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David Passman on this year's blockbusters: 'And moviegoers, movie people, they are movie addicts, and I am too'

Carmike President and Chief Executive Officer David Passman was relaxed and confident a couple of weeks ago as he sat in his fifth-floor office at the corner of 13th Street and First Avenue in downtown Columbus.

And why wouldn't he be?

He has engineered a dramatic turnaround of the movie-theater company over the last six years. The about-face can be seen on the balance sheet and the reduced debt load. It can also be seen in theaters scattered across 41 states.

Now, there are reports the company is for sale.

Passman addressed that and many other topics, including the 2015 movie slate, in an interview with Ledger-Enquirer reporter Chuck Williams.

Here are excerpts of the interview, with some of the questions edited for length and the order of some of the questions rearranged for clarity.

Reports are that Carmike is on the selling block. Is that accurate?

We don't comment on rumors in the market, and that was not an announcement by Carmike, but rather an article written by Reuters. It said, I believe, according to sources we've hired a firm for strategic alternatives. And we just don't comment on specific M&A (merger and acquisition) activity or specific work we do with investment bankers.

So, take the Reuters' report at face value then?

You can take it any way you want. I'm not going to tell you to take it at face value. I will tell you we didn't make the interview with Reuters. Their sources are their sources and they have not discussed them with us. But we don't confirm or deny market rumors.

The stock reacted strongly to that report, correct?

I would say it reacted, but I wouldn't say strongly. I think our stock went up a couple of dollars, so less than 10 percent. I would say a strong reaction to an announcement would be much greater than a 10 percent movement in the stock.

That was also, I believe, within two or three days of the announcement of the settlement with the Justice Department on a merger that we had in process with a company we had invested in called Screenvision and National CineMedia. That tended to have a market reaction as well for us as well as the other cinema companies.

When you look at the movie distribution business right now, there are four major players, right?

Yes.

Carmike, Regal, AMC and Cinemark.

And we have about 50 percent of the movie theaters and auditoriums across the country between the four of us.

Which is strong...

Very strong.

I know you're not going to comment on the possible sell, but one thing you did say recently is that Carmike is in an acquisition mode. You've got nearly 2,900 screens right now, right?

We've got just under 3,000, Let me give you some background on it. The industry that we're in is a fairly mature industry. Attendance is not growing from year to year more than very low single digits, and some years it actually will decrease in low single-digit percentages over the prior year, and in some it will increase. A lot of it depends on the movie product and movie slate and peoples' perception of the quality of movies.

But suffice it to say, it's a very mature industry with very limited growth prospects organically. Having said that, when you have well in excess of 600 businesses that are involved in a mature industry, the natural -- the absolute natural -- evolution of an industry is to consolidate. And Carmike, after a period of some troubled times, got to the position to where we felt the only way we could grow shareholder value would be to participate very actively in that consolidation process.

You've been here how many years?

Six years. I started full time as a non-executive chairman in January 2009, and became president and CEO and resigned as chairman in June 2009. I've been on the board, though, since 2003.

When you became an active part of management, this was a very troubled company, right?

I would say it was quite troubled. It was very heavily debt-laden. We probably had a leverage ratio of six times, meaning six times our earnings was in debt. And that's pretty heavy.

It's almost unsustainable isn't it?

It was unsustainable. And so when I came onboard on a full-time basis, the very first thing we did was review strategic alternatives. Not with investment bankers like the Reuters article, but we did it internally.

And among those alternatives were put the company up for sale, try to go it on our own, or split the company up into pieces and try to make a go of it. You split the company up into pieces, for instance, you could sell a bunch of theaters, raise cash, reduce your debt, and then be a leaner, meaner organization.

It took a very short period of time for me, along with the COO and CFO of the company, and the full support of the board of directors to determine that the company was not being led properly, not that the company was in trouble structurally. So, we changed the direction of the company on how it was led.

Management?

