News spread on Tuesday of the purchase of Texas-based Alamo Drafthouse Cinemas by Sony Pictures Entertainment.

Film industry observers scratched their heads as to why Sony would purchase a movie theater chain under current economic conditions for movie houses across the country, and how it can be integrated into Sony’s business model.

Let’s take a quick look at what this means for the future of both big-name studios and the big screen, as well as the theater company that popularized the dine-in movie viewing model nationally.

An ‘obsolete cartel’

It was only recently that movie distributors were once again allowed to be vertically integrated with theater exhibition centers.

In 1948, an antitrust case often referred to as the Paramount Decree declared studios amounted to a “cartel” with regards to owning the entire process of production, all the way down to exhibition, allowing studios to lock talent in front and behind the camera into egregious contracts. In 2020, the Paramount Decree was viewed as obsolete not only because it was unlikely that the remaining defendants can reinstate their cartel, but also the studios created since the 1980s other forms of distribution in the form of home viewing such as video playback media, terrestrial television channels, and on-demand streaming.

In fact, during the 1980s Sony (then largely an electronic appliance company) purchased Columbia Pictures in order to have in house-produced content to encourage the sales of television sets, VCRs, DVDs and eventually Blu-ray discs. Sony was and still is an electronics hardware company, and purchased content creation studios such as Columbia Pictures and RCA Records as content generators for the public to justify the purchase of playback devices. Sony’s entertainment divisions, however, were not thought of as a loss-leading afterthought but as another way to generate profits. Oftentimes the content divisions such as Sony Computer Entertainment (aka. Playstation series of video game systems) have prevented Sony from having to endure crippling financial losses.

Artful yet not woke

Outside of the Amy Pascal era of running Sony Pictures Entertainment (2006-15), the studio released a string of highly successful crowd-pleasing blockbusters, including sequels to franchises that pay great respect to their source material.  The 2021 installment “Spider-Man: No Way Home” was highly praised as to being true to the original source material and apolitical pointed out by YouTube critics under screennames Dicktor Van Doomcock and Midnight’s Edge, in contrast to the more recent Marvel installments by Disney which have suffered from being used as propaganda tools for liberal virtue signaling. This is where Sony has flourished where other studios have gone woke and went (or are going) broke.

The other end of Sony Pictures has also flourished and that being the division than handles “art house” and “independent” movies.  Sony Pictures Classics is one of the oldest and most successful “mini majors” being founded back in 1992.  The Alamo Drafthouse itself was founded in 1997 in downtown Austin, Texas, as an art house that had a full kitchen for offering a quality meal and drink pairings while watching movies on the big screen, which made it a unique attraction in the first decade and a half of its existence. Since then, other theater chains copied the Drafthouse’s Model of having full menu dining experience at the movies while the Drafthouse scaled back the unique programming and art house affair that made Drafthouse a destination location.

The Hayride reached out to Steven Gaydos, Executive Vice-President of Global Content for Variety, to see whether the Sony purchase would be good for independent art houses.

“Sony Pictures Classics is one of the great art house labels,” Gaydos said. “Their history [being founded by] Michael Barker and Tom Bernard who were some of the storied, legendary and resourceful independent film individuals going back to Orion Films […] I feel a reasonable person could say it sounds like it could be good [for independent studios].”

“Blockbusters are the only business that’s [currently] working in theaters,” he continued, citing Sony’s own “Bad Boys: Ride or Die” as one example. By-and-large, he said, Sony focuses on big budget blockbusters or art house movies, with not much in between. The ratio of blockbusters compared to other movies released to theaters by the studios went from 85% to over 97%. He concluded that Sony’s purchase of Alamo Drafthouse Cinemas was therefore “hopeful” for more artistic offerings in the future.

‘Adults in charge’

Many others have viewed Sony’s purchase will be a net positive. One reason, in this writer’s view, is because Sony will put “adults in charge” of management of the theater chain.

