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CI NE PL EX CEO ELLIS JACOB SHARE SHOW B-SCHOOL TOOK HIM TO CENTRE STAGE
Ent er ta in men tin all its many forms has taken a beating from the online revolution. Record companies, who spent millions trying to staunch file sharing, have watched sales of physical music forms dry up far faster than digital can makeup the difference. Traditional media outlets, having willing ly given their content away for free, are finding it tough to get and retain advertisers. And the movie industry, which has certainly had its issues with bootlegging pirates, has had its ups and downs, with revenues generally increasing even though the number of tickets sold has generally declined. Since 2000, North American ticket sales have declined in 10 years while box office revenues have declined in only five.
Healthy box-office receipts help to partially explain why Cineplex Inc.’s revenue has increased every year since fiscal 2007 except one, 2011, while gross profit has grown each year and is expected to do so again for 2016. But even when Hollywood fails to deliver the goods, Cineplex has managed to beat the bombs by growing sales at its concession stands and its media arms. As a result, the company’s stock has more than doubled since 2011 to about $48 at the beginning of February, defying th es keptics who though tits re birth in 2003 after it merged with Galaxy Entertainment wouldn’t work.
“There are always bump sin the road ,” says Ellis Jacob, who co-founded Galaxy in 1999 after leaving C ine pl ex during an ownership change in 1998 andi snow CEO and president of Cineplex. “What’s important about those years when Cineplex was in trouble was basically having the highest level of integrity, keeping the banks informed, keeping your network of people in place, and always being ready to embrace change when it happens. People will be naysayers. I remember when we started Galaxy ,80% of the people said it was a stupid idea, you’ re going to fail .”
The combined company certainly hasn’t failed, with fiscal 2014 being its best year ever (fiscal 2015 results were not available ). TD Securities in late January noted that Ci ne pl ex has a strong earnings growth outlook, clean balance sheet, strong free cash-flow generation, attractive dividend yield and, more recently, a compelling valuation —“all strong attributes in what is
an increasingly challenging environment in Canada .”
Jacob credits his time at York University’s Schulich School of Business, where he earned an MBA in 1976, for giving him some of the skills he’ s needed to navigate the movie business, not that he ever though the would be in this position, although he did take a course in entertainment and law. His first job was at Ford Motor Co. of Canada, followed by a stint at Motorola, before landing at Ci ne pl ex in 1987.“An MBA is very relevant because it teaches you that learning is a continuous process and that helps you with the new ideas that are coming up in the business ,” he says.
Of course, not every idea has succeeded. Jacob recalls that he thought putting in a child-minding service at theatres would be a hit. An ill-fate d trial in Oakville, Ont ., proved it wasn’ t. As often as not, though, the new ideas stick. One of the latest was showing live e-sports tournaments, a concept that was not even around when Jacob was in school. Diversifying the kinds of events Ci ne pl ex hosts has become a key co gin its growth plans, although it may take awhile for its e-sports initiative to pay off.
Other ideas that have worked tread more closely to the tried and true. For example, Cineplex has a loyalty card even though it has a dominant market share in Canada. “A lot of people look at us and say, Hey, you have such a large market share, what do you need a loyalty program for? But it’s not about the program, it’s about communicating with our guests ,” he says, adding that it has seven million members, making it one of the top-five loyalty programs in the country. “Those are the kinds of things you have togo out of the way to do .”
Another one that succeeded was naming rights, more commonly associated with professional sports facilities. Ci ne pl ex inked a deal in 2006 with Scotia bank giving it naming rights on five theatres, which has since been expanded to many others. That deal was partly born out of necessity since Via com Inc. kept the Paramount name when Ci ne pl ex bought its Famous Players chain in 2005. The deal has worked for both sides, with Jacob telling an amusing story about one banking executive from outside Canada being driven to the Ci ne pl ex theatre on Richmond Street in Toronto when he asked a cab driver at the airport to goto the Scotia bank building.
Good banking relationships also helped Jacob get Galaxy off the ground and now its successor company has 13,000 employees, more than $1.4 billion in revenue and a market cap around $3 billion. Although he misses the days when he knew every employee by name, many of the company’s execs have been around for a while, some even more than two decades. People, Jacob says, are the real key to success. “One of the investors who backed Galaxy gave me a cheque and I said ,‘ Well, don’ t you want to see the business plan ?’ He said ,‘ You guys are our business plan, we don’ t need numbers .’”
CLASS OF ’76 YORK UNIVERSITY
FP Why did you want to get an MBA?