Basically management, but we paid attention to things like broken air conditioners and broken seats and broken urinals and cleanliness of staff, friendliness of staff, the knowledge of staff. We did a lot of internal training, we spent a lot of money on repairs and maintenance. It's kind of like the Fram oil filter commercial, if you're familiar with that. The company had been in disrepair physically, emotionally, and the physical plant was not being well maintained. So, we gulped hard, we shut some unprofitable theaters. In fact, we probably had close to 3,000 screens six years ago, and now we're just getting back to 3,000.

But we closed a lot of under-performing or loss-performing theaters. We began taking all of our cash generated from profits and paying down debt. We paid down over $100 million in debt, and got our balance sheet in order, got our physical plant in order, and began to share training and best practices, and attempted to make theater managers business owners at least in their minds so that they would take better care of the physical plant.

And we got lucky on a good movie slate and people jumped onboard with the plan we had. Fast forward that three years, we've paid down $100 million in debt. We had gone from being a perennial underperformer -- meaning less people came to our movies per screening than they did anybody else, especially the big companies -- to becoming a constant overperformer where on a per-screen basis or year-over-year basis we're doing better than we have done, I think. In the last 16 quarters, we've overperformed the general industry in 13 or 14 of those quarters.

To get to that point where you are performing well and you are performing to expectations, what does it take as far as mindset from a CEO to be a turnaround specialist?

First, you've got to believe. You just have to believe that it can be done. When I walk out of my office, the attitude I have pervades the organization. And it's not because I am a dynamic personality, it's just because of the position that I hold. If I'm down in the dumps and upset about the movie slate, everybody who works for me is down in the dumps and upset about the movie slate. And that can become almost overnight a death spiral.

The reverse is also true: A little bit of a positive attitude, belief in yourself as a manager. And you've got to keep in mind, Chuck, our theater managers are generally in their 20's, generally the first job they've ever had was working in a movie theater, and they've kind of grown up as a part-timer, graduated from high school -- some cases college -- and began working full-time for us. No formal training in business, no formal training in employee management skills or HR, or any of that kind of stuff.

So, they are led by the people above them and they take on the attitudes of the managers that they have: the district managers, the division managers or the CEO. And when I go visit a theater, the first thing I do is to make sure the theater manager knows that we in corporate are support. We're not their bosses, we're their support for them. We want them to be profitable and we're there to support their needs.

If they have a popcorn popper that's not working, we can't sell popcorn. If they have an air conditioner that's not working, the patrons will go in and sit in the auditorium and they will immediately ask for a refund. We can't control the quality of the product. We cannot control how good a movie is perceived to be. Nor can we change the rating system on movies, nor can we edit movies.

But we can make sure that the movie-going experience is top-notch. And that was the path we began a little over six years ago when the company was in fact troubled.

Obviously you're dependent on a product produced by somebody else. What do you know about Hollywood that the rest of us don't know?

(Laughter.) That's a good question. I probably don't know anything about Hollywood that the rest of the world doesn't know. Hollywood is for the most part steeped in tradition. It's also steeped in superstitions. And it is a group of executives that follow each other, whether they admit it or not.

Case in point: You find a movie that's a hit. Chances are if it is a hit, you'll see a sequel. It will create a new franchise. And by the way, if it's a hit, and let's say it's an action movie

Give me an example.

"Fast and Furious." The first one was seven years ago. It was about a mixed ethnic group -- they weren't just American, they weren't just Hispanic -- but it was a mixed group that acted like family. They raced cars and they ended up doing good. So, it was wildly successful.

In two weeks, we are going to debut "Fast and Furious 7." (Laughter.) So, sequel after sequel. You will be surprised when you see "Fast and Furious." I screened it yesterday. It's fantastic -- really, really well done. So, "Fast and Furious" comes out. It's got race cars, it's got mixed ethnic groups -- not all white, not all black, not all Hispanic -- and it performed phenomenally well across Hispanic, across traditional whites, even across blacks and Asian. It basically hit all of the groups.

