After the Pandemic at the Alamo Drafthouse

Like the sign at its Slaughter Lane location, the Alamo Drafthouse is battered, and still in the weeds after its pandemic shutdown and filing for bankruptcy. But are better times ahead?  (Photo by Jana Birchum)

The oldest operating Alamo Drafthouse in the nation still survives.

It may not be the original (that's the long-defunct site at Colorado and Third). It may not be the most famous and prestigious (that title goes to South Lamar, or, to give it its proper name, the Bong Joon-ho Cinema). Instead, the longest running Drafthouse cinema is the unassuming Alamo Village, four screens in a strip mall set back from Anderson Lane. Originally opened in 2001, "it's the grandpa," said Alamo founder and Executive Chairman Tim League. Now, after being shuttered as part of the Austin-based arthouse and grindhouse chain's 16-month pandemic response, it will reopen in July, just in time for its 20th anniversary. It's a sign of improving times, League added, after "a year of kidding yourself into some level of optimism."

In early March 2020, the Drafthouse was on an upward track, looking forward to a bumper year after having just opened its long-awaited Los Angeles location, and with construction on a downtown Manhattan site well underway. Almost a year and a half later, the situation is radically different. Four locations are closed forever. Much of the original staff has been laid off or furloughed, and some are coming back in dribs and drabs. The locations that have reopened are running reduced schedules or are only open a few days a week. Biggest of all, after filing for Chapter 11 bankruptcy in March, the company is now owned by two private equity firms, with League as a minority shareholder: Altamont Capital Management, which quietly took a majority stake in the company in 2018, and now Fortress Investment Group LLC, which invested the cash necessary to keep the chain afloat.

It also has a major change in leadership. In April last year, League stepped down as CEO and assumed the new position of executive chairman. In his place came Shelli Taylor – or, as she had been nicknamed among staff, "the Starbucks lady." She doesn't come from an entertainment background, but instead from the world of franchise expansion. She spent almost 20 years with the coffee giant, with roughly six of those in China where she spent another two years as vice president of Disney English, the corporation's English language learning division.

When she decided to join the Alamo, its brand was clearly in good shape, with the Drafthouse now synonymous with the dinner-and-a-movie experience for the half of all customers who only go to the cinema once a year, and virtually a second home to its regulars. The biggest underlying challenges were behind-the-scenes operations, and Taylor was hired for her organizational skills. She said, "We have 41 units and we were operating 41 businesses, and the first mission was, we need to have one business that happens to have 41 units. How do you fix everything back of the house, all the infrastructure that enables great guest experience? Because, if you have a business that just hums, then you can plug and play."

The change in leadership didn't come because of the pandemic. According to League, negotiations with Taylor had started in November 2019, an indicator that something was shifting at the Alamo. The reality, according to former staff members, was the Drafthouse's debt load was out of control. Expanding companies almost invariably carry debt on their balance sheet, but the huge expansion on vastly expensive and complex sites like Los Angeles and Manhattan led to a heavy round of cost-cutting. After Altamont first invested in 2018 "they were going at the firm with a machete," according to a former employee, one of several who spoke off the record to the Chronicle. Over time, departments were merged; staff were let go.

Although Taylor's arrival was clearly going to shake things up further, she said she didn't want to be one of those CEOs who arrives with a slate of ideas. "That's really hubris, [and] I haven't enjoyed working with leaders like that." Her original, pre-pandemic plan for much of her first year was "just really learning the business, establishing relationships, and getting feedback." Of course, March 16, 2020, hit, the world and the Drafthouse shut down, and her gentle onboarding meant jumping onto a potentially sinking ship. Taylor said, "We had no revenue and were like, 'Holy shit, how do we survive?' There wasn't a lot of talking about 'what do you do, what do I do?' It was, 'What do we all need to do, right here, right now?'"

For League, it became quickly clear that this disease wasn't going to be like the SARS outbreak of 2003, and it wasn't going to be over in a few weeks, or even in time for Fantastic Fest, the Drafthouse's signature annual event, scheduled for September. He said, "We have a theatre in Yonkers, which is very close to the New Rochelle outbreak point in New York, and when you start to see it amplify and pop up everywhere across the country, we knew we were in for a pretty long haul."

