Cineplex is betting on arcades as industry box office sales sag

Cineplex is betting on arcades as industry box office sales sag

The head of Cineplex Inc. is doubling down on video arcades as he looks to top up revenues amid the unsteady return of audiences to theatres.

Box office revenue at the country’s largest cinema owner rose one per cent year over year to $125.1 million in its latest quarter, even as industry-wide North American box office sales dropped more than five per cent.

While theatres remain the company’s bedrock, CEO Ellis Jacob has targeted “location-based entertainment” (LBE) — on-site experiences such as video arcades, virtual reality attractions and old-fashioned bowling and restaurant options — as a way to diversify the income stream.

Cineplex runs 13 such venues across the country via the Playdium, Rec Room and Junxion chains, with three more slated to launch in the fourth quarter.

“Given the success of our LBE business, we believe there is an opportunity to grow to 30 locations across Canada,” he told analysts on a conference call Thursday.

Such an expansion could double annual adjusted earnings from location-based entertainment to about $75 million, Jacob said.

“The returns are really strong,” he said in a phone interview. Jacob pointed to the new Junxion brand, launched in Winnipeg in December 2022 followed by another location last May in Mississauga, Ont., stressing how arcade games can mesh with moviegoing.

“This is a combination of a movie theatre with a miniature Rec Room, and they are doing phenomenal. It helps guests come in, watch a movie and then stay, talk about it, eat, get entertained,” he said.

The company’s bet on movie-adjacent entertainment venues comes despite its recent sale of arcade game distributor Player One Amusement Group.

Cineplex recorded a $67.3 million gain on the deal in February, helping it swing to a $5.2 million profit for the first quarter compared with a $30.2-million loss in the first three months of 2023.

Revenue from location-based entertainment actually dipped nearly two per cent year over year to $34.5 million, but executives attributed the figure to bad weather early in the year that forced some stores to close temporarily.

The box office abides as Cineplex’s core revenue driver, with 158 theatres across the country. Jacob insisted that despite streaming platforms, the plunge in superhero flick sales and a lacklustre industry rebound after the COVID-19 pandemic, Canadians crave cinema.

“When the content is there, guests want to come back and they want to have that experience. We saw that with Barbenheimer in the summer of last year,” he said.

Cineplex has been relying more heavily than ever on “premium experiences” and international films, a trend Jacob said will only grow.

Some 41 per cent of box office sales last quarter came from IMAX, VIP, UltraAVX and 3D screens, according to the Toronto-based company. Another 13 per cent derived from foreign-language movies such as “Warning 2,” one of several Punjabi hits this year.

But the biggest lure for audiences was “Dune: Part Two” followed by “Kung Fu Panda 4,” resulting in a 0.5 per cent uptick in theatre attendance.

Dune director Denis Villeneuve held a press tour event in his home province of Quebec in February for the sequel film’s Canadian premiere.

“The theatre where he did it — the Scotiabank in downtown Montreal with the IMAX — that theatre on the first weekend that the movie opened was the highest-grossing theatre in North America,” Jacob said.

The windfall was welcome, as Cineplex looks to repay long-term debt of $731.5 million — down 15 per cent from a year earlier thanks in part to the arcade distributor sale.

Jacob said he aims to reduce the company’s ratio of net debt to adjusted earnings to between 2.5 and three — within the typical range — from about four as of Dec. 31.

Adjusted earnings in the three months ended March 31 fell 60 per cent year over year to $4.6 million, “primarily due to minimum wage increases and legal costs in the quarter related to the Competition Bureau’s lawsuit against Cineplex,” said chief financial officer Gord Nelson.

Competition commissioner Matthew Boswell has claimed that Cineplex’s online booking fees, which amounted to about $39 million between June 2022 and the end of last year, are deceptive because moviegoers are not presented with the full price of a ticket on the very first webpage they encounter when buying from Cineplex.

Jacob told analysts Thursday: “We strongly believe we have complied with both the letter and spirit of the law and that the Competition Bureau’s allegations are unfounded.”

Cineplex said revenue for its first quarter rose 1.2 per cent year over year to $294.8 million.

Box office revenue per patron rose to $12.74 compared with $12.63 a year earlier, while concession revenue per patron averaged $8.95, up from $8.85 in the same quarter last year.

Basic and diluted earnings hit eight cents per share, far above last year’s loss of 48 cents per share and analysts’ expectations of a similar outcome this time around, according to LSEG Data & Analytics.

This report by The Canadian Press was first published May 9, 2024.

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Christopher Reynolds, The Canadian Press