Alamo Drafthouse Cinema: Tim and Karrie League

27:37And by the way, were you able to sell alcohol? Well, we wanted to. That was the original plan. And during that three or four-month period of construction, I had finished a pretty heavy day of construction. So I'm wearing a dirty T-shirt and cut-off shorts. And I was 24, I think, 23 at the time. But I looked I think about 14. And so I just strolled into the Alcoholic Beverage Commission office and said, I'd like one of those alcohol licenses, please. And we were turned down. So that was one of the main reasons. I think if we could have gotten that alcohol license, we might have actually been able to sneak through and make it work.

28:21But I will say at this time, about a year into it, you do the math on it. We've been under the most high-stress environment of a failing business, living together 24-7 without a break from each other for a year. And we're still in love and we're still enjoying our time together. So, you know, after, what, eight years of being together, I finally realized that means it's time to propose. And so we got married in the middle of all that. This is, I think, in 1995. And Carrie, when you told your parents that you were marrying Tim, they were like, great, you're marrying a guy who's got a failing movie theater.

28:58Awesome.

29:03They were very ambivalent about the whole thing, the whole time. So I think my parents were more disappointed in me, right, because of throwing away the career. And we explained this also to our parents, and I think this probably takes a little bit of the edge off of it, is that we had come to peace before we started with the idea of total and complete abject failure, right? So we knew that that was a high probability given the nature of the business that we were going into. And so we had no obligations, nobody counting on us other than ourselves. And so why not? Like give it a shot. It could be fun.

29:44It could be changing. It could change everything. And if we fail, we'll put our tail between our legs. We'll not talk about it again and we'll go become engineers and researchers again. And so they knew that and weren't devastated by that. They were supportive. All right. So meanwhile, you guys are running this theater and you make it to year two. And I think you're doing some pretty cool things by year two. Like you start to host live music, live bands. And so can you tell me a little bit about this? I mean, I'm thinking about Bakersfield in the 90s. And I'm trying to – I grew up in L.A. And Bakersfield in the 90s had – I mean, Korn came from Bakersfield.

30:24The band Korn, right? I think that's the most famous – maybe like Merle Haggard is more of a – or that kind of genre of country. But Korn was like the biggest band in the world at a certain point. So that coincides, right? So we had the Westwood One Radio Network Korn reunion show at the theater. Wow. So it was a big deal. And so this was a special show for them. That'd be a scary show. A homecoming show. It was awesome. They literally shook the plaster down from the ceiling. Yeah. And we also – we would combine silent films and music, which was pretty cool the first time we did that there. Oh, you'd have like live piano accompaniment?

31:05Or punk bands too. Punk bands to like silent movies in your 20s? Oh, wow. We kind of workshopped some fun ideas and said, oh, man, like this is a great crowd. Too bad they're just drinking water out of the water fountain. the theater would last for about maybe a bit over two years. And I guess the kind of the denouement, to use a film term, was a live performance in 1996 that was a performance by Montel Jordan, who, if any listeners can't remember who Montel Jordan was, the song is This Is How We Do It, which is played at bar mitzvahs and weddings around the world today. I don't know what he sang after he sang that song because I don't know if I don't you know you got to sit through like 12, 15 Montel Jordan songs until he gets gets to this is how we do it, which is what everybody came to the show to see him sing.

32:01He's performing at the theater. And I guess there was a pretty bad incident that happened that night. Yeah. So there was some sort of a choral. We think it was sort of a love triangle dispute. And as somebody was driving away, somebody else pulled a gun out and shot and ended up shooting the person who was driving away in the head. And that person wrecked his car into our box office basically and died. Crashed the car into the ticket booth. Yeah. And so that was it. We were already, I mean, the neighborhood was really cool because that street was an old street and there was a lot of really fun, interesting business trying to make a go of it.

32:50But the crime was just high. And so the arthouse crowd never wanted to come. And with that press, we just knew that's it. And we were gone 30 days later. And so you shut it down. And then what? I mean, now you are, your theater's done. I mean, what next? I mean, did you think about maybe, I don't know, maybe I go to law school? Or did you carry, did you think, maybe I'll go back into a PhD program? No, we had been talking before that incident. We had been talking about trying again in a better location. We knew of the existence of other theaters that served food and drinks during a movie. So we strongly felt that if we could do something like that and if we did it in a place that could support it, that it could be successful.

33:44We weren't ready to give up. When we come back in just a moment, Tim and Carrie decide to launch a new movie theater in a whole new city and in the only parcel of real estate they can get, a parking garage. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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35:03That's V-A-N-T-A dot com slash built for$1 ,000 off. One more thing before we get back to the show, please make sure to click the follow button on your podcast app so you never miss a new episode of the show. It's usually just at the top of the app. And it's totally free.

35:32Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1996, and Tim and Carrie have shuttered the Tejon Theater in Bakersfield, California. But they can't give up on the idea. So they decide to look for another city where they can show movies and serve hot meals, all under the same roof. And we figured, well, we learned how to run a movie theater. We can learn how to run a restaurant. How hard could it be?