The quick response was to cut every cost imaginable to staunch the financial bleeding. Some staff described the furloughs and layoffs as inevitable, but others say the announcements were mishandled. At the New York location, according to one former employee, emails were sent out just as staff were coming on shift, and managers were given little guidance on how to suspend operations. Staff were given their last two paychecks, and insurance through April, and let go, leaving the Drafthouse with a skeleton staff that got smaller in July when 88 staff members on furlough were laid off. This infuriated some staff, as the Drafthouse had received a $10 million federal Paycheck Protection Program loan in April, and they had expected to be put back on salary. Instead, one staffer said, they got a $500 payment or access to a résumé writing service.

"There's no roses in this," said Taylor, who acknowledged that not every decision was going to be popular, but this was about survival. "If we hadn't had COVID, there are probably some conversations that needed to happen, and I probably would have been seen as the hatchet guy in that situation. But under COVID, everyone sat in a room and went, 'OK, what has to happen? What can't we compromise? What are we going to continue, and what are some of the things that maybe we start to let go and be OK with?'"

Alamo Drafthouse CEO Shelli Taylor and founder Tim League (Photo by John Anderson)

"They're seen as very good at expanding," said another former staffer, but contracting and cost-cutting is not the Drafthouse's forte. Even Taylor, an expert in growth and franchising, admitted that she had never been in a situation where cash flow was this much of an issue. 2020 just accelerated all the Drafthouse's problems that had led to her hiring, and so any marginal or lossmaking ventures were shuttered (the Alamo Ritz, the New Braunfels location, Westlakes in San Antonio, and the scandal-wracked Kansas City site), or sold off. That's what doomed the Birth.Movies.Death magazine and website, which was sold as a going concern to Dallas-based media company Cinestate. Many feared at the time that BMD would not survive without the synergy between the publication and the Drafthouse's Mondo art brand, and without a print edition. That question became moot when BMD editor-in-chief Evan Saathoff and managing editor Scott Wampler both publicly quit in protest over Cinestate's failure to tackle allegations of assault and harassment in its film division. In the year since their principled departure, the site has not posted a single new story.

With locations nationally reopening gradually since last summer, League said every calculation has been based on trying to get back to some sense of normalcy. "We're not making money opening four days a week with a limited schedule," he said, so they selected the theatres with the lowest overheads, the ones that would come back to profitability fastest, and the ones where local jurisdictions would allow them to open.

With partial operations up and running, the team started to innovate, with curbside pickup for food, online ordering in advance for theatres that did reopen, the Your Own Private Alamo theatre rental, and the launch of the Alamo on Demand VOD platform. In hindsight, Taylor admitted one of the worst calls was not firing up the mobile projectors for the Rolling Roadshow, the Drafthouse's touring experience, especially when drive-ins and outdoor screenings were doing so well. "We just kept thinking it was almost over, so why do this when we really need to do this, because we really want to be ready to open our theatres."

There was also some effort to help staff through the $2 million Alamo Family Fund, set up last when the theatres closed as a hardship resource for laid-off and furloughed staff. "They were just giving money out," one former Austin employee said, adding that they were also giving out free meals at Alamo Slaughter Lane. There were also streaming all-hands meetings, and emailed Alamo Family updates, which started off weekly, then went biweekly, monthly, and then finally stopped altogether. For a company that had prided itself on being like family, a lot of staff felt orphaned.

But the reality was that the Drafhouse was on the verge of going under forever. League said, "There were benchmarks to reduce our debt by a certain date. If we could, then no Chapter 11. If we couldn't, then Chapter 11." December came, those benchmarks were not reached, and so the Drafthouse filed for bankruptcy protection, took a massive investment from Fortress, and entered the next phase of its history: the slow return to a new, post-pandemic norm.

