A cinematic feud: Are the curtains closing on Village Roadshow?

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This was published 5 years ago

A cinematic feud: Are the curtains closing on Village Roadshow?

By Jennifer Duke & Kylar Loussikian

The angry emails began on June 20 when John Kirby fired off a lengthy missive to the Village Roadshow board. The subject line was: “The Diagnosis”.

Kirby had resigned as an executive at Village - the film, entertainment and theme parks business run by his family for decades - five years earlier.

Robert Kirby (right) with brother John Kirby in happier times.

Robert Kirby (right) with brother John Kirby in happier times.Credit: Dave Hunt

He remained on the board, however, and watched with growing frustration as the company’s share price tumbled from $7.15 five years ago to as little as $1.77 in July.

The 71-year-old had stood back as his younger brother and executive chairman Robert Kirby and chief executive Graham Burke, a family friend, called the shots over that time. But now he’d had enough.

In the email John outlined his frustrations. He accused Village’s management, led by his brother, of issuing overly optimistic financial forecasts, weak corporate governance and poor capital management.

He concluded the business behind Hollywood blockbusters such as Happy Feet, The Matrix and Zoolander was sick, and needed urgent attention.

The email received a cursory reply and was then followed by several others. Sources familiar with the contents estimate they would run to more than 150 pages if printed out.

John’s arguments are contested by other members of the Village board who dismiss him as disgruntled and jealous.

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Earlier this week, Burke called him “disgruntled and bitter”. But there is no question about the trajectory of the company that is still worth $554 million, boasts a 70 year heritage and was one of corporate Australia’s great success stories.

Graham Burke, co-chief executive chairman of Village Roadshow, at the Jam Factory cinema.

Graham Burke, co-chief executive chairman of Village Roadshow, at the Jam Factory cinema. Credit: Eddie Jim

Since 2014, Village Roadshow’s market value has tanked from $1.2 billion to as little as $370 million. The market decline was keenly felt by Burke and the Kirby family who own 42 per cent of the company between them.

The rise in video streaming services such as Netflix and Stan slowly hobbled Village’s DVD distribution business.

A string of box office bombs, including the 2015 flop Jupiter Ascending starring Mila Kunis, eroded an investment in Village Roadshow Pictures, the Hollywood film studio the Melbourne company once controlled.

And suddenly too its theme parks were in trouble. In 2017, Village reported a $67 million loss.

Movie World has faced challenges in recent years.

Movie World has faced challenges in recent years.

The other undeniable fact about John’s emails is that they exposed tensions with his brother that some people believe have existed behind the scenes for years.

The family feud remained a private matter last year but earlier this week John went public with his grievances by confirming he had hired an investment bank in an attempt to break up Village. It is a proposal Robert vehemently opposes.

With both brothers seemingly intractable, the question is who will prevail?

The greatest showman

One of the earliest memories Robert, now 67, has of Roscoe “Roc” Kirby is of him standing over the kitchen table, sketching up dreams for what the company’s next cinema would look like on huge sheets of white paper. Robert says he remembers “clear as crystal” his pioneering father drawing lines representing the parking ramps and planning out the way it would look.

The Village Drive-In Theatre at Reservoir in Melbourne's north in 1969.

The Village Drive-In Theatre at Reservoir in Melbourne's north in 1969.Credit: The Age

The idea for the new drive-in theatres was based on a photograph Roc had seen in a newspaper while serving in WW2.

Hearing his family were cinema operators, an American soldier showed him an article of the US’ most recent drive-in innovation and the idea returned with him from Papua New Guinea.

At the peak of the drive-in era, Roc’s businesses Kirby Theatres Pty Ltd and Village Drive-In Pty Ltd would have 14 drive-ins, mostly in Victoria, and many other traditional theatres.

Roc Kirby in 1965.

Roc Kirby in 1965.Credit: The Age

The business rapidly became a household name and today Village has 74 cinemas with 704 screens, owns some of the country’s biggest theme parks in Movie World, the Gold Coast’s Wet’N’Wild and SeaWorld and is associated with classic films Gallipoli, Mad Max, Red Dog, Muriel’s Wedding and Breaker Morant.

Roc is described by those who knew him as the “ultimate showman” and an instinctive businessman who knew that fresh ideas, glamorous openings and promotion were the secret sauce for getting Australians out of their home and into his venues. And he would put everything on the line to get the job done.

Known for sayings like “your word is your bond”, “always do what you say you’ll do” and “an ounce of loyalty is worth a ton of know-how”, Roc ignored naysayers who laughed at him because he wanted to put “pictures in a paddock” at a time when indoor cinemas were closing due to the growing popularity of television.

