In the age of Apple TV and Netflix, movie theatres aren’t shuttering their doors just yet. In fact, Cineplex Inc. appears to be doing its best to defy online competition and maintain its market share, open new theatres and purchase others.
While Cineplex (CGX) may be going gang-busters on growth, it’s too early to tell if the company’s strategy will pay off. Cineplex’s recently released fourth quarter and annual results showed a 38.3 per cent drop in net income from $32.7 million in 2012 to $20.2 million in 2013.
Canada’s dominant theatre company recently announced it is building a state-of-the-art movie theatre in northeast Edmonton. The Cineplex Cinema Manning Town Centre will feature 10 auditoriums and 1,800 seats and include an UltraAVX auditorium.
UltraAVX auditoriums mark one of the ways Cineplex is working to maintain audience share in an Internet age. The auditoriums feature an immersive movie-going experience that includes reserved seating, wall-to-wall screens and surround sound.
In October, the company bought 24 Atlantic Canada film theatres for $194 million from New Glasgow, N.S.-based Empire Theatres Limited. The acquisition increased Cineplex’s national portfolio to 161 theatres and 1,635 auditoriums.
Cineplex also picked up digital signage company EK3 Technologies Inc. in August for $78 million in an effort to broaden its business base. Ellis Jacob, Cineplex’s president and CEO, said in the annual report the acquisition of EK3 “positions us well for continued growth in the indoor digital signage sector in North America.”
Making theatre locations viable
Unfortunately, should Cineplex’s film theatres go dark, they’re not the most attractive real estate properties, according to John Archer, a Toronto-based senior advisor with J.C. Williams Group, a global retail advisor.
Archer says the theatres are “purpose-built” and that without significant reinvestment, a new owner would have difficulties utilizing the sloping floors and high ceilings. As well, Archer notes the theatres are usually off the beaten path.
“They’re not on prime street frontage,” he says. “You enter off the street, but you usually have to go up a number of stairs and here and there to get around to where the actual space is. You could think, potentially, other large-format stores or something (would be potential buyers).”
But while it’s a competitive market, Archer says Cineplex has overcome other obstacles over the years. Before the advent of online entertainment, the company had to contend with DVD sales, but that market has since decreased dramatically.
“They’re always struggling to make it a valuable experience,” Archer said. “It’s not a new thing they’ve been struggling with.”
Archer says the Empire Theatres purchase will give Cineplex more secondary screens, which will help to generate maximum revenue from each film it screens.
Cineplex will be able to show films in the best markets first, move it to the second-best theatres the next week and so on. “You make more money the longer you keep running the film,” Archer says.
Lobbies take on new meaning
All the niches and extra services the film chain is offering will also help, especially when it comes to the hard-core movie-goers, Archer said. He points out how theatre lobbies have been filled with games to attract customers and that the company also makes much of its profit off of concessions.
In fact, Cineplex reported that its concession revenues increased $21 million, or by 6.4 per cent, in 2013 compared to 2012.
As well, the company is looking at so-called premium products to continue to draw audiences. In the last year, Cineplex opened 16 UltraAVX auditoriums, 178 3D screens and two IMAX screens across the country.
“The strong performance of Cineplex’s premium-priced product resulted in Cineplex’s same-store results outperforming the Canadian industry in the period, with the industry estimated to be down 6.2 per cent in the period,” the company reported.
Cineplex also noted the film schedule in the current period had four of the top five films screened in 3D and four in IMAX, which contributed to earnings with movie-goers paying premium price to see the films.