Dent in Q4 profits fails to faze Cineplex CEO
Up-and-down cycle of box office revenue, lower attendance blamed for decline
Canadian movie theatre giant Cineplex Inc.’s earnings fell nearly 70 per cent in the fourth quarter of 2016 and 42 per cent for the full year as the chain struggled to keep pace with a record breaking 2015 that included the release of the third-highest grossing film of all time, Star Wars: The Force Awakens.
The declines came despite the release in December 2016 of the first standalone film in the space opera franchise, Rogue One: A Star Wars Story.
Though Rogue One has earned more than US$1 billion at the box office, Cineplex’s overall fourth quarter revenue nevertheless declined 5.4 per cent to $385.4 million. Attendance also fell 12 per cent year-over-year in the fourth quarter, which many analysts predicted due to the one-off boost provided by The Force Awakens. That led to a 9.6 per cent year-over-year decrease in box office revenue in the fourth quarter to $177.5 million.
Lower attendance at Cineplex theatres in the fourth quarter also pushed the company’s foodservice revenue down 7.3 per cent to $105.5 million. However, the per customer revenue on food-service transactions increased three per cent to $5.75.
Cineplex CEO Ellis Jacob said the natural up-and-down cycle of box office revenues was the primary cause for the declines, in particular the performance of films outside the Star Wars franchise.
“We don’t have the same demographics in Canada as in the United States,” Jacob said in an interview with the Financial Post. He noted that four major films in particular — Boo: A Madea Halloween, Almost Christmas, Kevin Hart: What Now, and Birth of a Nation — earned a combined $145 million in the U.S. but only $1.8 million in Canada.
On the other hand, Ellis pointed to per customer box office revenue, which increased 2.8 per cent to $9.90 in the fourth quarter and 3.5 per cent to $9.55 for the 2016 fiscal year — both high points for the cinema operator.
“We have more choices for customers, and we are trying to make the cinema an experience that you can’t replicate in your home,” Jacob said, noting that the company’s premium movie offerings — including 3D screenings, IMAX theatres and immersive “4DX” venues equipped with motioncontrolled seats, strobe lights, and wind and fog effects — were major contributors to per customer income growth, making up a record 48 per cent of box office revenues in the fourth quarter, up from 46.8 per cent year-over-year.
“Our percentage of box-office revenue from premium offerings is nearly double that of our U.S. peers,” Jacob added.
Despite the fourth quarter dip, Cineplex’s total revenue grew in 2016, up by eight per cent yearover-year to $1.5 billion. The company, which operates 164 theatres in Canada, said the growth was in part due to the consolidation of its amusement, games and vending equipment businesses, along with recently acquired Florida-based coin-ride operator SAW, into a rechristened subsidiary, Player One Amusement Group.
The regrouped amusement business, part of an effort to diversify the company’s offerings inside and outside its theatre facilities, drew $109 million in revenue in 2016. Cineplex’s first “Rec Room” — a dining and entertainment complex in Edmonton with gaming and live performance spaces — made $2.7 million last quarter.
In addition to expansion at its amusement business, Cineplex’s media division grew in 2016, with total revenues reaching a record $57.3 million, or 39.2 per cent higher year-over-year. The media division has deals with Ivanhoe Cambridge to operate digital displays at 21 of its shopping centres across Canada, and was selected by fast-food operator Dairy Queen Corporation to provide “in-store digital merchandising ” to its franchises in the U.S. and Canada.
Like most of the Cineplex’s financial metrics, however, the media division did take a fourth quarter hit, as revenue fell 4.6 per cent. Turning to the new fiscal year, the company’s investors will certainly hope that the fourth quarter cinema performance starts to feel like a long time ago in a galaxy far, far away.