36:03Oh, man. But you decide to do this in Austin in Texas, which is obviously an amazing city. Why did you decide to do it there? We had been contemplating a variety of different cities that had a population of young people who like to go out. And fully half of them came off of the list just because I don't like cold weather. So like Minneapolis out, Boston out. Yeah. Yeah. It just seemed like a good choice. And we wanted to be in where the action was. And so we found a real estate broker and they were touring us on sites and we would put in an offer and we were rejected. It's like, no, we're looking for somebody that has more than like a heroically failed business and actually a little bit of money to do this.

37:01And so – And how much money did you guys – I read that you had raised about$250 ,000 from like friends, family, anyone? Yeah. Yeah. So I had told you that my parents were incredibly ambivalent about everything that had happened up to that point. Yeah. And they didn't have a whole lot more faith in this project. But I just want to give a shout out to my parents, whom I adore, that they mortgaged their house. Wow. In order to lend us$100 ,000. Yeah. Wow. That's kind of nuts because your record at that point was amazing. I mean, you guys are obviously smart and passionate, but like you weren't coming to the table with a record of success in the movie theater business.

37:48Yeah. So there's the 100 grand from Carrie's folks. My dad and my folks put in 50. We did some really, you know, silly proposal to our friends and we got maybe$10 ,000 from friends as an investment. We did a series of credit card, you know, take out the credit cards, max them out. So we got probably$25 ,000 from that. So I came into the Tejon, you know, putting$50 ,000 in, probably still had, you know,$20 ,000 in the bank. And then we left with$20 ,000 in the bank. I think it was neutral. We also took the screen, the projector, and all of the seats out of the Tejon because it was being gutted on the inside after we left.

38:35Right. I wonder what that theater is today. It's a church. Oh, that's okay. It's a common transition. Okay. And then Bank of America had an Invest in America loan. It was like a one-page form. Yeah. And so we got, I think,$50 ,000 from Bank of America, which we paid back within a year. And we had a long-term, still have a relationship with Bank of America. And they said, well, you guys were probably in the 1 % that paid that back. We're no longer investing in America on those terms. By the way, it just occurred to me, it would have made more sense for you to have started in San Antonio given that you're called Alamo Craft House.

39:17You don't have like a time machine or something there at the office too because it's really – so the story of the name is – I loved this neon artist in town, Evan Voiles. And so I sought him out. It's like, I want you to make a sign for us. We have$5 ,000. Can you do it? It's like, well, that's pretty low, but maybe you'll ask me to do more signs down the road. And so let's look. The only way we can make it at this price is you get a rusty old can, and I'll put some fresh neon on it. A rusty old can, like a piece of metal? Like an old vertical blade sign. Okay. And then he would put neon on that sign.

39:54Okay. Yeah. Yeah, yeah. So that's his specialty. He does vintage style work on vintage style pieces or makes them from scratch, but those are more expensive. Okay. And you go to like a scrapyard and you just find something like that? Yeah. He had a neon graveyard. Hit a property south of town with like 40 signs. And so we had it narrowed down to two. And I really tried hard to convince Carrie the one that was really showy. And it already had letters. It's like it's the same price. But we would have had to call our theater chain the Tasty, with two E's, the Tasty Burger. And it just, to her credit.

40:32It doesn't work. No, no, no. It's not a good – So our neon guy told us you have to choose a name with – Five or six. Five or six letters. And so we looked at each other and we said, well, we want to be first in the phone book. So it has to start with A. And the top of our original building had that kind of Alamo-esque shape to it. Yeah. Yeah, because there was a time where people would say, huh, what movie theater should I go to? Let me open up the phone book. We have to explain this, yes, to all the people who have never seen a phone book. Can you grab the phone book so we can figure out what movie theater we're going to?

41:12Back in my day.

41:16Oh, man. All right. So you have a little bit of cash to put down for a lease. But what did you eventually find? Was there an abandoned movie theater or a shut-down movie theater in Austin available? No, we rented the second floor space of what was serving as a garage at the time in the heart of the warehouse district. A garage for vehicles? Like a parking garage. Parking garage. Yeah. And wait, so somebody said, here's a garage. You can turn this into your movie theater? Yeah. Second floor only. First floor too valuable. You guys aren't worthy for the first floor. How do you – I'm just thinking.

41:55I'm in this space and I'm like, okay, there are 50 cars in here. Yeah, we can put the screen there. Like, that's a lot of, I can't even imagine renovating a garage and turning into a movie theater. I don't know how we did it. I'm going to explain, like, the list of things that$230 ,000 bought us. Because we still had, like,$20 ,000 left at the end. So we installed the cheapest elevator. We installed both from scratch men's and ladies' restrooms. We upgraded the water service to supply those restrooms. We built a commercial kitchen. We built a projection room. We changed the structural of the columns on the building so we'd get five extra feet of ceiling height.