He launched his Croydon drive-in in the 1950s. It was a sensation with innovations such as BBQs, a fish and chip unit and a glass-fronted cafeteria (which now-defunct newspaper The Argus reviewed as “expected to be a huge success with Melbourne people who have taken to espresso coffee in a big way”).

As the 20-acre plots he owned for the drive-ins surged in value after land was rezoned to cater for a growing and sprawling urban population in Melbourne, Roc was able to sell out for a big profit in subsequent decades

He [Roc Kirby] turned a paddock and a creek into MovieWorld ... he mortgaged his house [to do it].

Graham Burke

He used the money to buy a prime Melbourne CBD location on Bourke Street from Alan Bond who had been using it as a Walton’s department store until 1983. The business spent $30 million redeveloping the site into a five-level cinema, retail and office complex (the head office would later move to South Yarra).

The drive-ins are just one of the achievements the Kirby sons and Burke idolised him for.

“He turned a paddock and a creek into MovieWorld ... he mortgaged his house [to do it],” Burke says.

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Village continues to be controlled by the Kirby brothers and Burke who started working for Roc part-time aged 14 at the Ararat cinema in south-west Victoria

By the time he was a young adult, Burke was managing a large part of the business (at 21 he wrote the operations manual) and says he had come to see Roc and his wife Beatrice Kirby as “my Melbourne mum and dad”.

Those who know the family well refer to Burke and Robert as “like twins” who grew up together, visiting St Kilda’s Luna Park, and the empty drive-ins during the day-time, for fun. Burke, 77, has spent his entire career at Village and remains very close to Robert to the point where they call each other “at least four times a day”.

The close friendship between them may explain why John’s resentments are bubbling to the surface. Some observers believe jealousy over his brother’s closeness with his father’s business protege plays a role, as does that pair’s dominance over Village. Sources close to John dispute this.

Roc died in 2008 (Beatrice in 2011) but his strategy of turning a deaf ear to negativity has been a defining part of the Village story. His business style has left an indelible impression on Robert and Burke.

Even today, on the wall of Robert’s office, is a sign that reminds him to have “contagious optimism” - a motto that has been vigorously tested over the last few years.

Echoes of a tragedy

No one saw it coming. On 25 October 2016, a balmy Tuesday on the Gold Coast, Ardent Leisure-owned holiday venue Dreamworld was on the verge of a tragedy that would send shockwaves through the theme park industry.

A malfunction on the wildly popular Thunder River Rapids Ride left four people dead, in a disaster that was traumatic for witnesses, dominated the news cycle for days after and led to a government inquest.

It didn’t just close down Dreamworld for more than a month – and the ride forever – it saw the public lose confidence, at least temporarily, in all theme park operators.

Burke says mums were “spooked about taking their kids to theme parks” afterwards and the tragedy turned a steady stream of local and international tourists to Village’s entertainment venues into a trickle.

“It was the single biggest turnaround in our fortune,” he says.

Unlike the Village of Roc’s era, a large swathe of the company’s income comes from its theme parks rather than cinemas. By 2016, losses from Village’s movie production business had hit $487 million. In the same year, $88 million of earnings came from theme parks, $82 million from cinemas and $24.5 million from film distribution.

After the Dreamworld incident, Village’s earnings (before interest, tax, depreciation and amortisation) from the theme parks division fell from an $86 million average in the five-years prior to $56 million in 2017 and $39 million last year.

“There's no doubt the biggest low the company here has had over its whole period of existence was the Dreamworld tragedy,” former board member David Evans says.

Evans, a prominent Melbourne businessman, was chair of corporate governance until November 2018 and is a friend of Burke’s.

“It didn't have anything to do with Village, however its roll on effect was substantial. That is only just starting to right itself,” he says.

While no one disputes there was an impact from Dreamworld, sources close to John claim Burke and Robert “overstate” the fallout and failed to use the issues facing a competitor to get ahead.

The sale of Wet'n'Wild Sydney riled John Kirby

The sale of Wet'n'Wild Sydney riled John Kirby

For John, Wet’n’Wild Sydney was the final straw.

The park was sold last year for a loss of $25 million after draining cash despite great hopes when it opened in 2013.

It wasn’t Village’s only problem.

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The company blamed broader financial woes on a smorgasbord of uncontrollable factors, including the Dreamworld disaster, “low attendance” to the Commonwealth Games on the Gold Coast and wet weather.

But it was the aqua park’s problems, and a call for the Kirby brothers to inject $7 million each into the company to pay down debt, that was the focused of John’s ire.