For those that have followed the Drafthouse since the early 2000s, there has always been some form of drama in the management of the theater chain.  In early 2004, Alamo Drafthouse co-founders Tim and Karie League sold the trademarks to third party that would handle national expansion while the Leagues would maintain the original three locations (Downtown Austin, South Lamar, and The Village, for those familiar with the ATX) and license the brand back for those three theaters.  As it turned out, that company completely mismanaged the brand, not living up to the Leagues’ theaters in either quality of service and food, nor keeping the theme.  The Leagues had to emphasize the difference in marketing that their three were the “Original Alamos” especially when the Downtown Location had to move due to the lease rate increasing at the Original location at 409 Colorado where it relocated to the historic Ritz Theater on Sixth Street.

The Leagues ended up suing the third party and ended up merging the two companies back together in 2010.  This was viewed in a positive light especially early on because the Drafthouse retained its “edgy culture.” It was even one of the few theater chains allowed to screen Sony Picture’s “The Interview” after North Korea allegedly hacked into the Sony Pictures database in retribution to the movie being produced that ultimately cost Amy Pascal her job. 

It was toward the end of the decade that this version of Alamo Drafthouse Cinemas started to lose its way. The food quality declined and its prices increased despite other movie theater chains copying their dine-in business model (e.g. not very competitive). Then in October 2016 Devin Faraci, editor-in-chief of Alamo Drafthouse’s movie blog website, Birth.Death.Movie, was forced to resign after sexual assault allegations spread like wildfire on social media.  Evidence uncovered by the Hollywood Reporter showed that the Leagues did not cut ties at the time with Faraci and that Faraci was quietly rehired 11 months by Tim League, which sparked so much outcry where producers of movies had their movies pulled from the Drafthouse’s in house film festival Fantastic Fest in protest, to threats of outright boycott of anything Alamo Drafthouse related,  League was forced to terminate Faraci’s new contract as reported by Variety.

This scandal damaged not just the brands of Alamo Drafthouse Cinemas, but also of Fantastic Fest. It soiled the brand of Birth.Death.Movie so much it was shut down then sold in 2020. Keep in mind this was only weeks before the Harvey Weinstein scandal became public and the start of the #MeToo Movement. Indiewire called the whole situation rehiring Faraci a ticking timebomb in the independent film community.

This was not an isolated incident to either as there were several high-profile people linked to the Alamo Drafthouse and/or the Austin Film Scene that have exhibited Weinstein-type behavior.  Only weeks after the Faraci scandal, Alamo Drafthouse was forced to cut ties with Ain’t It Cool News founder and Fantastic Fest co-founder Harry Knowles after sexual assault allegations came out against him by numerous Alamo Drafthouse female employees that also stated that their warnings fell on deaf ears for years.  Others that were accused of sexual assault were John Dorgan, cofounder of the hipster Austin coffee bar Spider House who was accused of sexually assaulting a fellow employee leading to Spider House founder Conrad Bejarano banning him from the property leading Dorgan to sue not only the accuser but also Bejarano over the allegations leading to the venue going out of business.  In 2023 Louis Black who was the editor the Austin Chronicle, and co-founder of SXSW and the Austin Film Society 501(c)(3) non-profit was also accused of sexual abuse.  Even though the Austin Chronicle was named as a defendant in the lawsuit, they still reported on it.

Slide toward bankruptcy

This was on top of the general poor treatment of Alamo Drafthouse Employees, especially during the  COVID-19 government overreaction. On March 16, 2020, the staff at all the company owned theaters were furloughed, even in the middle of shifts and screenings were abruptly cancelled,  only given two weeks pay, then were formally laid off in July with no more compensation. Alamo Drafthouse filed for two separate forgivable PPP loans totaling $10,415,500 of which $9,679,515 was forgiven and they were only on the hook for $735,985. First loan issued $415,500 issued April 4, 2020 as a “Motion Picture Theater Except Drive Ins,” only $136,179 forgiven Second loan issued  $10,000,000 issued April 11, 2020 as a “Full Service Restaurants,” of which $9,543,336 forgiven Jun 11, 2021.

The calculations given implied that Drafthouse Employees employees were  making $72,000 a year, when in reality most  were making $12-15 an hour and were relying on tips.  The numbers did not add up, even multiply 500 employees by what they really made $15 an hour, multiply that by two weeks of pay, 80 hours that’s only $600,000 and the $735,985 of the loans they still were responsible for which only adds up to $1.3 million.

