THE CINEPLEX CONUNDRUM
Staying relevant in movie business becoming more and more difficult
These days, it seems anyone can become a major Hollywood studio. First, it was the DVD rental firm-turned-streaming giant Netflix. Then, online retailer Amazon followed suit. Will Canada’s largest cinema chain be next in line to produce its own content?
“Owning intellectual property looks like a good business to get into,” says Michael Kennedy, the executive VP of Cineplex, Canada’s largest theatre operator.
Cineplex may find it has little choice. At the Sundance Film Festival in Utah last month, Netflix and Amazon struck the two biggest movie deals.
Netflix made headlines forking out US$12.5 million for 1940s segregation drama Mudbound, while Amazon, which earned six Academy Award nominations for last year’s acquisition Manchester by the Sea, splashed $12 million on rom-com The Big Sick. Netflix plans to release Mudbound later this year both in theatres and on its streaming service simultaneously, which — while ensuring it will qualify for the Oscars — hardly encourages theatrical viewing. Is anyone really going to pay to see a movie in cinemas the same day it launches in their living room?
These are among the challenges facing Cineplex. Though it controls nearly 80 per cent of the cinemas in Canada, the business is being squeezed by glut of new players as films increasingly populate TVs, laptops and smartphones. The company’s most recent fourthquarter results showed revenue down, and a 12 per cent decline in attendance, meaning the publicly traded firm is relying on fewer customers to spend more money.
“What’s happening with the movie theatres is that it’s becoming very much about ‘the event,’” Kennedy says. “Rogue One was an event. Beauty and the Beast in March is going to be an event ... The event programming is driving the majority of our business now — people aren’t just casually going to see a drama with a decent cast and good script. That business is starting to go away, it has migrated to television.”
The growth of high-quality drama on channels such as HBO, Showtime and AMC — as well as newcomers such as Netflix, Amazon and Hulu — has affected demand “for those middle movies that used to only play in theatres,” Kennedy adds. “As an adult myself, I go home and I watch The Crown, I don’t need to go a movie theatre to see that. Now, the smart, edgy content is in fact on your television set or your computer. Netflix has made binge-watching part of the vocabulary.”
Amid such changes, Cineplex is attempting to stay relevant. In 2015, it invested $15 million into eSports firm WorldGaming, allowing it to host global video game competitions in its theatres. It has expanded its food and digital signage boards businesses, while also opening a number of sports entertainment bars.
Beyond this, Kennedy reveals that Cineplex may foray into moviemaking itself. To date, production and distribution hasn’t been a priority. But if Netflix can do it, then why shouldn’t Cineplex? “As the business is changing, obviously we have to start looking at that,” Kennedy says.
Kennedy sees obvious advantages. For one, as the owner of most of Canada’s movie screens, it would be able to take most — if not all — of the ticket price, instead of splitting a share with a distributor. Cineplex could also mine a wealth of in-house data for market research.
“In terms of data, we have the actual box office,” Kennedy says. “I know what movies do well, and I know what movies do well in certain theatres. … We know just by looking at the numbers exactly which theatres those movies are going to resonate in. The box office tells us a lot.”
If Cineplex does venture into content ownership, it could dramatically impact the movie-going landscape, especially for Canadian distributors such as Entertainment One, D Films and Mongrel Media, who would suddenly face a behemoth rival. Under such a scenario, it would make sense for Cineplex to promote its own movies over third-party fare, in much the same way that Netflix places its original productions — such as The Crown and House of Cards — prominently in its lists, ahead of other content.
While Cineplex might look to emulate the Netflix model, Kennedy is not entirely pleased with the streaming giant. Most notably, he takes umbrage that the U.S.based service doesn’t pay any tax in Canada and is not bound by the same requirements as national broadcasters to provide Canadian content.
“We have 12,000 employees at our company, we have 170 landlords, and every time a consumer buys a movie ticket there’s a 15 per cent tax on top of that,” Kennedy says. “We pay property taxes and all of our employees pay taxes. Netflix has almost five million subscribers paying $9 a month and all of that money leaves the country. They don’t have one employee in this country and they don’t pay any taxes. It’s an uneven playing field.”
At an Ottawa conference earlier this month, Heritage Minister Mélanie Joly said the government doesn’t plan to introduce a “Netflix tax,” which would levy the streaming services Canadians buy from foreign-based firms. Nevertheless, the government is due to publish the results of an extensive consultation later this year, and some market action is expected. “I would hope someone would look at Netflix and say, maybe they can step up a little bit and add something to the fabric of Canada,” Kennedy says, “besides binge-watching.”
Netflix has almost five million subscribers paying $9 a month and all of that money leaves the country.