Burke, a film lover, is described by supporters as highly knowledgeable about the entertainment business and devoted to Village.

But he is criticised by detractors as being too interested in “Hollywood” despite film production now being on the sidelines.

Under the spotlight

In July 2018, John hired former Rothschild boss David Kingston, an erstwhile investment banker turned property tycoon.

Kingston knew Village and the Kirby brothers well, having previously sat on the board of radio network Austereo when it was controlled by the company.

He had worked on property trusts for management in the past.

Lisa Burke in one of her Lisa Blue bikinis

Lisa Burke in one of her Lisa Blue bikinis

Kingston is well-known for his aggressive approach. In 2015 he attempted to evict Justin Hemmes from the Coogee Beach Palace Hotel in 2015 when the Sydney pub baron was two days late paying the rent. Kingston was out of pocket by $85.74.

Kingston and John detailed a litany of issues ranging from the acquisition of businesses with no connection to the core theme park and cinema operations to accusations Burke and Robert were using the company to enrich themselves and their children. Robert’s son Clark works as the theme park division’s chief executive on a salary exceeding $1 million a year.

Since 2015, Village has paid $1.4 million to purchase wine from Robert Kirby’s vineyard Yabby Lake, another $90,000 renting the family artwork, and about $70,000 to buy bikinis from Burke’s daughter Lisa.

All these related-party transactions are legal and disclosed in Village’s annual reports but most listed companies try to avoid them.

Tensions between the board grew and sources close to John Kirby say his constant questioning was the reason the company started tightening spending.

Kingston is among those who does not accept the Dreamworld tragedy as a valid reason for the overall decline in shareholder value and who considers John a “white knight”.

In the interests of all shareholders to fix the future performance of Village, John is seeking a new independent chairman.

David Kingston

“In the interests of all shareholders to fix the future performance of Village, John is seeking a new independent chairman in line with corporate governance standards [the] injection of new senior management, more non core assets sales and further reduction in excessive expenditure,” he says.

“With cancelled dividend, a $50 million rights issue, very poor share price and fire sale of Sydney Wet’n’Wild, since June 2018 John has done the heavy lifting and has probed extensively and constructively on multiple issues and concerns.”

The extent to which John can marshall a rebellion remains to be seen. The rest of the share register features few institutional investors with the exceptions of American outfits Dimensional Fund Advisors and Mittleman Brothers.

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The few market analysts who continue to watch Village are lukewarm about the company’s turnaround. Citi analyst Sam Teeger said in August that Village could struggle to grow earnings.

“This could be challenging given the structural challenges in cinema and plans to reduce capital expenditure … divestment of underperforming divisions such as Roadshow may assist,” Teeger wrote.

Deutsche Bank’s Wassim Kisirwani was similarly unimpressed, and told clients that Village had “a poor record of delivering on expectations”.

The company had “attractive assets and an undemanding valuation”, but investors would “prefer to see some evidence of cost out traction before taking a more positive view”, Kisirwani wrote.

But a note from Baillieu a week ago said the company's share price has "rebounded strongly from the deeply discounted capital raising" in July.

The broker attributed the rally to capital raising to reduce debt, cost initiatives, successful refinancing and an improved trading outlook with a strong domestic box office and recovering theme park ticket sales.

The show must go on

Roc and Beatrice Kirby famously gave very few interviews, though the couple spoke in-depth to former Victorian premier John Cain for his 1998 book On with the Show.

One of Roc’s great thrills was seeing Village blossom, and in 1994 he said that when he first started the business it was a “struggling little outfit [and] my vision had to survive through the ruthless competition in those early days”.

“When this became apparent, I had a clear dedication for Village to achieve a commanding cinema circuit throughout Australia... My vision now is for Village Roadshow to become an overall world entertainment identity,” he said.

My vision now is for Village Roadshow to become an overall world entertainment identity.

Roc Kirby in 1994

Robert shows similar optimism in 2019 after the company’s toughest year on record, saying “there are strong and encouraging indications of a turnaround, especially in our biggest business, our theme parks”.

“And of course the Queensland summer has been blessed with superb weather.”

He refuses to speak publicly about John and the family feud (John also declined to comment) but regardless, February 22 will be a landmark for the company when it publishes half yearly results and faces shareholders.

Either Burke and Robert deliver a strong return to growth - and importantly, start distributing money to shareholders again - or their leadership of Village will look increasingly untenable.

Investment banks are already sceptical, interest from major fund managers is scarce, and the board is riven by a bitter feud.

And what’s at stake? Only the future of the Village name and the legacy of Roc, Burke and the Kirbys.

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