Pod Insights How I Built This with Guy Raz Alamo Drafthouse Cinema: Tim and Karrie League About this episode In the early 1990’s, Tim League spent $50,000 in savings to lease an abandoned movie theater on the wrong side of the tracks—a shaky experiment that eventually grew into a thriving national chain. As Tim and his wife Karrie built theaters in Austin and beyond, they made a name for themselves by offering dinner with the movie, creative pairings (like sake with Godzilla), and roadshows where movie-goers could watch Deliverance in canoes, or Rocky on the famous steps in Philly. Alamo Drafthouse Cinema now has 40 locations across the country and a revenue of over $300 million, but there have been plenty of bruises along the way: a failed first theater, a fractious lawsuit with business partners, and a swan dive into the red during the pandemic.
This episode was produced by Carla Esteves, with music by Ramtin Arablouei
Edited by Neva Grant, with research help from Carla Esteves.
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Transcript 14,371 words · 5 speakers
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0:00 Guy Raz? Our presenting sponsor today is Anthropic, the team behind Claude. Every founder on this show started with a hard question. Not the marketing plan, the 2 a.m. kind. Is this idea any good? Am I the one to build it? Should I quit my job? Anthropic got built the same way. A public benefit corporation founded on one hard question. How do we make sure AI goes well for people? So they asked over 100,000 people their hopes and their fears and are publishing what they find, even the uncomfortable parts. Me? I've got my own hard question about AI. Here it is. If everyone has access to something that can help them write the business plan,
0:46 Guy Raz? build the prototype, analyze the market, maybe even come up with the idea, what separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. We get support from U.S. Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't.
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6:55 Guy Raz? The agents bring speed and scale, and people bring taste, judgment, and control. Learn how you can get more out of your site from a Framer specialist or get started building for free today at framer.com/built for 30% off a Framer Pro annual plan. That's framer.com/built. Rules and restrictions may apply. AI isn't just opening new business opportunities. It's changing the way businesses get work done. The questions they ask, the decisions they make, the routine tasks they can hand off. That's the idea behind NetSuite Next, the next generation of NetSuite with AI woven into the tools your business already relies on.
7:40 Guy Raz? NetSuite Next surfaces insights exactly when you need them, puts agents to work on routine tasks and problems, and lets you ask complex questions in plain language, like talking to a knowledgeable colleague. But technology is only part of the story. AI is also reshaping how people and teams work together, and that shift is already underway. That's why NetSuite wants to put a new, expert-created business guide in your hands today. It's called Aligning for the Agentic Era: How AI is Changing Every Day Work. And right now, it's yours, absolutely free. Inside, you'll discover how AI could reshape work across your entire organization, and how to position your business to prosper from it.
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9:15 Guy Raz? Before we start the show, a quick thought about writing. I recently interviewed Nick Kroll, who's written hundreds of hours of sketch comedy. But here's the thing, Nick never sits down and types. In fact, learning how to write verbally made him way more creative and successful. And if you want to hear more about it, check out my conversation with Nick Kroll over on my other podcast, The Great Creators. Just search for The Great Creators with Guy Raz wherever you listen to podcasts. And now, on to today's show.
9:54 Speaker 03 I stayed late one night and was really proud of myself because I sheet rocked the entire kitchen, every last bit.
10:00 Guy Raz? And you were like, awesome, I've done it.
10:01 Speaker 03 And I called in the inspection before 6 a.m. And it was funny because the inspector at the time, he's like, you know, Tim, I'm going to pass you for this, but I just want to show you something about sheet rock. See these little divots here? 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.
10:21 Guy Raz? Yeah.
10:22 Speaker 03 It's still sheet rock. It still works. Just, just don't ever tell anybody about this because it's too embarrassing.
10:34 Guy Raz? Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
10:46 Guy Raz? I'm Guy Raz, and on the show today, how Tim and Carrie Lee took two demanding businesses and mashed them into one by launching Alamo Drafthouse Cinema, a national chain that serves dinner WITH the movie.
11:05 Guy Raz? In 2019, movie theaters in the US sold about $11 billion worth of tickets. But in 2020, ticket sales plunged 80% in a single year. Now, of course, that had everything to do with COVID, but the industry is still trying to fully recover. Ticket sales this year are a lot higher than last year, but still way off where they were before the pandemic. People's habits changed. They started getting used to watching new releases at home. And it's hard to know if that change is permanent. But like any crisis in any industry, it also means there are opportunities for brands that can figure out how to differentiate.
11:47 Guy Raz? So when it comes to movies, big theater chains are trying to create better experiences: upgraded seats, better sound, bigger screens, and food that is actually good. But long before the industry was trying to turn movie watching into a movie experience, Tim and Carrie Lee were experimenting with that exact idea. In 1993, with his own savings, Tim rented out an abandoned movie theater with the idea of showing classic films while serving full meals and drinks. He and his wife Carrie refurbished the place themselves, and in order to save money, they literally lived behind the screen of the theater. Now, that project fizzled out after about two years, mainly because the theater was
12:32 Guy Raz? in a rough neighborhood in Bakersfield, California, not exactly a prime spot for sipping a glass of rosé while appreciating the finer points of Citizen Kane. But that shaky experiment in Bakersfield eventually grew into Alamo Drafthouse Cinema, a chain of now 40 movie theaters across the US that was among the first to offer full meals and drinks served to you while you watch a first-run film. Now, running a movie theater is hard enough, but adding in a restaurant on top of it is even harder. Each of them have their own challenges around licensing, labor, logistics, you name it. But Tim and Carrie figured out how to make it work by focusing on building a sense of
13:14 Guy Raz? community at each of their theaters, which you will hear about. And as with so many other founders I've talked to on this show, Tim and Carrie didn't have the slightest intention of going into business, or, in this case, starting a chain of movie theaters. They both went to Rice University in the late 1980s, where Carrie studied microbiology, and Tim, mechanical engineering and art. And they first met when they were freshmen.
13:38 Speaker 03 The first stage of our courtship was, mornings were and still continue to be challenging for me. I'm a much more of a night owl late person, and so I had a 8:00 AM calculus class. And so I would wake up, set an alarm, open up the door, and wait for Carrie to walk down the stairs and then hand her my homework to turn in so I could go back to bed. So that was how we sort of, that was sowing the seeds of the relationship.