So what happened to the other $9.1 million? The money may have been used to buy time to put off filling for bankruptcy until March 2021, (which is not what the PPP money was meant for and seems to used fraudulently).  This was not unique among media  companies based on Austin Texas where production companies such as Troublemaker Studios and the Austin Film Society as well as Republican campaign Firms such as Blakemore & Associates as well as Raconteur Media did the same thing as pointed out by Texas political blog Current Revolt. And they weren’t alone in that gravy train.

As for the Alamo Drafthouse bankruptcy filing in 2021, it allowed Alamo Drafthouse creditors Fortress Investment Group and Altamont Capital to acquire the theater chain via debtor in possession via a stalking horse bid because in 2021 there were no other interested parties.  The bankruptcy was used to wipe out a good portion of the $105 million of debt.  Some of the debt eliminated was leases for many of the locations including the Downtown Austin Location at the historic Ritz Theater.  The Ritz sat empty for years until Joe Rogan purchased the building in order to convert it to a comedy club call Comedy Mothership. As for the original location of the Downtown Alamo Drafthouse, the building was used for a number of nightclubs, then used as an office for Walmart Technology, then was ultimately demolished in early 2022.

The bankruptcy was ultimate approved in only a few months with Fortress and Alamont and the primary investors along with Tim League retaining an equity stake.  However as Red Lobster has demonstated to the world, its never a good idea for a company to be owned by private equity with regards to its long term survival.  For a company that that once portrayed itself as a progressive darling, its management treated its employees poorly, covered up multiple sex scandals, took in way to much debt, then received questionable PPP money that seemingly didn’t even go to its employees before ultimately filing for bankruptcy.  Not very progressive behavior.  Actual thoughtful progressives at the Texas Observer have a similar view. They pointed out a New York Post story  about Drafthouse creditor Altamont also owning Sequel Youth and Family Services, an operator of taxpayer-funded foster-care facilities nationwide. Sequel has been accused of abuse and neglect whereby children in its care were allegedly sexually assaulted and physically mistreated.

The Texas Observer documented the abuse of Drafthouse employees both pre and post bankruptcy, even going as far as to fight unionization of the chain.

Alamo Drafthouse’s post-bankruptcy franchise model also was a disaster. Franchisers in multiple markets, including Dallas-Fort Worth, filed chapter 7 bankruptcy liquidation and immediately  closed and left many of the employees with unpaid wages.

Enter stage right: new owners

The only way out for the Drafthouse was new ownership.

Austin NBC Affiliate KXAN-TV acknowledged changes will take place Alamo Drafthouse Cinemas, but most people interviewed for the story feel that the change will be for the better. KXAN published a statement from Alamo Drafthouse Founder Tim League:

“We are beyond thrilled to join forces with Sony Pictures Entertainment to expand our company vision to be the best damn cinema that has ever, or will ever, exist now in ways we could only ever dream of, They have a deep respect and understanding of cinema’s ability to both drive growth and create lasting cultural impact which aligns perfectly with everything Alamo Drafthouse stands for.” 

League’s statement is vague about his role in the company going forward.  Maybe one of the changes that needs to take place is the theater operating without him. Too many issues happened under Tim League’s watch that might warrant a fresh start. (At risk of digressing, and to use Wynn Resorts as an example, the company has only thrived since hotel companies founder Steve Wynn, was not only forced out of his company, but banned from having a significant stake in a gaming company ever again.)

We have yet to see the full effect of Sony’s Alamo Drafthouse, but with Sony Pictures Entertainment now the stewards of Alamo Drafthouse Cinemas there is hope to right the ship. Its management would be wise to correct many of the longstanding issues with the company, pay employees accordingly, and make the Alamo Drafthouse great again as an inviting entertainment complex regardless of one’s political stances. Entertainment is escapism from reality, and no one wants to be preached to by virtue signaling politicos from any side of the aisle when they just want to have a good time. Sony has learned this lesson well.