42:33And it doesn't, you know. We put in the HVAC system. HVAC system, new HVAC. Like there was nothing. It was just a. New electrical. New electrical, new plumbing. You know, I'm just processing it now. It's just. It's nuts. Another thing that's not very wise. I mean, just the money you'd have to put down to just get that into shape, let alone build the – I don't know, just make it look nice. We spent a lot of time at the library learning how to do construction. We bought – we took out books from the library about how to build stuff. And in addition, we knew that we wanted pizza to be the sort of the core offering of the restaurant.

43:17And so Tim took a job at a pizza place to learn how to make pizza. And I took a job as a waitress to try to learn how to be a waitress. And then I would steal paperwork from the management so that I could try to figure out what the managers were doing. Yeah. And so it was about six months of just gutting that building, turning it into a movie theater and building a pizza oven as well? I bought a pizza oven out of the back of a newspaper. So every piece of equipment that we bought was used. Wow. All right. So it was going to serve mainly pizza, but beer and cocktails as well? Just beer and wine to start.

44:00And it was pizza, salads and sandwiches. And we actually baked our own bread for the sandwiches for the first few years. Wow. Which is, I say wow, but you know, it ended up being, depends on the day. Sometimes it was wow. Wow. And did you – and what was the seating like? Was it – were there like round tables like in an old jazz club or was it rows like in a movie theater with like little individual desks for food? Yeah, it was rows of seats that were spaced probably two and a half times as far apart as you would see in a normal movie theater. And then we built these banquettes, long tables in front of the row.

44:44Okay, so not too different from what they look like now. Pretty similar. I read that before you guys opened. And again, I'm just amazed at just how hard this was to do and how you threw yourselves into it. But I guess when you guys were getting inspected, the inspector was like, you put the sheetrock on backwards, all the sheetrock's on backwards, something I would do. But yeah. So yeah, I stayed late one night and I was really proud of myself because I sheetrocked the entire kitchen every last bit. And you were like, awesome. I've done it. I've done it. Called in the inspection before 6 a.m. And it's funny because the inspector at the time, he's like, you know, Tim, I'm going to pass you for this because technically it's all good, right?

45:32But I just want to show you something about sheetrock. See these little divots here on the side of the sheetrock? That's where you can put a little joint compound and you don't get these big bumps that are on all of your walls because you've installed all of these backwards. It's still sheetrock. It still works. Just don't ever tell anybody about this because it's too embarrassing. All right. So you pass the inspection and you're ready to open up. And you open up. This is kind of an epic opening because I think they're two of the greatest comedy films ever with a double feature, Raising Arizona and This Is Spinal Tap.

46:09Sold out. Tell me about that night. People come to watch those movies. The pizzas are slinging into the oven. And what was it like? It was smoother than I would have thought. Like there were things about it. There's like little granular things that went wrong. We had this idea we'd have these little metal carts that you'd roll down the aisles, but it was a disaster. And after about five minutes, we'd say, ditch the carts! Ditch the carts! But, you know, it was great. Everything worked, and it just felt we had made it. We did it. Everyone had a good time, staff and customers alike. We were on top of the world.

46:48We were on cloud nine. And this was, I think, you had about 220 seats, right? Right. Yeah. And now you're in you've got a critical mass. You've got tens of thousands of students at UT. You've got music scene. It's I mean, it's a cultural capital like this is now you're like where you should be. Yeah. I mean, the problem is that day two wasn't good. So it was, you know, remember Bakersfield, like Citizen Kane. Yeah. Wonderful. Everything was feeling great. And then the next day, there were two people. So we showed the Clint Eastwood movie the next day, Absolute Power, because we weren't being an art house.

47:33We were kind of a second-run movie theater showing Hollywood movies. But it was better than Bakersfield because we had three people show up on day two. But this time we had a staff, and we didn't have any money in the bank. We had enough money for about three payroll cycles, and then we're done. We're like donezo. Wow. Yeah, we had 26 employees when we opened up. Wow. And that was still pretty lean, you know, for what we were trying to do for a 200-person restaurant. And what we forgot was advertising. Oh, right. You have to put movie ads in the newspaper at the time, in the art section, so people could, like, flip through and see what was playing.

48:14You couldn't place those ads. Yeah, so we started taking out some ads. And then we would also – when we closed down – and this probably sounds terrible, but we're desperate. We would go to the other movie theaters with some pretty snarky flyers like, why are you here? Just like cover – you should be at our theater. And so it's like this is our target audience. Let's do it. And then we're routinely chased away from those marketing opportunities. But here's the thing. I'm assuming that your value proposition wasn't, hey, we're an art house cinema in Austin or, hey, we're a second run movie theater in Austin.

48:54It was, hey, we serve beer and good food and you can see a cool movie. That was what you were focused on. 100%. And so a couple things happened pretty early. The folks at the Austin Chronicle were very kind and wrote about our events. And the midnight movie programming worked pretty quickly. And then about three weeks into operation, Austin Powers, the first one, hit the second run market. And it hit us like a freight train. What do you mean? Well, at the same time, before that weekend, Ann Hornaday is now a critic for one of the Washington Post. Washington Post. So she wrote a really nice article about what we were and what we represented and what we were trying to do.