14:05 Guy Raz? Yeah. All right, so you guys meet there, and you become a couple, like freshman year, and that was it?
14:12 Speaker 04 Yeah, second semester is when we started dating.
14:14 Guy Raz? Wow. So, all of those kids that you knew back then, and may still know some of them today, are they surprised that you got, I mean, because they're all, you know, everyone remembers, like, that couple that meets freshman year of college and maybe stays together for four years or maybe splits up. But here we are, like, we're talking like 35 years later.
14:35 Speaker 04 I think that they thought that it was strange that we were together at the time. And in fact, I think that a lot of people didn't know that we were together probably until senior year.
14:45 Speaker 03 Like your parents, yeah, your parents didn't know.
14:48 Guy Raz? Wow.
14:49 Speaker 04 Yeah, we were definitely an odd couple.
14:53 Guy Raz? Yeah. All right, so you guys graduate in 1992 from Rice University, and...
15:00 Guy Raz? Carrie, you decide to pursue graduate work in microbiology to pursue maybe a PhD?
15:08 Speaker 04 Yeah, and I will say that my relationship with Tim was a deciding factor in where I went to school.
15:15 Guy Raz? Because he was going to California to go work for Shell.
15:18 Speaker 04 Right.
15:18 Guy Raz? And that job was in Bakersfield, and I've been to Bakersfield many times and there are like oil rigs there. Is that, I mean, is that why there's a Shell presence there presumably?
15:27 Speaker 03 Oh, yeah. I mean, if you watch the movie, there will be blood. That's kind of the Kern Valley oil epicenter. It's a huge reserve. And so it's all stems from Bakersfield.
15:39 Guy Raz? And you're an engineer for Shell. And Carrie, you're up at Davis, UC Davis, which is like, what, five hours apart, but still you're both in the same state. And tell me about that job, Tim. I mean, was it, I mean, you get there in 92. I'm sure you're paid pretty well, but it was maybe soon you get there and you realize it's not the right fit?
16:01 Speaker 03 Yeah. It's really, it was day one. You know, I filled out my paperwork. I, you know, signed up for my 401K, got my health insurance all sorted. And then the head of HR said, "Okay, well, all you got to do now is go down to the basement and pick out your art." And like, I mean, she didn't know, but that like left me cold in my tracks. Like, what exactly does that mean? And I can't wait to go see what this basement is. And so I went down and you had an office with a window and three walls. And so you went down to choose what paintings would be on your three walls between, you know, they had landscapes and oil derricks or a combination of landscape and oil derricks. So you could choose whatever like spoke to you and then put it on your wall. And it was at that day where it's like,
16:44 Speaker 03 "Okay, I don't think I'm going to fit in here. And I got to now, maybe a little bit too late in the game, figure out what I want to do with my life."
16:53 Guy Raz? Wow. And Carrie, you're up at UC Davis and presumably working towards a PhD in microbiology.
17:03 Speaker 04 Yeah. It was interesting because I was with this other group of PhD candidates and I'd say, "Oh, I see that Negative Land is coming to town. Does anyone want to go see a show?" And they'd tell me, "No, I think that the new edition of Microbiology Today arrives in the mail today, so I can't go anywhere." And that was sort of when I realized that in a competitive field like that, you could have no outside interests, and I was doomed. And when we would call each other every night and see each other almost every weekend, a huge part of our conversation revolved around, "We've made a terrible mistake. What are we going to do?"
17:47 Speaker 04 And we would fantasize about opening a small bookshop or, you know, running away to be tour guides in Costa Rica, or, you know, millions, millions of ideas.
18:00 Guy Raz? All right. So the two of you are in different parts of California and presumably trying to see each other as often as possible on the weekends, maybe driving up, Tim, to Davis. And you're at Shell, I think, for maybe a year or maybe less? I don't know how long you actually worked there. When you come across a movie theater in Bakersfield that is available for lease?
18:27 Speaker 03 Yeah. So on my way to work was this abandoned theater. It had always been there, so I passed it, you know, 100 times. But one morning, it was different. It had the red marquee letters on it that said "for lease." And it was those red letters that was really the, you know, stereotypical lightbulb moment. I just drove in in the morning, couldn't stop thinking about it all day. It was Thursday or Friday, and I went out to a bar that night and just was waxing poetic about this great idea about opening up a cool venue, showing really amazing art house and classic movies in a classic old theater. And I just got obsessed with it.
19:06 Guy Raz? I think it was called the T-Hone Theater. And so this theater is available for lease. And... You start to think, hey, this could be cool. But like, did you call Carrie and say, hey?
19:19 Speaker 03 Yes.
19:20 Guy Raz? This, yeah. Tell me about that conversation.
19:23 Speaker 03 Well, I just want to clarify some of your language. It seems to imply some sort of thoughtful approach to decision making.
19:32 Guy Raz? It was a methodical, strategic plan.
19:34 Speaker 03 Yeah, I think the amount of time we're talking about from turning left on Baker Street and seeing that for lease sign to signing the lease, I think, was about eight days.
19:46 Guy Raz? Eight days?
19:48 Speaker 03 Yeah, so, I mean, I know I talked to Carrie immediately.
19:51 Guy Raz? Yeah.
19:52 Speaker 03 And was super excited about the idea. And then probably the next conversation was that, we're going to do this. We're going to make this happen. I got some business books at the library. This is not going to be that hard at all. We can totally do this. And it was, I don't know, I say often that my two greatest strengths at the time were arrogance and ignorance that just drove me forward because I should have thought it through maybe a little bit more.
20:15 Guy Raz? And, I mean, I'm not criticizing you at all, but I think you were like 23 at the time. And it, I mean, there's a romantic idea of running a movie theater, but there's a difference between the idea and actually doing it and knowing how to do it.
20:27 Speaker 03 Yeah.
20:28 Guy Raz? And it had everything you needed inside. It had a screen, it had projectors, it had seats. It was, you just had to like do some dusting and it was ready to go?
20:36 Speaker 03 Oh, I wouldn't quite go that far.
20:39 Speaker 04 I would come down on a weekend and I would load my car up with as many seats as it could hold. And then I would spend the rest of the week, every evening, reupholstering seats.
20:52 Guy Raz? Like yourself?
20:53 Speaker 04 Yeah.
20:54 Speaker 03 Carrie reupholstered 90% of the 500 seats of the first theater. And I would spray paint the bases and backs and then Carrie would take the raw materials and watch movies through the week and then meet me the next weekend.
