Distributors and other exhibitors are worried about where the Canadian movie market is headed following Cineplex Galaxy’s recent buyout of Famous Players, and wonder if the rules laid down by Ottawa’s competition bureau will do enough to rein in the super-powered theater chain.

The $500-million buyout – announced last month by FP’s former bosses at Viacom – will leave Cineplex with some 1,400 screens in 130 locations throughout Canada, a market share of between 60% and 65%.

That stands to make life difficult for distribs when they negotiate for screen space and their share of the box office.

‘It puts a lot of power in the hands of Cineplex Galaxy,’ notes Ted East, president of the Canadian Association of Film Distributors and Exporters. ‘Our members have serious concerns about the situation.’

The market is in ‘uncharted territory’ now, agrees Paul Leberge, EVP of corporate development and general counsel for the distribution wing of Alliance Atlantis. ‘I don’t think there’s a precedent anywhere in North America, in a market as big as Canada, where one company has such wide market share.’

A high-placed source on the U.S. side, who spoke on condition of anonymity, says the Hollywood studios are also surprised that Ottawa okayed the deal, noting that no company in the States has, give or take, more than 40% of a market.

The feds have ordered Cineplex, which is controlled by Onex Corp., to sell off 35 of its theaters (adding up to 284 screens) in a bid to maintain competition, possibly opening the door for U.S. or domestic exhibitors.

In the meantime, distributors are looking to Cineplex boss Ellis Jacob for signs that it will be business more or less as usual when the deal closes at the end of September.

‘Ellis is a reasonable person to deal with,’ says Leberge, ‘but we’ll be looking for formal assurances that we can expect the status quo to continue.’

Cineplex execs were not available for comment. A spokesperson, however has said that some questions about the deal will be answered later in the summer, including the possibility of layoffs. Jacob recently told analysts that the merger will save Cineplex $20 million per year.

Distributors say they would have been happier if the feds had included at least a few words – recommendations, if not hard rules – about access to screens and shares of the box office.

Others doubt that the forced sell-off of 35 theaters will do enough to keep the market balanced. The theaters are in 17 cities where Cineplex and FP used to compete and will be sold off in three blocks: Quebec, Ontario and Western Canada. The specific theaters have been agreed upon by Cineplex and Ottawa but have not been made public.

Exhibitors wonder if any of them will be worth buying, noting that they will be in expensive locations, sometimes directly across the street from a Cineplex, and possibly in inferior condition.

‘I can guarantee you Cineplex… is not going to sell you the best theaters they have,’ says Vince Guzzo, EVP of Montreal-based chain Cinemas Guzzo. ‘They’ll sell you the dogs.’

Guzzo and others are also concerned that former FP locations – many of which were built during an expansion spree in the late ’90s – will come with overly expensive leases; too rich for a company with just 10 or 20 locations. The $500-million deal is known to include some $36 million in lease obligations.

Movie attendance is also still in a continent-wide slump – not a good time for exhibitors to spend a lot of money. (Cineplex says it will pay for FP with a combination of debt and equity.)

But the competition bureau stands by the deal, insisting that the orphaned locations will not be shut down as some have suggested. The feds haggled over which theaters must be sold, and will only approve sales to companies with the money, expertise and intent to keep them running, says David McAllister, major case director in the bureau’s mergers department.

‘If someone was going to buy the theaters and turn them into doughnut shops we would withhold our approval,’ he says. If Cineplex can’t find suitable buyers, the job will be passed with the same conditions to a trustee. ‘We retain the right of approval in any event.’

U.S. giant AMC Entertainment – which last month merged with its rival Lowes Cineplex – is thought to be one of the most likely buyers. The company has been fighting for a better share of the Canuck market since coming north in the late ’90s, and seems keen to build in Ontario and Quebec. Other possibilities include Empire Theatres, which has a lock on the East Coast since buying FP’s locations in 2004, Magic Lantern in the Prairies and Landmark Cinemas in the west.

Alliance Atlantis also has a small number of theaters in Ontario and B.C. but seems to have lost interest in the movie business.