The New York Observer, March 26, 2001

By James Verini

Last spring, in the middle of shooting Spy Kids, which opens March 30, executive producer Cary Granat vanished. As head of Dimension Films, a subsidiary of Miramax, Mr. Granat had pulled off the absurdly profitable hits Scream 3 and Scary Movie. He was Bob Weinstein’s golden boy. Then, suddenly, he was gone.

“I wondered what happened to him,” said Spy Kids director Robert Rodriguez.

Ask Philip Anschutz. In September, Mr. Anschutz, the sixth-wealthiest man in America, installed Mr. Granat in the empty 26th floor of an office building at 12 East 40th Street and told him to assemble a “multimedia entertainment and education” company, Empower Media.

Mr. Anschutz, 61 — whose net worth is listed at $18 billion in Forbes — has, in a little over a year, taken hold of three of the nation’s largest movie-theater chains and launched, along with Empower, the Los Angeles — based Crusader Entertainment. (The preachy titles are no coincidence: He’s devoutly religious.) Paired with his Qwest Communications fiber-optic network, sources close to the theater deals say, Mr. Anschutz’s acquisitions indicate an effort toward a “vertical integration” of media properties, anticipating the advent of digital distribution and exhibition. Mr. Anschutz seems to be laying the blueprint for a new kind of movie studio: He plans on taking the film out of movies.

To do so, Mr. Anschutz chose to come to New York, the town that gave birth to the independent film industry, where small companies are marching well ahead of Hollywood toward digital filmmaking and exhibition — most of them with the idea of getting more and better distribution for smaller-budget, so-called art-house films. Some are betting that the technology of downloadable or satellite-beamed movies will make theater ownership profitable again. But Mr. Anschutz, many believe, also wants to personally influence mass entertainment — to decide what gets shown at his movie theaters, when and how often.

You’ve probably never heard of Mr. Anschutz or his film companies. He is famously press-shy, referred to as a “reclusive” Denver billionaire, if at all. He is a generous, though not extravagant, contributor to the Republican Party. He is said to be a voracious reader of history, fond of quoting Napoleon in the boardroom. He is one of the biggest collectors of the art of the American West and, rumor has it, was granted a private audience with the Dalai Lama when His Holiness visited the Mile High City in 1997. He sent his two daughters, now in their 30’s, to Princeton.

He owns oil fields, as well as a good chunk of the nation’s cattle. He also owns the Los Angeles Kings hockey team; a piece of the L.A. Lakers; the Staples Center, where both teams play; three professional soccer teams; about half of downtown Denver, where he lives.

Originally from Kansas, Mr. Anschutz was, in the early 1960’s, on the verge of going to law school when he decided instead to work for his father drilling oil wells and cutting real estate deals across the Southwest. He branched out into coal, natural gas and cows. In the early 1980’s, he got into railroads just as the industry was deregulating and bought the by-then decrepit Southern Pacific line. After restoring it, he came up with the idea of using the tracks to wire the West and formed Qwest in 1995; he now owns 18 percent of Qwest. He has since sold the trains, save for a few private cars and a track to shuttle him to the Winter Park ski resort.

When he set his sights on Hollywood in the 1990’s, the film business had long been deregulated. Steve Soboroff, a former adviser to Los Angeles Mayor Richard Riordan (and now himself a contender for that office), called Mr. Anschutz “one of the great economic engines of the city of Los Angeles.” Mr. Soboroff said he met Mr. Anschutz when they both were involved in building the Alameda Corridor project in the mid-1990’s. “Some billionaires are boring to be around,” said Mr. Soboroff, “but Phil is a great guy. I’ve found him to be approachable, honest, unassuming and just terrific to be around.” Mr. Soboroff said that he later convinced Mr. Anschutz to bring the Kings and the Lakers to downtown L.A., and the tycoon became one of the biggest investors in the $375 million Staples Center.