21:06 Speaker 04 Because at this point, I had really given up on my biology.
21:12 Guy Raz? Yeah. So the plan was, all right, let's take this over. And do you remember how long it took you before you were ready to open it? I mean, you signed the lease, I think it was in 93 at some point. But do you remember, was it a month, or two months, or three months before you actually had done the work to renovate it?
21:31 Speaker 03 I think it was around three or four months. We didn't have any projectors. So there was a friend of ours that ran a punk club, and he had stripped out some projectors from a dollar theater. And I bought those from him for $2,500. And it was part of the deal that he had to show me how they worked, like how to take them apart and how to operate them.
21:55 Guy Raz? And you were, I mean, you were still working at Shell, so
21:59 Speaker 03 Yeah.
21:59 Guy Raz? you were financing all these renovations through your salary and savings?
22:04 Speaker 03 Yeah. So I lived very, very frugally, because I was planning to do something. So I saved every nickel that I made. I was probably making close to 50 grand a year in the mid-'90s.
22:14 Guy Raz? Yeah.
22:15 Speaker 03 And I had accumulated $50,000 in two years at Shell. And so that's what I used to open up the first one, that nest egg.
22:25 Guy Raz? And did you sort of think through how you were going to do this? You were going to work, do your day job, and then run the theater at night, or like hire people to run? Because movies also play during the daytime, right, when you're at your other job?
22:37 Speaker 03 Not at ours. We were just in nighttime.
22:39 Guy Raz? Okay.
22:40 Speaker 03 But I should probably take this opportunity to apologize to the Shell Oil Company for being probably one of their worst employees. I
22:47 Guy Raz? Right.
22:49 Speaker 03 It got to a point where the head of HR said, "Well, Tim, we've come to a crossroads. You're either going to need to quit, or I'm going to have to fire you." So then I was down to one job. And, you know, so we opened up, and it turns out that it was a lot harder than I expected. And it was all-consuming, and I was underwater. I was just floundering.
23:10 Guy Raz? I read that you guys opened with Citizen Kane, which is awesome. I mean, great, obviously, California story and one of the greatest movies of all time. And were all your dreams fulfilled that night? Was it sold out, packed and-
23:21 Speaker 03 It was amazing.
23:22 Guy Raz? Glamorous and, yeah.
23:24 Speaker 03 It was amazing. It was a wonderful night. There's, you know, there was, it's pretty full, I think, because maybe 250 people there. And it just felt amazing and great. Everything was working. I was exhausted, but like completely fulfilled. And then the next day, we showed Kristof Kislowski's Blue.
23:44 Guy Raz? Oh, yeah. Good film.
23:45 Speaker 03 Wonderful film. And two people came.
23:49 Guy Raz? Two people?
23:51 Speaker 04 Yeah, there's something that I should mention about the location of the theater that Tim had signed the lease for, which was that in Bakersfield, there's a very distinctive delineation between the right side of the tracks and the wrong side of the tracks.
24:06 Speaker 03 There's literally tracks.
24:07 Guy Raz? Right.
24:08 Speaker 04 And, yeah, we were very firmly on the wrong side of the tracks, where we were continually having to shoo away drug dealers and prostitutes off of our front steps.
24:20 Speaker 03 Yeah, and there was a payphone attached to the theater. And I got so angry because of the drug traffic out of that payphone that I probably, with hedge clippers, cut off the receiver at least 15 times. And they just kept on replacing it. Going back to arrogance and ignorance, you know, something that was drilled home to us very strongly was that location, location, location mantra that some people that may have paid any attention to running a business, opening a business, might have heard. I didn't, I, that was news to me.
24:50 Guy Raz? And, and so how did you, I mean, I don't obviously know the economics of a movie theater, but presumably like a certain percentage of every showing, you know, you want, you want it to be, I don't know, 10 or 15% sold in order to cover your costs or something like that. Because running a movie theater isn't like the church night movie where you charge everybody a dollar and give them popcorn, because that's not, actually, technically, you're not supposed to do that. I think you have to pay a license fee, even though, you know, that happens all the time. But in a movie theater, like you, you have to pay- The distributor for the rights to to project that film onto a screen. And so whether 10 people are there or 100 people are there, it doesn't matter. You still have to pay.
25:34 Speaker 03 Yeah, and going back to that that time, one of my first moves was I bought a copy of Box Office magazine, and it had the names of all the studio and the indie distributor contacts with phone numbers. And so I just ended up calling everybody and, you know, just saying, hey, you know, we're going to be opening up at Art House Theater. I don't know how this works. Like, how does this work? Can you tell me how it works? How do I get movies? And really, without fail, they were so kind. Like, it was just, it was a novelty, I think. And the way it generally works, there's a minimum of like a couple hundred dollars versus 35% of the Box Office.
26:16 Speaker 03 That's kind of like the standard for second-run Art House films. And I can tell you that we predominantly paid the minimum because 35% did not equal $200.
26:29 Guy Raz? Yeah.
26:30 Speaker 03 The accounting was not that challenging.
26:33 Guy Raz? I don't know what the numbers are, but was it ever sustainable? Did it ever get to a point where this was like?
26:40 Speaker 03 No.
26:40 Guy Raz? No.
26:43 Speaker 03 A lot of times, we would hope and pray that nobody would come because that means we could go get a cup of coffee somewhere and have a night off. But inevitably, you know, two minutes before showtime, one elderly couple would come in and they'd watch whatever we're playing. And, you know, the show must go on. But it never, never gained much traction. There was a diehard group of probably 200 people in Bakersfield that loved what we were doing. You know, that was our community. But, you know, they go to the movies three or four times a year, and it just wasn't sustainable for us.
27:14 Speaker 04 Yeah. Although our costs were very low. We had no employees. We lived in a little room that we had carved out behind the screen.
27:23 Guy Raz? Behind the screen?
27:24 Speaker 04 Mm-hmm.
27:25 Guy Raz? In the theater?
27:26 Speaker 03 Yeah.
27:27 Speaker 04 And we ate meals that I prepared in the crock pot every day using probably a dollar worth of ingredients.
27:36 Guy Raz? Wow.
27:37 Speaker 04 And we didn't have any shipping costs because we would drive down to Los Angeles and bring up the film prints ourselves and go to the depot where we got the popcorn and the candy and we would also pick up the posters and the advertising materials that we would need.