EJ I graduated with an undergraduate degree from McGill in Montreal in commerce, then went onto do my CA and was working in Montreal with Thor ne Rid dell, which is now part of KP MG. I kind of liked accounting, but I said this is not what I wanted to do with the rest of my life. A good friend of mine went from the under grad to Schulich to do his MBA and I came and met with him, satin on a couple of his classes, and thought this is pretty interesting and it would be quite valuable for me long term. I decided to look at approaching Schu li ch, partly because of my friend’ s experience and all of the good things that I had heard about the school. But the main thing was the flexibility that Schulich allowed me from the perspective of timing and going through the process. For me, it was really critical to do my MBA as quickly as possible because it was a real financial burden, not from a cost perspective, but I had loans and things like that to deal with so I wanted to do it quite quickly. That’s where Schulich was fantastic because I started on January 5 and finished the program on August 22.
FP What else about Schulich attracted you?
EJ I thought they were much at tuned to the needs of the actual students in the program and gave you the flexibility from a course perspective. For example, I took a course in entertainment and the law, which was offered by the law school but affiliated with the business school. I never thought I would beat Ci ne pl ex, but it was an interesting course to take at the time. It is still one of the degrees that I most lean on, because when I did the program, I said I never want to take another accounting course so I took all marketing courses, investment courses, since I already had my CA designation. One of the prof sin the program said I should al sodomy CM A at the time and I ended up doing that while I was doing my MBA. I ended up being an over-educated accountant.
FP What was your favourite part of the program?
EJ One thing I really enjoyed was that we were required to do a thesis and this is where I found two things were really helpful. Having worked in the real world and then doing the MBA was really helpful, that was No. 1.AndNo. 2 was we did our thesis as a joint group, I think there were six of us, and a lot of us had business experience and we did our thesis on Levi’ s. I used two of the courses we took, one was a market research course and one was a market communications course, and I remember standing at the corner of Bloor and Y on ge doing surveys of customers, looking for the ones who were wearing jeans. Our recommendation, which the San Francisco heads of Levi’s looked at, was basically that
I DON’T WANT PEOPLE TO THINK THAT NOW THEY HAVE AN MBA, THEY CAN RUN A BUSINESS I ALWAYS SAY IT’S BETTER TOMAKEA MISTAKE AND LEARN FROM IT THAN NOT MAKEA DECISION
they had to diversify. Levi’ s years later got into Dockers and other fabrics, which was kind of interesting. To this day we have groups asking if they can use Ci ne pl ex and we accommodate a number of Schu li ch groups. Sometimes what’s helpful is that they reinforce parts where you think you have the right idea, but you’re not sure and they do the legwork to get you on the right train. It’ s a great process as far as the whole program goes, because you’ re dealing with real-life situations. FP How do you think it helped you in your career?
EJ In accounting, you get technical skills, but the MBA allows you to diversify your thinking and also how you look at an overall problem and solve it. And today, that’s very much what we do at Cineplex as an organization. I’m a little bit of a paranoid person, but I am always open to our team with new ideas. I always say it’ s better to make a mistake and learn from it than not make a decision. We have a super team here. Our CO O has worked with me for 28 years, our CFO27 years, our IT person I hired 30 years ago, our film person is also 28 years. In the 40 years of working with my direct reports, only one person has ever left me and that person is one of my closest friends now. He left because he didn’ t want to work in a public environment. At the end of the day it’ s about the team, being creative, being innovative, be having like an entrepreneur even though our sales are over $1.4 billion and our market cap is close to $3 billion.
FP A side from having loans hanging over you, what challenges did you have to overcome?
EJ During the first semester I had just come off writing the CA exam so I was exhausted, but I still had to put in the hours to make sure I could deliver and get the benefits of the program. That was a bit of a crunch y situation. I came to Toronto really not knowing anybody. It was a tough haul. But today, I’ m still in touch with some of those classmates. When Schu li ch gave me an award three or four years ago, I brought back some of the MBA kids I did my MBA with and what was interesting was that everybody who received an award that day had worked in a movie theatre or had some affiliation to it. F PW hat advice do you have for prospective students?
EJ I value education very highly and it’s a great program, whether you have a professional designation or not, as far as helping you round out your skills at becoming a better leader. What I don’t want people to think that now that they have an MBA, they can run a business. That’s not the way one should approach it. Sometimes people think, I have an MBA, I should be CEO of the company. It’s a good stepping stone to getting ahead. Believe me, with the first few jobs I had after I got my MBA, I barely used my MBA, but later on, I used it a lot more.