Immediately after it was a success, other studios started making movies similar to it. We did one ("Need for Speed"), as you know, in the past two years right on our bridge here looking out of my window. So, that kind of movie is a hit; everybody wants to do it. You could take any of those and what you will see is studios will tend to show the same type movie the same time of year. And they basically take that "secret sauce," which isn't such a secret, and they duplicate each other until they wear it out.

Is that infuriating to a person in your position?

Yeah. (Laughter.) It is for two reasons: One is because we are steeped in tradition and superstitions -- studios traditionally have had this belief that you can't release a big movie in January or February or March. You can only do it in April, May, June, July, November and December. So, basically half the year is not available for big blockbusters.

And many of us who show movies and talk to our patrons regularly believe that, that is just not true. Over the past three or four years, we've actually evolved into studios' experimenting with movies other than those peak months I mentioned, and they are being very successful. "Fifty Shades of Grey" just Valentines -- whether it's a "R" or not -- it was very well attended. The biggest February release in the history of movies and it's because it was the biggest movie ever released in February.

Many of your markets are very conservative markets. Did "Fifty Shades of Grey" do well for y'all?

"Fifty Shades of Grey" did very, very well for us. "Magic Mike" did very well for us. "Ted" did very well for us. If not a contradiction, it's certainly a paradox, but you would think in Carmike markets it would basically be family markets. You would also think that companies like Cinemark, which has a high concentration in Utah which is fairly Mormon -- again, religious-base thing -- would not do well with movies like "Fifty Shades" or "Magic Mike," or that kind of thing.

The truth of the matter is people are people across America, and they are American first and they like to be entertained. So, "Fifty Shades" did quite well for us. I must say, though, I did get some hate mail: Why would I show a movie like that? Why would I make movies like that? Some people think we make movies at Carmike, but we don't, nor do we have any editorial or creative rights to them.

When you screened "Fifty Shades of Grey," did you know it was going to be a hit?

Yes.

So, you get to see a movie before the rest of us do.

Absolutely.

When you see a movie, can you walk out of that screening room and say, "Bingo," or can you walk out and say "Man, don't make so much popcorn tomorrow"?

Some yes, some no. There are some real surprises. When we screened "Paul Blart: Mall Cop" -- by the way, there's a sequel coming out this year -- in December 2008 or January 2009, we thought it was a total loser. It was one of the top movies for 2009. So, we don't always get it right, either.

When we screened "Gravity," which was also a phenomenal movie, we didn't predict that it would do that well. When we screened "American Sniper," some of us thought it was going to do really well because of the whole thing about the shootings. And "The interview" and the North Korean threat and the hack, and all of that stuff, some of us thought it would do well being able to ride on that kind of angst, if you will, from the American public, and it did very well. It far surpassed anyone's expectations.

Did you go see " American Sniper" in a theater?

Yes, I did.

I saw it here in one of your theaters in Columbus. I have never walked out of a movie theater where nobody said a word. It was eerie. It was unbelievable.

It absolutely was. Some movies at the end people will applaud. Sometimes people will yell and scream. Occasionally, people will be upset, but "American Sniper," you're right, dead silence. And I actually saw it two times, and both occasions, dead silence.

Did you see both of them here?

No. I saw one here and out on the West Coast. But in both cases, people just walked out almost stunned. It was such a good story and it was told so well, and then the end, this guy had gone through all of this stuff and gets whacked by a psycho.

If you could give one piece of advice to the Hollywood executives about what they should be producing, what's your advice?

It would really be two pieces of advice, but one of them is not about what they should be producing but when they should be producing it. The "what should they be producing" is to show me more family, more general audience-type movies. They do very, very well. A lot of the producers and a lot of the directors like to be on the creative cutting edge. So, you either have a great sequel or you have a cutting edge thing. People like movies that are good for family, good wholesome type movies. "Big Hero 6," "Despicable Me," "Minions," those kind of movies do very well.

And you like what the people like, right?