27:54 Speaker 03 And we didn't even process that that's not normal, you know, like we were the only ones coming to National Screen Service and the popcorn depot to pick it up in our car and drive it back to Bakersfield. But it did save us, you know, upwards of probably $150 a week on shipping that we just didn't have.
28:11 Guy Raz? I have to assume that the money that you make in a movie theater is from like concessions from like popcorn and candy. But one of the things I guess you guys started to do there was to serve food with movies. How did you decide to start doing that?
28:29 Speaker 03 So we started partnering with local restaurants. It was kind of when we worked really hard and we put together special events that were thoughtful and creative, then people would come. And so we would do these events where we'd show, you know, like Il Postino and have an Italian feast associated with it and have an elevated ticket price and we'd split the profit with the restaurant.
28:54 Guy Raz? And by the way, were you able to sell alcohol?
28:57 Speaker 03 Well, we wanted to. That was the original plan. And during that three or four month period of construction, you know, I had finished a pretty heavy day of construction, so I'm wearing a dirty T-shirt and cutoff shorts. And I was, you know, 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.
29:38 Speaker 03 But 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 after what, eight years of being together, I finally realized that it's time to propose.
30:03 Guy Raz? Wow.
30:03 Speaker 03 So we got married in the middle of all that.
30:06 Guy Raz? This is in, 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. Awesome."
30:20 Speaker 04 They were very ambivalent about the whole thing, the whole time.
30:25 Speaker 03 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, it 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,
31:08 Speaker 03 and we'll go become engineers and researchers again. And so they knew that and weren't devastated by that. They were supportive.
31:16 Guy Raz? 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 LA, and Bakersfield in the 90s had, I mean... Corn came from Baker Street.
31:41 Speaker 03 Yeah.
31:41 Guy Raz? The band Corn, right? I think that's the most famous, maybe like Merle Haggard is more of, you know, but, or, you know, that, that kind of genre of country. But Corn was like the biggest band in the world at a certain point.
31:52 Speaker 03 So that coincides, right? So we had the Westwood One Radio Network Corn reunion show at the theater.
31:59 Guy Raz? Wow.
32:00 Speaker 03 So it was a big deal. And so this was a special show for them.
32:03 Guy Raz? That'd be a scary show.
32:05 Speaker 04 A homecoming show.
32:05 Speaker 03 It was awesome.
32:07 Speaker 04 They literally shook the plaster down from the ceiling.
32:10 Speaker 03 Yeah. And we also, we would combine silent films and music, which was pretty cool, the first time we did that there.
32:19 Guy Raz? Oh, you'd have like live piano accompaniment?
32:21 Speaker 03 Or, or punk bands, too.
32:23 Guy Raz? Punk bands to like silent movies?
32:25 Speaker 03 Oh, yeah, yeah.
32:26 Guy Raz? Oh, wow.
32:27 Speaker 03 That's, we kind of workshopped some fun ideas and said, oh, man, like, this is a great crowd. Too bad we're, they're just drinking water out of the water fountain.
32:36 Guy Raz? 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, a live performance in 1996 that was, 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. And I don't know what he sang after he sang that song, because I don't know, I don't, you know, you've got to sit through like 12, 15 Montel Jordan songs until you get, gets to "This Is How We Do It," which is what everybody came to the show to see him sing.
33:17 Guy Raz? He's performing at the theater, and I guess there was a pretty bad incident that happened that night.
33:25 Speaker 03 Yeah. So there was some sort of a quarrel. 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.
33:50 Guy Raz? Crashed the car into the ticket booth.
33:52 Speaker 03 Yeah. And so that, that was it. We were already, I mean,
34:00 Speaker 03 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, but the crime was just high.
34:08 Guy Raz? Yeah.
34:08 Speaker 03 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.
34:16 Guy Raz? Hmm. 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'll go to law school? Maybe like, or did you, Carrie, did you think, maybe I'll go back into the, into a PhD program?
34:34 Speaker 04 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. We weren't ready to give up.
35:04 Guy Raz? 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.
35:31 Guy Raz? 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.
35:51 Guy Raz? Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1996 and Tim and Carrie have shuttered the Taejon 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.
36:11 Speaker 04 And we figured, well, we learned how to run a movie theater. We can learn how to run a restaurant.
36:17 Guy Raz? How hard could it be?
36:21 Guy Raz? Ah, man. But you decide to do this in Austin, in Texas, which is obviously an amazing city. Why did you, why did you decide to do it there?
36:34 Speaker 04 We had been contemplating a variety of different cities that had a population of young people who liked to go out. And fully half of them came off of the list just because I don't like cold weather.
36:49 Guy Raz? So like Minneapolis out, Boston out, yeah.
36:54 Speaker 04 Yeah, it just seemed like a good choice.
36:56 Speaker 03 And we wanted to be in where the action was. And so we had, we found a real estate broker and they were touring us on sites. And we would put in, you know, an offer and we were rejected. It's like, no, we're looking for somebody that has more than a, like a heroically failed business and actually a little bit of money to do this. And so-
37:20 Guy Raz? And how much money did you guys, I read that you had raised about $250,000 from like friends, family, anyone?
37:27 Speaker 04 Yeah. So I had told you that my parents were incredibly ambivalent about everything that had happened up to that point. 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-
37:48 Guy Raz? Wow.
37:48 Speaker 04 -in order to lend us $100,000.
37:51 Speaker 03 Yeah.
37:51 Guy Raz? Wow, that's kind of nuts because you, your record by that, at that point wasn't 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, in the movie theater business.
38:07 Speaker 03 Yeah, 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 the, 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, putting 50 grand in, probably still had $20,000 in the bank, and then we left with $20,000 in the bank. I think that we had, it was neutral.
38:43 Speaker 04 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.
38:53 Guy Raz? Right. I wonder what that theater is today?
38:55 Speaker 04 It's a church.
38:56 Guy Raz? Oh, that's okay.
38:58 Speaker 03 It's a common transition.
38:59 Guy Raz? Okay.
39:00 Speaker 03 And then Bank of America had an Invest in America loan with, it was like a one-page form.
39:07 Guy Raz? Yeah.
39:08 Speaker 03 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 not, we're no longer investing in America on those terms.
39:25 Guy Raz? 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.
39:35 Speaker 03 You don't have a, 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 Voyles, 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. So...
