When Netflix Paid $14.4 Million for Egyptian Theatre, It Saved an Ailing American Cinematheque — Exclusive

Documents reveal a trove of details about the 99-year deal, Netflix's awards strategy, and how AMC was interested in countering Netflix's offer.
David Martin David Martin works on a drawing outside Grauman?s Egyptian Theater in Hollywood, Los Angeles, . The historic theatre, built in 1922 and known as the theatre ?where the stars see the movies,? will celebrate its grand re-opening on Friday at nightGrauman?s Egyptian Theater, Los Angeles, USA
David Martin works on a drawing at the Egyptian ahead of its 1998 grand reopening.
Nick Ut/AP/Shutterstock

Faced with over $8 million in essential renovations at the Egyptian Theatre, the American Cinematheque faced closing the historic Hollywood movie palace and ceasing to exist as an organization. And then, Netflix bought the theater.

That was the blunt assessment offered by Cinematheque president Mark Badagliacca in recent letters to the California Attorney General’s office, through which the Cinematheque sought sale approval — technically, non-opposition — in accordance with state law.

“Your approval of the proposed transaction is fundamental to the long-term viability of the Cinematheque as a charitable organization,” Badagliacca wrote March 12. “Without the Egyptian Theatre, AC will be unable to continue its charitable purpose, and it will likely dissolve altogether.”

The correspondence, which IndieWire obtained through public records requests, are part of some 500 pages of documents that pull back the curtain on previously unpublicized details of the unusual deal between Netflix and the American Cinematheque. Announced last month, it allows the Cinematheque to continue programming the theater on weekends, gives Netflix a prime Los Angeles venue to showcase its award pictures, and offers both groups a freshly renovated historic theater.

The deal comes after a challenging decade for the Cinematheque. While the annual American Cinematheque Awards and fundraising gala were once nationally broadcast on ABC, it lost TV sponsorship after the 2010 edition. Since then, the group has “struggled to raise sufficient funds to cover its operating costs,” including its debt. On top of that, it faced a 2015 city mandate that required an estimated $6.1 million in seismic retrofitting, Badagliacca wrote in a November letter to the AG’s office.

The Cinematheque’s 2018 financial statement show it had $1.8 million in cash (part of a total of $6.8 million in assets) and $4 million in liabilities.

In November 2019, Netflix submitted a non-binding offer for the theater for $30 million, matching the value of the building outlined in a 2018 appraisal. The state took issue with that: In a December 26 letter, supervising deputy attorney general James M. Toma noted that the appraisal did not account for seismic retrofitting, deferred maintenance, and refurbishment, costs that brought the price down to $14.4 million.

A new appraisal offered several assessments of the theater’s value. Theoretically, the building alone is worth $12 million (including the repairs and retrofitting). However, the building is attached to the Cinematheque’s 99-year tenancy, which brings down the value to $6.6 million. The final deal received approval from the AG’s office May 19, and sees Netflix paying $14.4 million for the theater, with an additional $6.1 million to go into an escrow account for seismic retrofitting, and another $2.5 million into an account to pay for mechanical upgrades, roof replacements, and other repairs.

Netflix will also spend several million more on audio upgrades and theater restoration, amounting to a total investment that could be in excess of double the purchase price.

Although the deal between the Cinematheque and Netflix lasts for 99 years, Netflix is allowed to sell the building after 12 years — and a new owner would be able to kick out the Cinematheque a year after that. Netflix is making an enormous investment in the theater, which might make such a sale unlikely.

Under the terms of the deal, the Cinematheque gets free rent as well as a monthly reimbursement of $44,520 for staff salaries. This will be renegotiated annually.

The Cinematheque will program the theater autonomously Friday, Saturday, and Sunday, and may host outside events on those days. It can also work with Netflix to swap days. However, the nonprofit cannot host screenings of Netflix competitors’ films during awards season, from September to February, without the streamer’s consent. (In accordance with its mission, the Cinematheque may also program historic or educational screenings of competitors’ films at all times.) Documents specify competitors as Amazon, Apple, Disney, and WarnerMedia — oddly absent are majors Universal, Paramount, and Sony.

Rick Nicita, chairman of the cinematheque board, pointed out that hosting outside events at the Egyptian has long been a part of the cinematheque’s financial equation. Last year “The Fanatic” and “The Curse of La Llorona” premiered at the theater, and more recently it hosted premieres for many Netflix shows and movies.

“This agreement with Netflix will result in approximately the same number of programs at the Egyptian as before,” he said in a statement emailed to IndieWire. “Our most highly attended days by far at the Egyptian are traditionally Friday, Saturday and Sunday. For most weekdays, when there isn’t an American Cinematheque program, we worked hard to rent out the theatre for outside events to augment our income and this deal basically guarantees us that income during the week.”

The Cinematheque also has a 10-year lease on the Aero Theatre in Santa Monica.

When Netflix proposed its deal last fall, the AG flagged that the Cinematheque did not market the theater to other would-be buyers. In response, Badagliacca wrote that extensive press coverage of the talks did alert other suitors — including AMC Theatres, but CEO Adam Aron withdrew the company from consideration after understanding the need for 99-year tenancy.

The transaction will also see the Cinematheque make good on its civic obligations. The city of Los Angeles sold the theater to the nonprofit in 1996 for $1, under the condition that it be renovated as part of the effort to revitalize a then-shabby central Hollywood. The renovation was also funded in part by public funds.

The Cinematheque will repay a city redevelopment agency nearly $1 million, the Jamie and Steve Tisch Foundation $605,000, and Morgan Creek Prods. $1.3 million. It may also need to repay the city some $100,000 for an outstanding grant; it’s hoping it can satisfy conditions for forgiveness. Other sale proceeds will be reinvested in the Cinematheque’s nonprofit mission.

Documents show that Netflix chief content officer and Cinematheque board member Ted Sarandos recused himself from voting on the deal. The board unanimously approved the deal in November.

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