while it was under bankruptcy protection. Later, the U.S. theatres were sold at a huge profit, Galaxy and Cineplex's Canadian operations were merged, and a chunk of the venture was sold to investors as an income trust.

The deal for Famous Players will be a "major transforming event," Cineplex chief executive officer Ellis Jacob said yesterday. The Famous Players brand will likely be retained at many theatres, although the Paramount name used in the biggest city-centre theatres will have to be dropped because Viacom owns it. Cineplex may sell the naming rights for some of those theatres to companies that would like to see their name on a high-profile venue, Mr. Jacob said.

Should movie-goers expect to pay higher prices because of Mr. Schwartz's stranglehold on the Canadian business? Not likely, Mr. Jacob said, "I'm not a proponent of ticket price increases." Howard Lichtman, president of Toronto marketing consulting firm Lightning Group, said movie theatres face so much competition from other forms of entertainment that it is difficult for them to boost prices.