49:43Yeah, and I was like a deer in the headlights in the box office, just like mechanically like a zombie, just selling tickets. And in my head, I was panicking. Yeah. How many people did you have on staff that night? There was two in the kitchen and Carrie and two waiters. So there was four. But the bartender showed up in the middle of the rush, and I was like, damn, put on an apron. And so he actually worked that shift. And then I waited tables. And, you know, thankfully we made it through that night. And from there on, it was actually pretty great. Like it worked after that. Yeah. Let me ask you about the food part for a moment because I've been to Alamo Drafthouse and it's super fun to eat while you're watching a movie.

50:31But it's also different, right? I mean, I guess it depends because you can go to any movie theater and somebody's crunching on popcorn. and they might be really loud, but like there was going to be an element of just disruption because you would have servers, like people are moving around, getting up, getting the food. And so how did you kind of think about managing that in those early days? You know, it's not perfect, right? I mean, we take a hard stance on guest behavior in terms of no talking, no texting, but we acknowledge that we're not a pristine environment. You know, there's cinemas in France that don't allow any food at all into the cinema.

51:09It's just a pure experience and we're far from that. But it's a huge part of our training to, you know, wear black and crouch down and know the movie. Don't disrupt during, you know, a key pivotal moment. And now we're in a different era where we're, you know, to preorder in advance and you don't have the checkout process. So you're kind of eliminating the touch points of server interaction with you. Yeah. So, all right. So the Austin Powers kind of thing just really kind of just helped you guys find your footing. And I think like within a couple of months, maybe within a year, you started to do more of these special themed menus.

51:53Like if you played Streetcar Named Desire, you would serve New Orleans food or Godzilla was being screened, you'd serve sake. Yeah. So it was a leap for our ability for our culinary team because we weren't hiring Michelin-rated chefs. So, yeah, I think it took us a while. Like I remember week two, you know, the servants would finish and they'd pick up their checks and they'd check out. And then Carrie and I would just clean the theater. And then one of the waiters said, you know, everybody's going to kill me for saying this to you guys. But the way it works in restaurants is the waiters actually clean the theater.

52:36You guys shouldn't do it. I just – I don't want to do it, but I just can't watch any further watching you do this every single night. I'm curious about some of the things that you did because this was we're talking when it was one theater and there's something that you guys I mean there are many of these sort of events that you would mount like for example you started this thing called the rolling road show and I think one of the things you did was you somehow got like 60 or 70 canoes and you you haul them out to the edge of a river and you had you screen the movie deliverance. so people could watch deliverance in canoes on a riverbank.

53:16Yeah. We'd hire banjo players on the river. So you'd do this river cruise. And Carrie roasted a whole pig on a spit. You know, it's just for the squeal like a pig parallel. For six hours. But it was so awesome. Amazing. I wish I was there. But it doesn't sound like a super efficient, like you weren't sort of thinking, all right, is this going to bring us a return on our investment? Are we going to be able to make money off this? Is this going to be sustainable? It was just like, this is going to be fun. Let's do this. Yeah. All of the extra stuff that we did, the feast nights where we would show a food-related movie with a matching menu, the rolling road show, the scavenger hunts that we would do, all of that was for us.

54:04That was for fun. And it was for the community that we had developed all of the people that we saw, you know, week in and week out that would come to the theater and became our friends. People would come and they'd hang out in the lobby afterwards. And, you know, people would have another beer and we'd just talk about things and a lot of ideas. Once you start doing crazy weird things, then everybody has ideas for crazy weird things. Yeah. I remember very distinctly – I mean it wasn't a money-making venture, but for five years we had an annual cannibal film festival where we showed cannibal films and purported to be selling actual human flesh.

54:41And then – but we did – those were also the things that people would write about and talk about. It became part of like our identity to one-up ourselves in these fun things. But all the while, just having a blast. And they didn't not make money. When we would always plan it out such that the ticket price did make us money, it's just that a lot of times there wasn't cushion. We had to sell it out in order to make money. And most of the time we did. But I want to ask you for a sec about the no advertising because I think – and I think it's still to this day. You don't play ads before films. But back then, I mean, surely that was another source of revenue.

55:26Like you could have had another income stream from that. There were several times when we had the opportunity to find out how much of an income stream that it would be. And we both said, no, we don't want to know. We don't want to know. We don't want to have any regrets at all or any inkling of temptation. So don't tell us. But what – I'm just curious why were you so opposed to ads? I mean great ads can be really entertaining. I mean obviously people watch the Super Bowl for ads. Oh, guy. That's – you know. I know. In your heart of hearts, you know that's not true. I know. But I'm curious why – yeah.

