Coming to a theatre near you
TO COMPETE WITH NETFLIX AND AMAZON, CINEPLEX CONSIDERS MAKING ITS OWN MOVIES
These days, it seems anyone can become a major Hollywood studio. First, it was the DVD rental firm-turned-streaming giant Netflix. Then, online book retailer Amazon followed suit. Will Canada’ s largest cinema chain be next in line to roll up its sleeves and produce its own content?
“Owning intellectual property looks like a good business to get into,” says Michael Kennedy, the executive VP of Cineplex, the country’s largest theatre operator. Cineplex may find it has little choice. At the Sundance Film Festival in Utah last month, the two biggest movie deals were struck by the aforementioned streaming companies.
Netflix made headlines forking out US$ 12.5 million for 1940s segregation drama Mudbound, while Amazon — which in January earned six Academy Award nominations for last year’s acquisition Manchester by the Sea — splashed $ 12 million on buzzy 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 $ 13 to go and see a movie in cinemas the same day it launches in their living room?
These are among t he challenges facing Cineplex. Though it controls nearly 80% of the cinemas in Canada, the business is being squeezed by glut of new players, as films — particularly independent movies — increasingly populate TVs, laptops and smartphones. The company’s most recent third-quarter results showed revenue up but attendance down, meaning the publicly traded firm is relying on fewer customers to spend more money, particularly on 3D, Imax screenings and confectionary.
“What’s happening with the movie theatres is that i t’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. Fifty Shades Darker this upcoming weekend 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 shift and expand, in a bid to stay relevant. In 2015, it invested $15 million into e-Sports firm World-Gaming, 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 movie- making itself. To date, production and distribution hasn’t been a priority for the cinema operator. But if Netflix can do it, then why shouldn’t Cineplex? “As the business is changing, obviously we have to start looking at that,” he says.
In the U.S ., theatre operator Alamo Draft house successfully launched its own distribution arm in 2010, releasing the Oscar-nominated documentary The Act of Killing. And in Australia, cinema chain Village Roadshow first expanded into production and distribution back in the 1960s.
Kennedy sees obvious advantages. For one, the 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 inhouse data to get insight into the kinds of films that are working in the market.
“In t erms of data, we have the actual box office,” Kennedy explains. “I know what movies do well, and I know what movies do well in certain theatres. We have expanded recently into playing movies from Asia. We play Hindi movies, Punjabi movies, and 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.”
Cineplex could also potentially take advantage of the customer data it has captured via its Scene Card loyalty program. “We have about eight million members now,” he says. “If you, for example, went to see Iron Man, Thor and Transformers, I suspect you’re probably going to be interested in The Avengers or the next Thor.
If Cineplex does venture into content ownership, it could dramatically impact the movie- going landscape, especially f or 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 Canadian Content requirements as national broadcasters.
“We have 1 2, 000 employees at our company, we have 170 landlords, and every time a consumer buys a movie ticket there’s a 15% 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 the Prime Time in Ottawa conference earlier this month, Canadian heritage minister Mélanie Joly reiterated that the government doesn’t plan to introduce a ‘ Netflix tax,’ which would levy the streaming services Canadians buy from foreignbased firms. Nevertheless, the government is due to publish the results of an extensive consultation later this year, and some form of 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 bingewatching.”
Ironically, binge-watching could prove to be one the ways Cineplex lures audiences back to its theatres. A few years ago, the theatre chain found an unexpected hit when it programmed episodes of 1990s TV show Star Trek: The Next Generation as an anniversary event.
“We sold out a whole whack of theatres on a Monday night, when t here’s normally nobody in t he theatres,” Kennedy recalls. “That was when it hit me: people who like Star Trek want to be with other people who like Star Trek. Similarly, we played Game of Thrones in our theatres the same night it was on television, because people want to be in theatres with other people who like Game of Thrones.
“There’s a communal aspect to going to the cinema; you feel the energy of those 300 other people in the auditorium; it gives you goose bumps,” he adds. “You don’t get that watching a movie on your phone.”
Or, he should hope, in one’s living room.