I like for my audiences being happy. I love to see the artsy things. They don't generally make a lot of money for the industry, but I like seeing them because I like the creative stuff. But I think we've bent a little more toward the "R" or very heavy "PG-13." We need to get back to the regular "PG" and "G" type movies.

They play very well, people love them, and they make a lot of money, so we ought to be doing them more. And the other thing is there are 12 months in a year, we ought to have 12 months of movies -- good movies. The January period used to be a dumping ground for movies that when they screen them at the studio they're not happy with them. That should not be the case. We've proven with "American Sniper," we've proven with "Alice in Wonderland," we've proven with "Gravity" -- October, February, March, January can be really good movie months. Those are two pieces of advice I would give movie studios.

What is your favorite movie of all times?

Oh, I'm asked that a lot. I've got about 25 of my favorite movies, but "Braveheart" is always at the very top of my list. Well done, great story, wonderful history based on historical events.

So, who is your favorite actor?

Until "Mordecai," I would say Johnny Depp.

It was that bad?

Not his best movie, but Johnny Depp to me was probably until the past couple of years one of the best character actors I've ever seen. He could get into the scissors, to pirates, to a very serious role. He could play all of those very, very well. So, absent "Mordecai," I would say Johnny Depp.

What about actress?

Oh wow! Angelina Jolie has got to be my favorite, even though she doesn't do all that well with Carmike type audiences and small towns. I don't know what it is but for some reason she doesn't.

In the age of Netflix, iPads, all of that stuff, and movie rental places die out, why do movie theaters still exist? Why do people still go to them?

The shared communal experience of watching a movie on an 80-foot wide screen or a 60-foot wide screen is unmatchable even in home theater. It's unmatchable. The sound systems that we have are unmatchable, unless you're Bill Gates or somebody who is very, very wealthy. Even in your home theater system the sound system cannot match what we do. So, the experience itself is unmatchable.

People like to go to movies. One of the things that I'm asked often about is home versus movie theaters and whether I'm worried about Netflix or Redbox. I am not, and the reason is very simple. Redbox is actually a feeder organization to us. You go rent a movie and it might be "Fast and Furious" 1, 2, 3, 4, 5 or 6, and I promise you if you watch any of those, you're going to be first in line on April 2 when that movie comes out in my movie theater, because you can't rent it on Redbox until three to four months later.

And moviegoers, movie people, they are movie addicts, and I am too. If I see a movie at home, I'm itching to go to the movies on Friday night. I see over a hundred new movies a year, and I'm still itching to go to the movie theater on Friday night. So, movies infect you in a way that makes you want to see more movies. And people who go to Redbox are repeat visitors to Redbox. They take more and more movies, and then they come to more and more movies.

Are you close to pricing your product out of the reach of the average consumer?

I get asked that question, and the best way I can answer emphatically no to that is if you take a look at what it cost to see a movie in 1940 versus what it costs to see a movie today. It's cheaper today as a percentage of your income, or on a inflation-adjustment basis it's cheaper today than it was 40 years ago and cheaper today than it was all the way back to 1940.

So, while it sounds like a lot of money, it's two hours plus of entertainment at a very small fraction of what you pay even to go to college sports events or professional sports events, or a theme park. Have you priced -- and as much as I love it -- what it costs to ride down the river on a raft or to do the zip line into Alabama? Those things cost money to make, to produce, to provide for us, and we have to all share in the cost of keeping them in business.

You're not from Columbus, but you have incorporated yourself into this community in a large way. You chaired the United Way campaign at the time you were trying to turn around this company. How important is it for Carmike to be a good corporate citizen in Columbus, Georgia?

It is one of the key ingredients to being a successful company. First of all, I came from a dark blue collar family. My dad was an auto mechanic. He was unemployed for three years.

So, you're not a silver spoon guy?

I am not a silver spoon guy at all. I paid my own way to go to college. I borrowed money, I got scholarships, and I had student loans that I had to repay after graduating from college. So, I don't come from any kind of affluence at all anywhere in my family.