56:05I mean why were you so opposed to it? I thought that – and this I do feel like it was forward thinking, that it would instill loyalty to us. Like here's all the things I hate about going to a movie theater. We're not going to do this to you. This is – maybe Super Bowl ads are somewhat entertaining, but I can tell you the caliber of cinema ads in the 90s was not. And I just found it offensive. And still are not. And just thought that that would be a lot – like that's how people are going to want to come to us because we're different. We're not the same movie theater that you're used to. All right.

56:39So you've got this one really successful movie theater in Austin. That is what you now you guys are living the dream. But I guess a twist of fate, which is often what happens in these stories, a twist of fate occurs, which is that a potential competitor is thinking about coming into or a company that that that wants to compete and wants to have a similar model. food, drinks, movies, is thinking about opening up a spot in Austin. And that starts to change the way you think about expanding? Yeah. We had no plans to expand. And the landlord of the Village Theater, it was a fourplex in central Austin, called me and he's familiar with the theater and he'd seen a line around the block for our theater.

57:34and said, hey, I just want to let you know that I have a ready-to-be-executed lease with a competitor of yours, and I'm going to sign that lease. Wow. But if you want it, you can have it. It's yours, because I'd rather work with somebody in town, local, and I like what you do. But here's the proviso. You have to sign it by this week, by this Friday, and you can't change a word in the lease. And how long was lease going to be for? Uh, 10 years. 10 years. 10 years. You had six days or five days to make a decision. Yeah. So no surprise. We signed that lease without changing a word and embarked upon construction project number two.

58:19How did you finance that? That one was$300 ,000 and we just financed it out of profits. Out of cash flow. Yeah. Wow. So that was so, okay, great. And did you have to do similar amount of work on it or? No. Well, I mean, different. It was bigger work and it was like it was a bigger kitchen because it was four theaters, you know, double the amount of seats. Four theaters. Yeah. Four screens. Four screens. I mean, that's like a restaurant with four dining rooms with 200 people in each dining room, one central kitchen and a waitstaff going from like one dining room to the next, which are really far away.

58:59That's a big operation. It is a big operation. But interestingly, so we ended up running first run movies, like brand new movies there. I read that by 2003 because I think you actually opened a third location in 2003 that year. Is that right? Yes, we opened a third location. Also in Austin. Correct. And it was a very similar situation where the landlord called us and said that there was a competitor potentially moving in. I feel like most of the expansion that we've done or that we did early on was entirely based in fear. Yeah. I read that by 2003, Alamo was making much more money from food than ticket sales.

59:46And that might have happened even before, which makes sense, right? I mean, because that's really where you – especially drinks, right, when people are buying multiple drinks. I mean, it's all – it's really just about cost of goods. you know, you're paying a majority of the ticket on first run movies to the studio, you know. And on food, you're paying what rounds to 25 % of just food costs, right? So you have a much better profit margin. So there's still profit to be made in the movie tickets, but the, you know, beer and alcohol costs are less than food costs. So that's where the real profit was.

1:00:21But it was, you know, it's a balance of probably one third box office, two thirds concessions. All right. So you've got these three locations, I guess, and you're thinking about a fourth location. I think around this period, people sort of approach you about maybe franchising, and you did it. You opened a new franchise, a few franchises, I think around Texas, like in Houston and maybe San Antonio. But I guess you weren't really comfortable with that. What was going on? Tell me the story. Well, at that point, I think we had become really ingrained in the Austin community and were enjoying the aspects of community building at a real scale.

1:01:05And there was more headache on the franchising and I didn't – it wasn't where my passion was. Yeah. There was probably a lot of lawyers and meetings and you want to like mount cool movies and like have chit-chats with directors in front of audiences probably. That's all good stuff, yeah. I feel like we had been sort of dragged, kicking and screaming to every level of expansion. And finally, we were ready to say, no, no, we don't want to do that. Because now the four screen first run theater was financing all of the cool stuff that we were able to do at the single screen theater. Then suddenly people were talking about going nationwide.

1:01:49And I think we just didn't want to think about that. Did it stress you out? Yes. When we come back in just a moment, a franchising deal devolves into a nasty lawsuit and gets settled in a very surprising way. Stick around. I'm Guy Raz and you're listening to How I Built This.

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1:04:34Hey, welcome back to How I Built This. So it's 2004, and with some trepidation, Tim and Carrie move further into franchising, basically turning Alamo into two companies. The first will be run by them and made up of the theaters they already have in Austin. The second will be run by two new partners who want to build well beyond Texas. It was actually a great deal, and it was causing us a lot of stress. You know, I preferred the putting on a show aspect of Alamo. Yeah. But it was very enticing to us, so we did it. So just to clarify, there were these guys, John Martin and David Kennedy, and they basically said, look, we want to create a new business that is a franchising business.

1:05:24We will run it and own it. You guys will own a part of it. And you were okay with that. Well, even in those early days of franchising, we were very upfront. It's like, this is not a normal franchise. And yes, we're undeniably a chain, but we started preaching this mantra. It's like, we're a loosely connected network of local community theaters. All right. So they're opening franchises. But meantime, you guys are now really able to just those guys are doing the franchising thing, whatever. You're focusing on your own initiatives and you really kind of double down on this rolling roadshow thing that you do.