One sign that a corner has been turned is that this year's wave of reopenings came with news of five new locations: Lower Manhattan and Staten Island in New York, Crystal City and Bryant Street in the D.C./Arlington area with longtime franchisees Cojeaux Cinemas, and St. Louis, Mo., a site handpicked by League. "I love that city," he said. "I like the resurgence of the downtown corridor." Yet others have disappeared off the list, including the Orlando, Fla., location, while news on the planned Cedar Park cinema at the Presidio development has dried up since its announcement in 2018. It all comes down to sunk cost: The ones that are proceeding were already so far along the path that it would make less sense to walk away than to keep investing. The New York sites, League said, "they were built," and as for any new opening or closing, "any decision we did during Chapter 11, it was black-and-white spreadsheets. Does this make sense or does it not make sense? If it doesn't make sense, or it's too thin based on the changes that we've seen in the universe, then we're going to walk away."

The biggest question may be how League and Taylor will divide labor in their new roles, when traditionally all decisions ultimately went to League. Taylor described that as being the answer to two questions: "How does he keep the fun and the excitement, and then how do I bring the discipline and structure? I will never come up with the next 'Jaws on the Water,' and Tim's probably not going to think through an elegant infrastructure that finds efficiencies within the business and doesn't hurt the guest experience." That split pulls League away from the day-to-day operational issues that he admits to getting caught up in, and leans instead on his acknowledged strengths as the face and visionary of the Alamo: "marketing, promotions, baby-kisser. ... I provide my best value being involved in the creative and brand side of things, looking at industry trends and how we can be our best."

But there's still a long way to go before they're out of the hole completely. Putting the situation bluntly, Taylor said, "We're on a Top Ramen diet right now," and just because more cinemas are reopening that doesn't mean that it's business as it used to be. However, the situation is undoubtedly improving, with hits like F9: The Fast Saga and A Quiet Place Part II pulling in pre-pandemic numbers throughout June. However, Taylor said it was the weekend of April 30, when the double-whammy of Mortal Kombat and Demon Slayer: Kimetsu no Yaiba the Movie – Mugen Train produced the first $50 million weekend since the pandemic hit, that convinced the team it was time to commit to reopening. At the same time, the company will maintain some of the changes implemented during the pandemic that make sense moving forward: Alamo on Demand, order in advance, and Your Own Private Alamo, which accounted for roughly 50% of revenue during the pandemic. Plus, with changes in the Texas liquor laws, curbside pickup presents interesting possibilities.

It all leaves audiences and insiders wondering what the Drafthouse looks like on the other side of this. During the streaming all-hands meetings that took place last year, staff said that League seemed most interested in the current and former employees, many of whom were old friends, while Taylor's emphasis was on the continued survival of the company; and while Taylor said the company was heading back to 100% staffing levels as fast as possible, that doesn't necessarily mean old staffing levels. She noted that they're prioritizing rehiring former staff that were laid off, but the picture from staffers reflects the impact of the restructuring. Some returning employees have come back in lower positions, while some departments have shrunk, raising concerns about stress tests like Fantastic Fest and the holiday blockbuster season. Signature programming strands dating back to the Colorado days, like horror-centric Terror Tuesday and the exploitation and sleaze of Weird Wednesday, currently only exist as categories on Alamo on Demand. Even before the pandemic, one staffer noted, "things were being diluted, but it was still a fun place to work," adding that they feared the post-pandemic Alamo will move even further from its roots.

Whether that aspect of the culture comes back is an intangible, but League promised that the signature programming will return – when it makes financial sense. "We don't get fully back there until we get fully back open," he said. Balancing time on screens is easier in a market like Los Angeles or Raleigh, N.C., because those locations have a mixture of big screens for blockbusters and smaller screens for niche titles. "By their architecture, they are designed to support independent films." He admitted Austin's a tougher challenge, because "so we tend to look at it as a market. ... But we're not forgetting. That's the core of why I'm in this business. We'll pay the bills with Harry Potter, but can you bring someone in for Harry Potter or Fast 9, show them a trailer that looks awesome, and expand them into another movie that they might not have seen."

At the end of the day, that's why he sees investors like Fortress and Altamont as the right partners. They are banks, not management companies. They aren't interested in day-to-day dabbling, but in the bottom line. "If we maintain our profitability by being an awesome brand, then great."

For now, the long game stays the same. Taylor said, "We're gonna get bigger, and we're gonna grow, but we are going to retain the brand soul."

Editor's note: this story has been updated to clarify the situation around the sale and closure of Birth.Movies.Death.