But I was taught at a young age there are a couple of things that you have to do to sleep at night. No. 1 is you don't lie. No. 2 is your word is your bond. And No. 3, don't be late. My grandfather taught me that, and my grandfather was a bookkeeper. He wasn't a man of wealth at all, but he taught me that a sign of respect is being on time. If you're late it means you're disrespectful. And that is what I kind of grew up with.

If you take those things and you kind of mixed them in a pot, then you say, what does all that really mean? It means giving back to the community that gives you an advantage, and I'm a big believer in giving back to the community. Like I said, I grew up in a dark blue collar family, and I got some really lucky breaks, so I want to try to make it so that other people can get some really lucky breaks.

And that's why I believe in United Way, that's why I believe we should promote our business community through the Chamber, and it's why any of our employees who volunteer for things we match them by giving money -- if they are on a board or active in a charity, we will support those charities. We basically use that as the screening device for making charitable contributions.

If we have employees involved, then we'll be involved. If our employees are not involved, then we as a company are probably not involved.

And you set that example by getting involved with United Way.

Yeah. We gave zero to United Way in 2008.

That's a nice round number.

It was easy to beat. But beginning in 2009, we made it a pretty important company initiative and now we are one of the bigger companies involved in United Way with dollars and volunteer time.

Talk about Columbus -- obviously not your home. What do you see in this community now that you've been in it for six-seven years?

I'll tell you, a couple of things about Columbus that struck me. I had come down here when I was with Deloitte & Touche and visited Jimmy Blanchard and tried winning business for my company and all that kind of stuff over the years, but when I actually came down here on a full-time basis, I was surprised for it being such a small community for it to be as welcoming as it was, not just to me, but to other people who moved into the area.

A lot of Southern smaller towns have reputations of being the blue blood or the no blood. If you didn't have blue blood, as far as people were concerned, you didn't have any blood. Columbus was not that way at all. Columbus was very welcoming not only to me, but very welcoming to other executives that we hired or other employees that we hired and brought into the community. Very, very good corporate support, and I found it embarrassing, frankly, that Carmike, one of the major employers, was basically nonexistent in the corporate community. Synovus is, TSYS is, Aflac is, and I could go on and on and on. But Carmike was almost nonexistent in the community.

And you wanted to fix that.

And I believe that if you're going to be a preferred employer, that doesn't happen just by paying the most, you have to be a place where people want to work and be proud of.

Isn't there some irony in that you are an outsider and came in here and this was a family company for many years from inside and you came in and pushed more community involvement?

Yeah, and the family that started this business is a good family, a good wholesome family. It is a good community family. Mr. Patrick's name is on buildings here, so it was at one time a great corporate citizen led by a great individual. And frankly, I think through a whole host of things it just lost its way. And sometimes an outsider can see that much better than you can if you're in it day in and day out.

I actually think I was very fortunate coming in as an outsider. I see Mr. Patrick's name on this. What happened? "Well, you know, we had bad results, we went into Chapter 11, we've got to tighten our belts, we can't afford to do these things." So, people get myopic and internally focused. They forget.

Bunker mentality.

Yeah, bunker mentality and they lose their way. I think that was one of the reasons, in hindsight, it was so easy for Carmike to become successful. I got to tell you some of these gray hairs weren't here when I arrived. So, it was a little bit of work, but I think it was that the company had just lost its way.

What's going to be the movie of 2015?

"Star Wars" is going to be big. "Avengers" is probably going to be the biggest. That right now is odds-on favorite of being the biggest movie of the year.

When does it hit the theaters?

I think it's in May, but I can't remember when exactly -- before Memorial Day.

So, are you pleased with the crop of films?

2015, mark my words -- you can put it in print -- is going to be the best year in the history of cinema, all 100 years -- inflation-adjusted and everything, it will be the best year in cinema. We have more blockbusters coming that are proven movies, either sequels or franchise or Marvel. We've got the final installment of "The Hunger Games" series. We've got "Divergent" coming (March 20), actually, and we've got "Avengers," "Ant Man," we've got new characters, we've got some creative stuff.

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