1:06:00And then like you take it outside of Austin. Like you guys did like so cool. I wish I was there. You screened Rocky on the Rocky steps of the Philadelphia Museum of Art. Yeah, that was a great tour. I think we did Rocky 1, 2, and 3, and it was a marathon. And we also had these giant slabs of beef up at the top of the stairs that people could take pictures of themselves punching. It was really gross. Like Polly in the meatpack. Yeah. Oh, my God. It's very wasteful. I'm sorry. But it was such a cool thing, and it dripped a lot on the steps, and I apologize to the city of Philadelphia. Yeah, I remember that scene.

1:06:42He's punching those carcasses of meat and he's the newscaster, the news reporter's there and they're doing a segment. And oh, my God, that's so cool. So you've got this going. And I guess around 2009, you start to have second thoughts or maybe second thoughts is an understatement about what's going on with the franchise. You're not happy with how it's turning out. What was going on? What was making you uncomfortable about how the franchising was rolling out? It wasn't actually we who were uncomfortable. We were having a great time. But when we sold the franchise rights, we made very, very sure in the contract that we were going to be allowed to do whatever we wanted regardless of what direction the franchise took.

1:07:31Right. Okay. And so we were just doing that. We were doing whatever we wanted to do. We were having a great time. And in the meantime, the franchise was working very, very hard on systems and efficiency and all of that sort of a thing. And they became increasingly unhappy with people calling them and saying, but the Alamo is supposed to do it this way. Why is this theater in Denver not doing it this way? and referring back to us. So that was making them very unhappy and they wanted to retract some of the language in the contract that was going to allow us to not pay attention to what they are doing.

1:08:15And so you ended up in a legal battle with your former partners around this. Yes. Well, Guy, they sued us first.

1:08:28And they sued you basically because they wanted to change the language of the contract to make you— You know, it was like we were angry and we were just like baffled by it. It's like, no, come on. It's pretty clear language and just like trademark infringement and things like that. So then we countersued to unwind the deal, basically. So we felt that there was things that had happened between us that they were in violation of. And so you're going to, you know, you push me, I'm going to push you. So we went to war. And it was clear that this was ugly enough that there were going to be no winners other than the lawyers.

1:09:05But the interesting thing about it is that to that point, we had never really met or spoken to Dave Kennedy, who was the guy who had put the money in to buy the franchise. So you didn't know him. We didn't know him. He didn't know us. So the first time you really kind of meet him properly is during this lawsuit? Yes. During the first day of deposition. And you're just sitting there hearing his take and then – And vice versa. Yeah. So we went first I think and he sat and he listened to our deposition about the fact that a lot of the things that we did were not done for profit. Yeah. And during my deposition, they came out with an email where I had – I don't know if it was an employee or a partner in one of the events that we were doing.

1:09:56And I said, well, we really want to do this thing and I know it's going to add a lot to the cost, but it really doesn't matter if we make a profit. And so they took this email and they threw it at me in a kind of an aha way, sort of accusing us of trying to tank the company by not caring about profit. And it gave me just a really great diving board for explaining the difference between short-term profit and long-term investment in a brand. And Dave Kennedy was sitting there listening to it. It was the first time he had ever heard me say anything outside of the contract negotiations, which went through the lawyer.

1:10:44Wow. And so what happened? So we finished the day of deposition and afterwards, Dave Kennedy, to his credit, texted me and said, hey, would you have time for breakfast tomorrow morning? And I said yes. And it was a pretty bold move on his part. Yeah, especially because his lawyer would have been like, what are you doing? I know. Exactly. Ours did too. Yeah. I mean, our lawyer was this tough-as-nails female barrel racing rodeo champion. Missing half of her fingers. Oh, my gosh. I was so scared of her. Yeah. So he proposed the idea. It's like, hey, I have a left field idea for you. What would you think about crushing the brands back together and you stepping in as CEO of the consolidated company?

1:11:42Wow. So basically it's like liked what we had to say, liked our vision for the company and the brand. And it was a wild idea. He's heard what you've said in depositions and he starts to think, hey, that sounds such a bad idea. Asks you to breakfast and offers you to be the CEO of a combined company. I mean – And 50 percent of the combined business also. Amazing. I mean this is like a great example of why like mediation is often a better option than lawsuits. because you could, I mean, he's basically saying, why are we going through this? Let's just work together. I mean, what incredible maturity and foresight.

1:12:20I agree. And the beauty was that once we did it, because obviously cutting ahead, we said yes. And the idea of growing so that we can truly support the movies that we love got super exciting. And helping craft that plan to open in LA, to open in New York and to like to be a force in the industry, that was a totally different game. And they had built a great structure and system and knew how to grow, knew how to expand. They had, you know, running laps around us in accounting and operations. And we had the perfect counter strengths. Okay, so this thing, I love this thing that kind of happened again serendipitously, although probably at the time, I don't know if you ever thought it would happen that way or work out that way.