40:04 Guy Raz? A rusty old can, like a piece of metal?
40:07 Speaker 03 Like an old vertical blade sign.
40:10 Guy Raz? Okay. And then he would put neon on that sign. Okay, yep.
40:13 Speaker 03 Yeah, yeah. So he, that's his specialty. He does vintage style work on vintage style pieces, or makes them from scratch, but those are more expensive.
40:21 Guy Raz? Okay. And you go to, like, a scrapyard and you just find something like that?
40:24 Speaker 03 Yeah, he had a neon graveyard. He had 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's like, 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's just, to her credit...
40:50 Guy Raz? Doesn't work.
40:51 Speaker 03 I don't know. It's like, no, but...
40:54 Speaker 04 So our Neon guy told us, you have to choose a name with-
40:59 Speaker 03 Five or six.
41:00 Speaker 04 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.
41:08 Guy Raz? Mmm.
41:09 Speaker 04 And the top of our original building had that kind of Alamo-esque shape to it.
41:16 Guy Raz? 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.
41:22 Speaker 04 We have to explain this, yes, to all the people who have never seen a phone book.
41:26 Guy Raz? Can you grab the phone book so we can figure out what movie theater we're going to?
41:30 Speaker 03 Back in my day.
41:34 Guy Raz? Oh, man. All right. So you have a little bit of cash to put down for a lease and then- But what did you eventually find? Was there a movie, like an abandoned movie theater or shut down movie theater in Austin available?
41:47 Speaker 04 No, we rented the second floor space of what was serving as a garage at the time in the heart of the warehouse district.
41:57 Guy Raz? A garage for vehicles?
41:59 Speaker 03 Like a parking garage.
41:59 Speaker 04 Parking garage, yeah.
42:01 Guy Raz? And wait, so somebody said, here's a garage, you can turn this into your movie theater?
42:06 Speaker 04 Yep.
42:06 Speaker 03 Second floor only, first floor too valuable. You guys aren't worthy for the first floor.
42:11 Guy Raz? How do you, how do you, I'm just thinking, I'm in this space, 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 it into a movie theater.
42:23 Speaker 03 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 grand left at the end. So we installed the cheapest elevator. We installed both bent 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. And it doesn't, you know-
42:52 Speaker 04 We put in the HVAC system.
42:54 Speaker 03 HVAC system, new HVAC, like there was nothing, it was just-
42:56 Speaker 04 New electrical.
42:57 Speaker 03 New electrical, new plumbing. You know, I'm just processing it now, it's just-
43:01 Guy Raz? It's nuts.
43:02 Speaker 03 Another thing that's not very wise.
43:05 Guy Raz? I mean, just the money you'd have to put down to just get that into shape, let alone, you know, build the, I don't know, just make it look nice.
43:16 Speaker 04 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. And 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.
43:50 Guy Raz? 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?
44:01 Speaker 03 I bought a pizza oven off of, you know, out of the back of a newspaper. So every piece of equipment that we bought was used.
44:09 Guy Raz? Wow. All right. So it was going to serve mainly pizza, but beer and cocktails as well?
44:17 Speaker 03 Just beer and wine to start. And it was pizza, salads and sandwiches. And we actually baked our own bread for the sandwiches for the first few years.
44:25 Guy Raz? Wow.
44:26 Speaker 03 Which is, I say wow, but you know, it ended up being, depends on the day. Sometimes it was wow.
44:34 Guy Raz? 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?
44:47 Speaker 04 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.
45:02 Guy Raz? Okay, so not too different from what they look like now?
45:05 Speaker 03 Pretty similar.
45:06 Guy Raz? I read that before you guys opened. And again, I'm just amazed at the, 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 sheetrocks on backwards. Something I would do. But, yeah.
45:29 Speaker 03 So, yeah, I stayed late one night and I was really proud of myself because I sheetrocked the entire kitchen, every last bit.
45:37 Guy Raz? And you were like, awesome, I've done it.
45:38 Speaker 03 Done it. Called in the inspection before 6:00 AM. And it was 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? But 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.
46:03 Guy Raz? Yeah.
46:04 Speaker 03 It's still sheetrock, it still works, just don't ever tell anybody about this because it's too embarrassing.
46:08 Guy Raz? 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.
46:27 Speaker 03 Sold out.
46:29 Guy Raz? Tell me about that night. People come to watch those movies, the pizzas are slinging into the oven and what was it like?
46:37 Speaker 03 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 there 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 that we had made it, we did it.
47:00 Speaker 04 Everyone had a good time, staff and customers alike. We were on top of the world. We were on cloud nine.
47:09 Guy Raz? And this was, I think, at about 220 seats, right?
47:12 Speaker 04 Yeah.
47:13 Guy Raz? 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, I mean, it's a cultural capital. This is, now you're like where you should be.
47:26 Speaker 03 Yeah. I mean, the problem is that day two wasn't good.
47:36 Speaker 03 So it was, you know, remember Bakersfield, like Citizen Kane?
47:40 Guy Raz? Yeah.
47:41 Speaker 03 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, we were kind of a second run movie theater showing Hollywood movies.
47:54 Guy Raz? Okay.
47:54 Speaker 03 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, we had enough money for about three payroll cycles, and then we're done. We're like donezo.
48:10 Guy Raz? Wow.
48:11 Speaker 03 Yeah, we had 26 employees when we opened up.
48:15 Guy Raz? Wow.
48:16 Speaker 03 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.
48:26 Guy Raz? 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. You couldn't, you didn't place those ads.
48:35 Speaker 03 Yeah, so we, we started taking out some ads, and then we would also, when we closed down, and this, you know, probably sounds terrible, but you know, we're desperate. We would go to the other movie theaters with some pretty snarky flyers, like, "Why are you here?" Just like cover the, "You should be at our theater." And so it's like, "This is our target audience, let's do them." And then we're, you know, routinely chased away from those marketing opportunities.
49:02 Guy Raz? But, but here's the thing, you're, 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." It was, "Hey, we serve beer and good food, and you can see a cool movie."
49:18 Speaker 04 Yeah.
49:19 Guy Raz? That was what you were focused on?
49:21 Speaker 03 A hundred percent. And so, a couple of things happened pretty early. You know, the, the folks at the Austin Chronicle were very kind and wrote about our events. And the, the midnight movie programming worked pretty quickly. And then about three weeks into operation, Austin Powers, the first one, hit the second run market.
