Cinema chain grapples with major market changes

Movie giant Cineplex diversifies to survive the rise of online subscription services
Artist’s rendering of Cineplex’s Brentwood development | Submitted

Cineplex Inc. (TSX:CGX) is battling streaming services and other entertainment industry competition by stepping outside the cinema.

The movie giant recently announced plans for two expansions in B.C.

Its West Vancouver theatre, a 44,000-square-foot, 11-screen facility on Park Royal shopping centre’s south side that will include VIP cinemas, is expected to open in late 2018.

Cineplex also unveiled plans for “The Amazing Brentwood” at 4567 Lougheed Highway in Burnaby. The development will include 20,700 square feet of theatre space, VIP cinemas and five auditoriums. It will also feature a new 44,000-square-foot Rec Room entertainment and gaming centre.

The project is slated for completion in 2019.

Cineplex’s aggressive expansion plans come after the company announced first-quarter revenue of $394 million compared with $379 million in 2016’s first quarter. The company’s current market cap is $3.3 billion.

“It’s a very different business today than it was 10 years ago,” said Pat Marshall, vice-president of communications and investor relations at Cineplex. “I think a big part of [our success] is the focus on our diversification strategy.”

The arrival of VIP cinemas sparked a reimagining of what moviegoers should and shouldn’t be “allowed” to do in theatres.

The VIP experience features a more intimate theatre setting mixed with improved seating (luxury recliners), licensed alcohol service, adult-only exclusivity and an expanded food menu.

Cineplex has VIP theatres in Coquitlam, Abbotsford and the recently established Marine Gateway.

UltraAVX, 3D, 4D and D-BOX motion seats (chairs that swivel and vibrate in sync with action sequences) are other value-added initiatives that have upped the cinema-sector game.

Marshall said Canadians consume more than double what their U.S. counterparts do in the percentage of 3D versus traditional movies.

Yet the core of the company’s success lies in other areas.

For example, Marshall said the Rec Room “is a new concept for Cineplex that utilizes all of our skills in the entertainment and dining world.”

It’s similar to the now-closed Playdium amusement centre at Metrotown.

Rec Room entertainment will include a sports bar, virtual reality simulators, bowling and table tennis, as well as live entertainment and multiple dining rooms.

Marshall said Cineplex, the largest amusement gaming operator in Canada and one of the largest in the United States, aims to launch 10 to 15 Rec Room locations across Canada on the way to establishing one in “all the major markets across the country.”

Each Rec Room will range in size from 40,000 to 60,000 square feet.

Cineplex is also involved in the indoor digital signage business.

“Any time you walk into a McDonald’s restaurant in Canada, or an A&W or Tim Hortons anywhere in the world, the digital menu boards that you’re placing your order [from] are created, designed, installed and maintained by Cineplex Digital Media group,” Marshall said.

Cineplex Digital Media has three offices in Ontario and one in the United States. The offshoot company serves the restaurant, retail and finance industries.

“We believe the investment thesis for Cineplex will continue to evolve as growth investments continue to contribute to revenue and cash flow,” said Tim Casey, business analyst at BMO (TSX:BMO). “Digital signage, advertising, Rec Room and gaming will all become important drivers. We expect revenue for the company’s digital signage business Cineplex Digital Media will reach $60 million by the end of 2017.”

Cineplex Digital’s clientele includes Kraft (Nasdaq:KHC), BMO and Rogers Communications (TSX:RCI.B). 

“There is a lot of disruption that is happening in the world today as it relates to entertainment; Netflix is certainly part of that,” said Marshall.

“But we’ve always said we are competing with folks for their leisure time and leisure dollars. It’s not that we are competing against anything else in specific.” 

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