1:13:10But you guys have had this kind of very strict policy, let's say, about noise. Like, I don't know if you've ever heard like a Keith Jarrett concert. Like if you cough at a Keith Jarrett concert, like he will look at you and ask you to leave. Like he will walk up stage if he hears like candy wrappers, right? And your policy was like that around phone texting. Like if you text in a theater, you know, we'll kick you out. We don't want you to mess up anyone's experience. And I guess this lady, this woman, went to a theater and was really mad because she was kicked out and then left a voicemail, which you guys then turned into like a YouTube video.

1:13:53Yeah. We consulted with our lawyer first because I wanted to find out property ownership on that. So apparently the way I understand the law is if somebody leaves you a voicemail, it's your property as long as you don't sell it because then you'd have to kind of work out a deal with the person. So we didn't sell it. We just turned it into a little bit of a snarky clip because she was very mad and she was obviously a little bit intoxicated and was furious about getting kicked out because she was using her phone in the theater. In your effing little effing theater. She was very funny. And I mean it's probably – I don't know how many.

1:14:29It's big for us. I don't know, 10 million, 12 million views on it. So it became our calling card for a long time. We always do a PSA to explain our policy to people before the movie and that's by far our most popular PSA of all time. Aaron Powell So when you became – around the time you became CEO, I know, Kara, you took some time away because you had your children, twins. Yeah. And you may have noticed that when we've been talking about the expansion and every time we expanded that I was the one with far more reluctance. So when the companies got crushed together and it was a major commitment to essentially unlimited expansion, that was when I tapped out and said, OK, I'm ready to have kids now.

1:15:20Yeah. Yeah. All right. So I want to I want to jump forward a little bit to 2017, which is sort of the year where the kind of Me Too movement really started to kind of explode, obviously, in The New York Times with the reporting and and other organizations. And, you know, I don't think there was a single organization that wasn't affected by it, including yours. Right. And you guys had somebody who worked with you or he was like running the magazine that that Alamo Drafthouse was putting out. And he he was accused of sexual harassment and and left or was fired. And that would have been the end of the story.

1:16:00But I guess he was brought back a few months later. Yeah. What what happened? So it was challenging because, you know, it's— You'd known him for a long time, right? Long time. Yeah, yeah. He was a friend. So I kept in touch with him, and it was just—I saw that it was challenging for him because he didn't find any pathway to write anywhere anymore and was depressed, and I was worried about him. And so I made the decision at the board meeting to offer him a copy editing position that he could do from home. Because he sort of came back quietly and somebody saw his byline and said, why is this guy back in the company?

1:16:44Yeah. And, you know, once that happens and, you know, especially at the time within, you know, a very important movement in our culture, you know, that it's it's also not a place for nuanced dialogue. But clearly what had happened is I was the leader of this company and I had made a mistake. And what was necessary immediately was to acknowledge the failure and mistake. And there were other allegations from the past that came forward. And we had spent so much time focusing on guest experience and being laser focused on guest experience. And frankly, we could have done a much better job of building a proper culture, building a safe environment for work.

1:17:34A lot of things were just casual. So I embarked upon a tour and went to every location and apologized. And it was basically a listening tour of like what's wrong in the venues that I may not know about. And we truly want to be the best theater that has ever been. Help us. And did you learn about – I mean on this tour, did you learn about things that people had experienced that you didn't know? Absolutely. Yeah. I mean there were sexual harassment issues. There were allegations of racism. There was like – there was individual managers that I don't think were kind. You know, so what we did in the wake of it is we established a really robust, anonymous engine where I would start my day every day and just read comments from teammates across the country.

1:18:28And we had a monthly all-staff meeting where the ones that were the hardest, we would address them publicly in front of everybody. And, you know, we grew from it. It was really hard and painful and we're better because of it. I want to – and we'll talk about the movie industry in a moment. But I think 2018 was the high watermark or maybe it was 2019 of box office sales. It was like really great. And even 2019 was pretty strong. And then, of course, COVID hits. and you're in an industry, not only in the movie industry, you're in the restaurant business too. Like you get hit by this twice. Yeah.

1:19:17Right. You're running restaurants and movie theaters in the same place. A lot of shared recycled air. Oh my God. But I mean, you guys shut them all down. You shut all your locations down. Yeah. You go from like tens of millions of dollars coming into the door to zero in like a day. Yeah. And, you know, everybody knows it. It's not a unique story for us, but just we had no idea at the time in March of 2020 when, if ever, this is coming back. And we knew, you know, very quickly knew our burn rate as to what debt was accumulating from some very expensive leases. And, you know, we had gotten a little over our skis in terms of being bullish on expansion and had mounted some debt.

1:20:06and had a big team. You'd hit by that point, by that point, like 47 locations or something like that? 42, 43, something like that. Yeah. Yeah. You eventually had to file for Chapter 11 bankruptcy in March of 2021. Yeah. Tell me what, I mean, basically, you would not be able to pay your debts at that point. Well, it's a little bit more complicated in that we probably had about two payroll cycles left before we were done. And so in December, we took on some basically distressed asset financing, right? So that money is not cheap, but turns out not a lot of people waiting in line to invest in movie theaters in December 2020.