49:42 Guy Raz? Uh huh.
49:42 Speaker 03 And it hit us like a freight train.
49:44 Guy Raz? What do you mean?
49:46 Speaker 03 Well, at the same time, before that weekend, Anne Hornaday, who's now a critic for the, one of the Washington Post.
49:53 Guy Raz? Washington Post, yeah.
49:55 Speaker 03 So she wrote a really nice article about what we were and what we represented and what we were trying to do.
50:01 Speaker 04 Yeah, 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.
50:12 Guy Raz? Yeah, how many, how many people did you have on staff that night?
50:16 Speaker 03 There was two in the, 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 thankfully, we made it through that night. And from there on, it was actually pretty great, like it worked after that.
50:40 Guy Raz? Yeah. Let me, 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. But 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. It might be really loud, but like, like there was going to be an element of just disruption because you would have servers, like,
51:03 Speaker 03 Yeah.
51:03 Guy Raz? people are moving around, getting up, getting the food. And so how did you kind of think about managing that in those early days?
51:11 Speaker 03 You know, it's not, 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, there's cinemas in France that don't allow any food at all into the cinema.
51:27 Guy Raz? Yeah.
51:28 Speaker 03 It'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.
51:54 Guy Raz? 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. Like, if you played Streetcar Named Desire, you would serve New Orleans food. Or Godzilla was being screened, you'd serve sake.
52:21 Speaker 03 Yeah. So it was a leap for our ability, for our culinary team, because we weren't, you know, hiring, you know, Michelin rated chefs. So, yeah, like, I think it took us a while. Like, I remember week two, you know, the servers had finished, 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." You 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.
53:01 Guy Raz? 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 Roadshow. And I think one of the things you did was you somehow got like 60 or 70 canoes, and you hauled them out to the edge of a river, and you had, you screened the movie Deliverance, so people could watch Deliverance in canoes on a riverbank.
53:34 Speaker 03 Yeah. We'd have, we'd hire banjo players on the river. So you'd do this, the river cruise. And Carrie roasted a whole pig on a spit. You know, it's just for the squeal-like pig parallel. For six hours. So, but it was so awesome.
53:51 Guy Raz? 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.
54:05 Speaker 03 Yeah.
54:06 Speaker 04 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 roadshow, the scavenger hunts that we would do, all of that was for us. That was for fun.
54:23 Speaker 03 Mm-hmm.
54:23 Speaker 04 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.
54:33 Speaker 03 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. If, once you start doing crazy weird things, then everybody has ideas for crazy weird things.
54:46 Guy Raz? Yeah.
54:46 Speaker 03 You know, like 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. And then, um, but we did, you know, those were also the things that people would write about and talk about. It became part of like our identity to
55:09 Guy Raz? Yeah.
55:10 Speaker 03 one-up ourselves in these fun things, but all the while, just having a blast.
55:15 Speaker 04 And they didn't not make money.
55:17 Speaker 03 Yeah.
55:17 Speaker 04 When
55:18 Guy Raz? Right.
55:18 Speaker 04 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, you know, we had to sell it out in order to make money.
55:29 Guy Raz? Yeah.
55:29 Speaker 04 And most of the time, we did.
55:30 Guy Raz? I want to ask you for a sec about the no advertising.
55:34 Speaker 03 Mm-hmm.
55:35 Guy Raz? Because I, I think, and I think it's still to this day, you don't play ads before films, but, but back then, I mean, surely that was another source of revenue. Like, you could have had another income stream from that.
55:47 Speaker 04 There were several times when we had the opportunity to find out how much of an income stream
55:53 Guy Raz? Yeah, I bet.
55:54 Speaker 04 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.
56:07 Guy Raz? But what, I'm just curious, why, 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.
56:16 Speaker 03 Oh, guy. That's, you know.
56:18 Guy Raz? I know, I know.
56:19 Speaker 03 In your heart of hearts, you know that's not true.
56:20 Guy Raz? I know. But I'm curious, why, yeah, I mean, why were you so opposed to it?
56:26 Speaker 03 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, you know, maybe Super Bowl ads are somewhat entertaining, but I can tell you the caliber of cinema ads in the 90s was not.
56:45 Guy Raz? No.
56:45 Speaker 03 And I just found it offensive.
56:47 Speaker 04 And still are not.
56:48 Speaker 03 Yeah. 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.
56:57 Guy Raz? All right, so you've got this one really successful movie theater in Austin. That is what you, now you, 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?
57:34 Speaker 03 Yeah. We had no, 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. And 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.
58:02 Guy Raz? Wow.
58:02 Speaker 03 But if you want it, you can have it. It's yours, because I'd rather, 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.
58:19 Guy Raz? And how long was lease going to be for?
58:22 Speaker 03 10 years.
58:23 Speaker 04 10 years.
58:24 Guy Raz? 10 years. You had 6 days or 5 days to make a decision.
58:28 Speaker 03 Yeah, so, no surprise. We signed that lease without changing a word.
58:34 Speaker 03 And embarked upon construction project number 2.
58:37 Guy Raz? How did you finance that?
58:38 Speaker 03 That one was $300,000. And we just financed it out of profits.
58:47 Guy Raz? Out of cash flow.
58:48 Speaker 03 Yeah.
58:48 Guy Raz? Wow, so that was, so, okay, great. And did you have to do similar amount of work on it?
58:53 Speaker 03 No. Well, I mean, different. It was bigger work and it was, like, it was a bigger kitchen because it was 4 theaters, you know, double the amount of seats.
59:02 Guy Raz? 4 theaters?
59:03 Speaker 03 Yeah.
59:03 Guy Raz? 4 screens?
59:04 Speaker 03 4 screens.
59:05 Guy Raz? I mean, that's like, that's like a restaurant with 4 dining rooms with 200 people in each dining room, 1 central kitchen, and a waitstaff going from like, 1 dining room to the next, which are really far away. That's a big operation.
59:19 Speaker 03 It is a big operation. But interestingly, so we ended up running first-run movies, like, brand-new movies there.
59:27 Guy Raz? I read that by 2003 because I think you actually opened a 3rd location in 2003 that year. Is that right?
59:35 Speaker 03 Yes, we opened a 3rd location.
59:38 Guy Raz? Also in Austin.
59:39 Speaker 03 Correct.