Early last year, Mr. Anschutz started his first production company, Crusader, with producer Howard Baldwin, a longtime friend who is a part owner of the Pittsburgh Penguins. They make an odd pair: Mr. Anschutz is a by-the-book Evangelical Presbyterian who gives generously to the media watchdog group Morality in Media; Mr. Baldwin had worked on the straight-to-video soft-porn series Night Eyes(one online reviewer wrote: “I swear, I think that this is the biggest amount of sex scenes I’ve ever seen in a movie!!!”) and the Jean-Claude Van Damme hockey-terrorism picture, Sudden Death.

For that matter, the executives of his second film company, Empower, in Manhattan, are odd bedfellows for Mr. Anschutz. President Cary Granat was the prince of the raunchy teenage flick at Dimension, and Joel Stillerman, hired to head Empower’s feature-film unit, last produced the upcoming Johnny Depp film Blow for Spanky Pictures.

That’s not exactly the content Mr. Anschutz has in mind. Bob Buford, an author of Christian self-help books and a friend of Mr. Anschutz’s, told a Fortune reporter in 1999 that “Anschutz has a latent interest in doing something significant in American Christianity. He is working deliberately and diligently on it.”

The “mission” of Crusader, according to the company’s Web site, “is to create inspirational, historical, sports and adventure films that offer compelling, positive messages to our audience. We believe that gratuitous sex and profanity will obscure the positive message we wish to impart and compromise the entertainment and commercial value of our projects.” In January, Crusader signed a three-year deal with Paramount. The first production, called Joshua, is based on a book by Joseph Girzone (whose other works include A Portrait of Jesus and Never Alone: A Personal Way to God). It imagines Jesus Christ’s resurrection in the modern-day South.

Last year, Mr. Anschutz also began buying up money-losing movie theaters. On March 2, he bought his third bankrupt theater chain, United Artists Theater Co., which has some 1,800 screens nationwide. He had already acquired, along with partners, controlling portions of the debt in Regal Cinemas, the nation’s largest chain with 4,500 screens, and Edwards Theaters Circuits Inc., with 700 screens. Together, they represent one fifth of the country’s screens. Oaktree Capital Management, his partner on UA and Regal, is also trying to acquire Loews Cineplex, with 3,000 screens, though Mr. Anschutz has not been publicly connected with the deal. Some suspect that he is also behind a bid for Landmark Cinemas, a small art-house chain that owns the Sunshine Theater on Houston Street, east of the Angelika Film Center.

The purchases don’t make much business sense on their own, since studios increasingly charge movie theaters a fortune per reel, minimizing profit margins. “Every film is negotiated on a per-screen basis,” said Tanja Aalto, a banker with Houlihan, Lokey, Howard & Zukin in Manhattan, who represented UA and Regal when the chains were sold. “And every time a theater chain has tried to take on the studios, they’ve lost.” Ms. Aalto estimated that the movie-theater industry, which has been constructing multiplexes for years, is presently over-saturated with screens by about 33 percent — and right now theaters’ debt loads are enormous.

Entertainment “has always been an attractive business because it’s so high-publicity,” said Ms. Aalto, but it’s not “an economically rational business … It is an ego-driven business.”

But in an era of digital film, distribution is expected to be cheaper. Another bidder on Loews, not coincidentally, is Gary Winnick’s Pacific Capital Group. Mr. Winnick also heads Global Crossing Inc., a broadband company that is looking for a stake in the distribution of digital films.

And when you’re showing your own films, distribution is definitely cheaper. That’s where Mr. Anschutz’s New York Wunderkind, Cary Granat, comes in. Mr. Granat is at the center of the New York film community, where conversion to digital filmmaking is a particular priority. Spike Lee’s 40 Acres and a Mule Filmworks, based in Brooklyn, shot last year’s Bamboozled on a digital camera, and at the ShoWest conference in Las Vegas earlier this month, Mr. Granat’s old bosses at Miramax used satellite technology supplied by Hughes Electronics to broadcast Spy Kids (not a digital film) in a digitally equipped theater. And MoMA has installed one digital projection set-up.