1:20:56So, you know, but at the end of it, it did what it's supposed to do, right? So we're back. Yeah. We're healthy. Everybody took a little haircut. We took a big one. You guys had to sell, I think, get to sell a lot of your assets or some of your assets to a private equity group or a venture group, right? I mean, that's essentially what happened. That helps you emerge from bankruptcy. Yeah. And so we weathered it, right? So it's far from ideal, but we live to ride another day, right? So the balance sheet looks good, and we're actually growing and expanding new theaters. We're bullish on the future of the industry and looking for opportunities to grow.

1:21:37I think you now have how many locations roughly? 39, just about to be 40. Okay. So now we get to the conversation that you've been asked a bazillion times, And I'm going to ask you for the bazillionth and one time, which is the future of movie theaters. Okay. And movie industry and streaming and all this stuff. We know that there are 3 ,000 fewer movie theaters today than there were screens and there were before the pandemic. We know that some big chains are gone. And so we know that there's been some shedding. but um but do you still believe that people will want to go to the movies in as in the same rate in 10 years from now five ten years when you when you've got you know on a 50 inch tv screen today is like a joke you can buy one for 200 bucks yeah what is going to make people go to to movies at the same rate that they've been going to in the past.

1:22:41Well, I guess I'll ask you a question of, do you have a stove in your house? Yeah, I got a really good one. You mean a stove top? Yeah, it's awesome. Yeah, but you still go out to restaurants, right, every once in a while? Yeah. So that's really it, like humans. And I think this is so evident after COVID. Like, the first time I stepped back in a movie theater, we put together a very nostalgic clip about welcome back to the movies. But, like, I was in tears. Yeah. I was just so happy to be out of the home. You know, like, every once in a while, no matter how much streaming content you watch at home, you want to get out.

1:23:23You want to be a part of an event. You want to have experiences. So I think there's legit pressure to up the game to make sure that our industry, cinema industry, delivers exceptional experiences. There's just something about – a lot of times I hate the home experience in a way because there aren't the rules. Like if somebody calls me, I'm going to answer that call. If there's like a little pause where it's a little bit lull in a movie, because I'm addicted to my device, I have this urge to pull it out. So like being lights down in an excited theater, experiencing something fresh with a group of people, that's the core experience.

1:24:11Like that core product is beautiful. I love it. Yeah. If you think about all the ups and downs of this, and it's a tough business, and you guys have really been up and down and up and down and up and have really built this incredible thing that people know and has become kind of like a model for other competitors and others to kind of create almost like a dinner theater experience. How much of where you are today do you attribute to just how hard you worked, the both of you, and how much to the luck that you came across? I would say that a lot of it has to do with hard work. We worked 11 hours a day for seven days a week for probably five years.

1:25:04But at the same time, we have been incredibly lucky because of all of the people that we've come across who have been so supportive and kind from the film distributors early on to the people who helped us get started in Austin. And we didn't tell you the story about the food purveyor at Cisco who knew that we were an impoverished couple that was asking him for samples to develop our menu just so that we would have something to eat. And he provided us with huge amounts of samples anyway. He knew that that's what we were doing and he did it anyway. So, yeah, also a good deal of luck in there. Tim?

1:25:45Oh, you know, it's definitely a mix. And I'm not unaware of like the basic luck that I have, just the privilege of having a stable family life and supporting parents and a good education and not really – like having a nuclear family. It's just like – it's all I know, right? But I know that that's not everybody and I'm keenly aware that that has given me what others don't have. And, you know, I certainly work really hard. I still like doing it. And on the flip side, just like life is just full of these weird little moments like having a for lease sign pop up or, you know, that we were able to get financing before we ran out of payroll, right?

1:26:37So I put the scales more in luck than in hard work. But gosh darn, I can work pretty hard when I need to. That's Tim and Carrie League, co-founders of Alamo Drafthouse Cinema. Three years ago, Tim stepped down as CEO and became executive chairman. He's now working on a new concept, a luxury movie viewing experience with good wine, small plates and private viewing. and they plan to open the first one in 2024 in a refurbished Art Deco theater on Manhattan's Upper West Side. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show, and it's totally free.

1:27:24This episode was produced by Carla Estevez with music composed by Ramtin Arablewe. It was edited by Neva Grant. Our production staff also includes J.C. Howard, Casey Herman, Sam Paulson, Liz Metzger, Alex Chung, Elaine Coates, John Isabella, and Chris Messini. I'm Guy Raz, and you've been listening to How I Built This.

1:27:53If you like How I Built This, you can listen early and ad-free right now by joining Wondery Plus in the Wondery app or on Apple Podcasts. Prime members can listen ad-free on Amazon Music. Before you go, tell us about yourself by filling out a short survey at wondery.com slash survey.