BIZWORLD Profits from silver screen keep strong under Cineplex management

Movies are supposed to be a declining industry, yet until last year, Cineplex regularly increased sales and profits as it dominated the Canadian movie industry. For the first nine months last year, movie attendance slipped from an absence of huge blockbusters. Some analysts pointed to the slip and the price plunge to a recent $31.41 from $55, as evidence the movie champion had lost its Midas touch. Declining movie attendance would have made Cineplex a disastrous investment years ago, but for management that squeezed extra profit out of multiple theatres and introduced new profit sources. Share price went from around $12 in 2007 to the recent price and paid a nice three per cent or better dividend along the way.

Cineplex management increased annual attendance from 61 million in 2007 to almost 75 million by 2016. Average ticket price went from $7.99 to $9.84, keeping it an inexpensive night out.

Still, 43 per cent of viewers no longer attending movies say cost is the main reason: big screen TVs have made an impact.

To offset loss of viewers, Cineplex created a premium performance category, accounting for $6 million in 2006, now $565 million. Premium events run the gamut from gaming nights and foreign movie nights to live sports events like the Super Bowl.

While ticket prices have stayed low, food returns increased from $3.84 per person to $5.85 over 10 years. Management has also diversified the company with media. Most of those fast food menu screens you see are by Cineplex, as well as half of mall screens. Media revenues are up 13 per cent a year to $172 million in 10 years. Diversity also included acquisition of two coin-operated game manufacturers and distributors.

And two years ago, Cineplex embarked on a plan to reduce theatre and food court revenues to half the take from 80 per cent. Key to that plan is development of the Rec Room. The first, built in Edmonton, features 50,000 square feet of space, over 90 games to play, numerous bars serving craft beers and wines, and numerous private dining rooms.

Since then, two more Rec Rooms have opened in Alberta with plans for another three in the next two years. The still experimental Rec Rooms raked in $10 million in the first nine months of last year. Cineplex is developing a small market version this year with the first set for Whitby, Ontario.

A recent acquisition of Topgolf, a 12-acre simulated golf centre, gives the company access to simulated golf for Rec Rooms or even theatres.

Cineplex management has shown the ability to increase profits in a supposedly declining industry. Seventy-one per cent of North Americans still attend movies; only eleven per cent go frequently and buy almost half of the tickets. Ages from 12 to 24 attend the most movies.

The question for investors: can management continue to keep ahead of new competition like Netflix? Management is gradually introducing 3D capability, D-boxes, adjustable seats and some in-theatre dining.

Investors waiting for growth are paid a handsome five per cent dividend. The reasonable dividend payout ranged between 55 and 65 per cent of earnings until last year.

A 10 per cent share buyback program puts a floor of sorts on the price.

Ron Walter can be reached at ronjoy@sasktel.net