59:40 Speaker 04 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.
59:55 Guy Raz? Yeah. I read that by 2003. Alamo was making much more money from food than ticket sales. And 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.
1:00:13 Speaker 03 I mean, it's all, it's really just about cost of goods, you know? The, 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. But it was, you know, it's a balance of probably 1/3 box office, 2/3 concessions.
1:00:46 Guy Raz? 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 approached 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.
1:01:13 Speaker 03 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.
1:01:23 Guy Raz? Yeah.
1:01:24 Speaker 03 And there was more headache on the franchising. And I didn't-- it wasn't where my passion was.
1:01:31 Guy Raz? Yeah, there was probably a lot of lawyers and meetings. And you want to mount cool movies and have chit chats with directors in front of audiences, probably.
1:01:41 Speaker 03 That's all good stuff, yeah.
1:01:43 Speaker 04 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.
1:01:52 Guy Raz? Yeah.
1:01:52 Speaker 04 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.
1:02:07 Guy Raz? Yeah.
1:02:07 Speaker 04 And I think we just didn't want to think about that.
1:02:10 Guy Raz? Did it stress you out?
1:02:13 Speaker 04 Yes.
1:02:14 Guy Raz? 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.
1:02:46 Guy Raz? Hey, 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.
1:03:09 Speaker 03 It was actually a great deal, and it was causing us a lot of stress. I preferred the putting on a show aspect of Alamo.
1:03:17 Guy Raz? Yeah.
1:03:18 Speaker 03 But it was very enticing to us, so we did it.
1:03:21 Guy Raz? 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. We will run it and own it. You guys will own a part of it." And you were OK with that.
1:03:40 Speaker 03 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.
1:03:58 Guy Raz? 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. And then, 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.
1:04:24 Speaker 03 Yeah.
1:04:24 Speaker 04 That was a great tour.
1:04:27 Guy Raz? Oh.
1:04:27 Speaker 03 I think we did Rocky 1, 2, and 3.
1:04:30 Guy Raz? Oh.
1:04:30 Speaker 03 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.
1:04:41 Guy Raz? Like, Polly in the meatpacking... Oh, my god.
1:04:45 Speaker 03 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.
1:04:52 Guy Raz? Yeah, I remember that scene. Punching those carcasses of meat and these newscaster, the news reporters 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 this, what's going on with the franchising. 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?
1:05:25 Speaker 04 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.
1:05:42 Guy Raz? Right, okay.
1:05:43 Speaker 04 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.
1:06:26 Guy Raz? And so, you ended up in a legal battle with your former partners around this?
1:06:33 Speaker 04 Yes.
1:06:34 Speaker 03 Well, Guy, they sued us first.
1:06:40 Guy Raz? And they sued you basically because they wanted to change the language of the contract to make you-
1:06:43 Speaker 03 You know, it was like, we were angry and we're just baffled by it. It's like, no, come on, it's pretty clear language and this 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 gonna, you know, you push me, I'm gonna push you. So we went to war.
1:07:10 Speaker 04 And it was clear that this was ugly enough that there weren't going to be no winners other than the lawyers. But 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.
1:07:30 Guy Raz? So you didn't know him?
1:07:32 Speaker 04 We didn't know him, he didn't know us.
1:07:33 Guy Raz? So the first time you really kind of meet him properly is during this lawsuit?
1:07:38 Speaker 04 Yes.
1:07:39 Speaker 03 During the first day of deposition.
1:07:41 Guy Raz? And you're just sitting there, hearing his take, and then?
1:07:46 Speaker 03 And vice versa.
1:07:47 Speaker 04 Yeah, so we went first, I think, and he sat and he listened to our deposition about the fact that, you know, a lot of the things that we did were not done for profit.
1:07:57 Guy Raz? Yeah.
1:07:58 Speaker 04 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. And 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 a aha way, sort of accusing us of trying to, you know, tank the company by not caring about profit.
1:08:31 Guy Raz? Yeah.
1:08:31 Speaker 04 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.
1:08:55 Guy Raz? Wow. And so what happened?
1:09:00 Speaker 03 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.
1:09:21 Guy Raz? Yeah, especially because his lawyer would have been like, "What are you doing?"
1:09:24 Speaker 03 I know, exactly.
1:09:25 Speaker 04 Ours did, too.
1:09:26 Guy Raz? Yeah.
1:09:27 Speaker 03 Man, our lawyer was this tough-as-nails, female barrel-racing rodeo champion.
1:09:33 Speaker 04 Missing half of her fingers.
1:09:34 Speaker 03 Oh, my gosh, I was so scared of her.
1:09:35 Guy Raz? Yeah.
1:09:38 Speaker 03 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?
1:09:53 Guy Raz? Wow.
1:09:54 Speaker 03 So it's basically like liked what we had to say, liked our vision for the company and the brand. And it was a wild idea.
1:10:02 Guy Raz? He's heard what you've said at depositions and he starts to think, hey, that sounds such a bad idea.
1:10:06 Speaker 03 Yeah.
1:10:06 Guy Raz? Asks you to breakfast and offers you to be the CEO of a combined company. I mean-
1:10:11 Speaker 04 And 50% of the combined business also.
1:10:14 Guy Raz? Amazing. I mean, this is like, this is like a great example of why mediation is often a better option than lawsuits.
1:10:22 Speaker 03 Yeah.
1:10:22 Guy Raz? Because you could, I mean, he's basically saying, why are we going through this? Let's just work together.
1:10:27 Speaker 03 Yeah.
1:10:28 Guy Raz? I mean, what incredible maturity and foresight.
1:10:32 Speaker 03 I 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, in operations, and we had the perfect counter strengths.
1:11:10 Guy Raz? Okay, so this thing, I love this, this thing that kind of happened again serendipitously, although probably at the time, I don't know if it ever, ever thought it would happen that way or work out that way. But 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 of like a Keith Jarrett concert?
1:11:35 Speaker 03 Yeah.
1:11:35 Guy Raz? If you cough at a Keith Jarrett concert, like he will, he will look at you and ask you to leave. Like, he will walk off 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.
1:12:04 Speaker 03 Yeah, 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. She was obviously a little bit intoxicated and was furious about getting kicked out because she was using her phone in the theater and-
1:12:33 Guy Raz? In your effing little S's theater.
1:12:36 Speaker 03 She was very funny. And I mean, it's probably, I don't know how many, it'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.
