Virgin pays pounds 195m for MGM chain of cinemas

Richard Branson's Virgin Group will become the largest cinema chain owner in Britain after paying pounds 195m for MGM cinemas, in partnership with an American buyout firm.

Mr Branson said the consortium intends to spend "tens of millions of pounds" refurbishing the 120-strong chain, creating entertainment centres suitable for families.

The bitterly contested auction pitted Virgin and partner TPG of Fort Worth against Rank Organisation, the second biggest cinema owner, and Carlton Communications, operator of the Central and London weekday ITV licences. A deal was reached at 3am on Thursday, following several days of intensive negotiations.

The breakthrough came when Robert Devereux, chief executive of Virgin Communications, sent his advisers out of the room and clinched a final deal with Tony Pujos, representing the sellers, the distressed French bank Credit Lyonnais.

Virgin and TPG, which led the reorganisations of Continental Airlines and American West Airlines of the US, are likely to sell up to 30 cinema sites, and transform many of the remaining venues into multiplex theatres. There are also plans to build as many as 10 new multiplexes in the next few years.

Only a third of MGM cinemas are currently multi-screen, but they account for more than half the chain's profits.

Virgin has plans to build multi-purpose centres, centred on film, and may seek agreements with games producers such as Sega to open arcades in the cinema complexes. The company also intends to encourage restaurants such as Planet Hollywood to join forces with Virgin to cater to movie- goers.

The aim is to bring customers in for longer than the two hours it takes to view the average film. "We need to increase the traffic," Mr Devereux said.

Other elements of the "virginisation" battleplan include introducing American-style popcorn, better concession products and friendlier service. "This is the entertainment business," Mr Devereux said. "That should show on the faces of everyone working at the cinema."

Mr Devereux said the company's experience running an airline would help develop its cinema concept. "We know how to put bums on seats," he said. "Your operating costs are the same whether the cinema is full or half full, but every extra ticket sold over break-even goes straight to the bottom line."

To pull in audiences, Virgin is likely to introduce innovative pricing schemes, including monthly passes, and cheaper seats on Mondays. But it will need the cooperation of film distributors, which take the lion's share of box office receipts.

"We intend to shake up this industry," Mr Devereux said. The cinema market is highly profitable in the UK, but underdeveloped compared to the US, Mr Devereux believes. On average, Americans over the age of seven go to the cinema five times a year. In the UK, the figure is about two.