“[Film] is so impractical. It’s a 19th-century technology,” said Bruce Goldstein, the repertory director of Film Forum. “It’s in these cumbersome cans; they cost a fortune to ship. The film breaks, it gets scratched, it gets dirty. All of these imperfections, except for one thing: It’s so beautiful.”

Last summer, Robert De Niro’s Tribeca Films invested in CineMuse, a company that has wired 10 museum theaters nationwide for digital projection. Trina Wyatt, Tribeca’s chief financial officer, said she sees the entrance into the digital era as a sort of continuance of independent film.

Quote-unquote independent film companies buying their own venues has been a byproduct of the less expensive digital process. Madstone Films, a directors’ collective already filming with digital cameras, is one of the bidders trying to buy Landmark Theaters, the chain of small movie houses that includes the Sunshine Theater. Their motivation is the same as Mr. Anschutz’s — to make and show their own films.

“What will hopefully happen is that audiences in middle America will be exposed to different types of entertainment,” said Ms. Wyatt, who applauds the kind of full-service studio that Mr. Anschutz has in mind. “It’s great that somebody like Anschutz is being proactive and finding a solution … And I hope the studios get into the exhibition business. I trust the consumer to benefit from this.”

However, there is a lot of skepticism. Jonathan Sehring, president of independent films supporter IFC Films, also considered bidding on Landmark to get into the exhibition business — as did Sundance Films. But he thought it was too soon to tell whether that business plan was viable, especially for a small company like his. “It’s going to be interesting to see how small films fare in that marketplace,” he said. “But now we’re just waiting to see how all these bankruptcies shake out, and what’s going to fill those gaping holes in malls across America.”

Tom Bernard, co-president of Sony Pictures Classics, which distributed Crouching Tiger, Hidden Dragon, suggested that Mr. Anschutz is looking in the wrong direction if he wants to make a go in showbusiness. While his company has considered buying a small theater chain, he pointed to Sony’s divestment of its stake in Loews and Paramount’s retreat from Mann Theaters as reasons why they haven’t taken that route. “I see it going the other way,” he said.

Ms. Aalto said that creating a full-service digital studio today “is going to be reasonably hard to do” because of all the issues of technology and compatibility that have to be resolved.

One of the largest question marks is the cost and shelf life of today’s technology — or even tomorrow’s. “My thoughts on digital exhibition are one basic question,” said Sony’s Mr. Bernard. “Who’s paying for the projectors? And once you get one, when is it going to be obsolete?”

And at a minimum of $50,000 per screen, it would cost $20 billion to convert all of the screens in the country.

If Mr. Anschutz and others plan to transmit movies over fiber-optic wires, secure ways of transmitting them need to be developed, as do data storage systems and new copyright and patent rules for digital material. For instance, how do the studios get their material back — or guarantee that their material has been purged from a theater’s digital memory? (Microsoft is currently developing a system to securely transfer digital films.)

There’s also compatibility and obsolescence of technologies to take into account: Mr. Anschutz’s wires may lose out to satellites as the preferred mode of transfer. Most pressing, though, is the question of who will pay for the theaters to be converted. So far, the studios have refused to foot the bill.

For now, Mr. Anschutz is unwavering, businesslike and still quite mysterious by intent. “One of the greatest challenges in the entertainment industry today is to utilize the same prudent business practices employed by successful companies in other fields of the economy,” reads another portion of Crusader’s Web site. “Creativity should not be accompanied by extravagance. We are confident that we can make successful films while keeping our focus on the bottom line.”

But there is no rush. When Star Wars: Episode II comes out in 2002, it will have all the perks of digital filmmaking, but few audiences will be able to appreciate them. Digital films will be made, even more digital film festivals will pop up — Sundance was flooded with digital entries this year — and, perhaps in a few years, every theater will have a token digital projector and screen.

And maybe people in the business will still feel the way they feel today about Philip Anschutz and his plans: “If this guy’s such a canny businessman, what’s he even doing getting into film?”