1:12:48 Speaker 04 Yeah, 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.
1:12:58 Guy Raz? So when you became, around the time you became CEO, I know, Carrie, you took some time away because you had your children, twins.
1:13:08 Speaker 04 Yeah, and you may have noticed that, you know, 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, okay, I'm ready to have kids now.
1:13:32 Guy Raz? Yeah, 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 their reporting 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 who's like running the magazine that Alamo Drafthouse was putting out, and he was accused of sexual harassment and left or was fired. And that would have been the end of the story, but I guess he was brought back a few months later.
1:14:14 Speaker 03 Yeah.
1:14:15 Guy Raz? What happened?
1:14:17 Speaker 03 So it was challenging because, you know, it's-
1:14:23 Guy Raz? You'd known him for a long time, right?
1:14:25 Speaker 03 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.
1:14:50 Guy Raz? Because he sort of came back quietly and somebody saw his byline and said, why is this guy back in the company?
1:14:56 Speaker 03 Yeah. And, you know, once that happens, and especially at the time within, you know, a very important movement in our culture, you know, 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.
1:15:37 Speaker 03 And frankly, we could have done a much better job of building a proper culture, building, you know, a safe environment for work. You know, a lot of things were just casual. So I embarked upon a tour and, you know, 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, you know, we truly want to be the best theater that has ever been. Help us.
1:16:06 Guy Raz? And did you learn about, I mean, on this tour, did you learn about things that people had experienced that you didn't know?
1:16:14 Speaker 03 Absolutely, yeah. I mean, there were sexual harassment issues. There were allegations of racism. There was like, there's individual managers that I don't think were kind.
1:16:25 Guy Raz? Yeah.
1:16:25 Speaker 03 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. And 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, it was really hard and painful, and we're better because of it.
1:17:01 Guy Raz? 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.
1:17:28 Speaker 03 Yeah.
1:17:28 Guy Raz? Right? You're running restaurants and movie theaters in the same place.
1:17:32 Speaker 03 Lot of, lot of shared recycled air.
1:17:36 Guy Raz? Oh, my God. But, I mean, you guys shut them all down. You shut all your locations down.
1:17:41 Speaker 03 Yeah.
1:17:42 Guy Raz? You go from, from like, tens of millions of dollars coming into the door to zero in like, a day.
1:17:48 Speaker 03 Yeah. 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.
1:18:00 Guy Raz? Yeah.
1:18:01 Speaker 03 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 and had a big team.
1:18:19 Guy Raz? You'd hit, by that point, by that point, like, 47 locations or something like that?
1:18:23 Speaker 03 42, 43, something like that, yeah.
1:18:25 Guy Raz? Yep. You eventually had to file for Chapter 11 bankruptcy in March of 2021.
1:18:33 Speaker 03 Yeah.
1:18:35 Guy Raz? Tell me what, I mean, basically, you would not be able to pay your debts at that point?
1:18:40 Speaker 03 Well, it's a little bit more complicated in that we probably had about two payroll cycles left before we were done.
1:18:49 Guy Raz? Wow.
1:18:50 Speaker 03 And so in December, we took on some basically distressed asset financing, right? So that money's not cheap, but turns out not a lot of people waiting in line to invest in movie theaters in December 2020. So, you know, but at the end of it, it did what it's supposed to, right? So we're back.
1:19:14 Guy Raz? Yeah.
1:19:15 Speaker 03 We're healthy. Everybody took a little haircut. We took a big one.
1:19:18 Guy Raz? 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?
1:19:26 Speaker 03 Yeah.
1:19:26 Guy Raz? That's essentially what happened. That helped you emerge from bankruptcy.
1:19:30 Speaker 03 Yeah. And so we weathered it, right? So it's far from ideal, but, you know, we lived 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.
1:19:48 Guy Raz? I think you now have, how many locations roughly?
1:19:52 Speaker 03 Thirty-nine, just about to be 40.
1:19:53 Guy Raz? 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, 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 than there were before the pandemic. We know that some big chains are gone. And so we know that there's been some shedding. But...
1:20:26 Guy Raz? But do you still believe that people will want to go to the movies in the same rate in 10 years from now, five, 10 years? When you've got, you know, on a 50-inch TV screen today is like a joke. You can buy one for 200 bucks.
1:20:43 Speaker 03 Yeah.
1:20:44 Guy Raz? What is going to make people go to movies at the same rate that they've been going to in the past?
1:20:50 Speaker 03 Well, I guess I'll ask you a question of, do you have a stove in your house?
1:20:58 Guy Raz? Yeah, I got a really good one. You mean a stove top? Yeah, it's awesome.
1:21:02 Speaker 03 Yeah, but you still go out to restaurants, right? Every once in a while?
1:21:05 Guy Raz? Yeah.
1:21:06 Speaker 03 So that's really it, like humans. And I think this is so evident after COVID. 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.
1:21:21 Guy Raz? Yeah.
1:21:22 Speaker 03 I was just so happy to be out of the home. Every once in a while, no matter how much streaming content you watch at home, you want to get out, you 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, you know, there's a lot of times I hate the home experience in a way because there aren't the rules. If somebody calls me, I'm going to answer that call.
1:22:04 Speaker 03 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. That core product is beautiful. I love it.
1:22:27 Guy Raz? Yeah.
1:22:29 Guy Raz? 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?
1:23:02 Speaker 04 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. But 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. 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.
1:23:47 Speaker 04 He knew that that's what we were doing, and he did it anyway. So, yeah, also a good deal of luck in there.
1:23:53 Guy Raz? Tim?
1:23:55 Speaker 03 You know, it's definitely a mix. And I'm not unaware of 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 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 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
1:24:40 Speaker 03 having a release sign pop up. Or, you know... That we were able to get financing before we ran out of payroll. So I put the scales more in luck than in hard work. But gosh darn, I can work pretty hard when I need to.
1:24:57 Guy Raz? That's Tim and Carrie Leeg, 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. This episode was produced by Carla Esteves, with music composed by Ramtin Arablouei. It was edited by Neva Grant.
1:25:42 Guy Raz? Our production staff also includes J.C. Howard, Casey Herman, Sam Paulson, Liz Metzger, Alex Chung, Delane Coats, John Isabella, and Chris Messini. I'm Guy Raz, and you've been listening to How I Built This.
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