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Cineplex: Thinking outside the theatre box

Movie goers at Toronto's Scotiabank Theatre.

Jim Ross/The Globe and Mail

On Sunday mornings, your typical movie theatre is so still and hushed, it's as if a tennis umpire has just tamed the crowds with a stern "quiet, please."

But in July, it was a tennis match, ironically, that disturbed the silence at some unlikely hours for Cineplex theatres. It was the Toronto-based company's first experiment in broadcasting live sports events in 3-D, for both the men's and women's finals at Wimbledon.

"I was shocked," said Cineplex chief executive officer Ellis Jacob. At his company's Scotiabank theatre in downtown Toronto, 150 people showed up for the match, which began at 9 a.m. In Victoria, where it started at 6 a.m., a small but dedicated crop of 50 fans were there to watch Novak Djokovic beat out Rafael Nadal for the Wimbledon title.

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The tennis match was one example of the company's ongoing attempts to draw audiences in with premium events that have them paying a little more than they would for a movie – even at a time when consumers are pulling back on spending.

The average ticket price for Cineplex's "alternative content" – which includes events such as performances from the Metropolitan Opera in New York and high-definition WWE wrestling – is $18, a significant bump over a regular movie ticket. The opera matinees have drawn audiences: when the content first launched, it was in 20 Cineplex theatres, and now it is shown in more than 100.

"A lot of people have come out because of all the different offerings we have," Mr. Jacob said.

In the scope of Cineplex's movie business, of course, it's barely a blip. But while alternative content is a much smaller business for Cineplex compared to its Hollywood movies, it is a way to make money from theatres that would otherwise be sitting empty.

"It's a very efficient use of capacity," said Raymond James analyst Kenric Tyghe. "It's too small to be a needle mover, but where it is significant, is … they've just got more content, on more screens, for more hours of the day."

Cineplex has managed to build its box office revenues faster than its peers. During April, May and June, Canadian box office revenues rose 3.2 per cent, while Cineplex's were up 5.2 per cent.

Cineplex has also been pushing other premium ticket options, including Imax, UltraAVX auditoriums at some locations, which offer larger seats and screens, and reserved seating. It is also experimenting with three VIP auditoriums in Ontario, which for an extra cost restricts seating to adults, and offers in-seat service including alcoholic drinks. And of course, the driver of 3-D movies for exhibitors is the ability to charge a premium – in Cineplex's case, $3 – on each ticket. While popular film franchises such as Pirates of the Caribbean push up overall attendance, premium tickets are also important because they increase the amount each customer spends on their visit.

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There has been some question whether 3-D has been losing its lustre, however. The company recorded lower 3-D revenues in the second quarter, partly because two of the most popular movies, Bridesmaids and The Hangover 2, were not shown in 3-D. But the Canadian market is showing better demand for 3-D products than in the U.S., Mr. Jacobs said. While American theatres log 45 to 50 per cent of box office revenues from 3-D on the typical opening weekend, Cineplex sales are closer to 60 per cent.

3-D, Imax and UltraAVX now account for nearly 27 per cent of box office revenues for Cineplex.

Cineplex reported profit of $13.4-million in the quarter ended June 30. This was a 39-per-cent drop from a year-ago profit of $22.2-million, due largely to one-time charges related to its conversion from an income trust to a corporation this year, as well as a $2.2-million share of loss of joint ventures related to the creation of the Canadian Digital Cinema Partnership, its venture with Empire Theatres to fund the conversion to digital projection equipment.

Revenues for the quarter totalled $258.4-million. This was up 6.6 per cent from $242.4-million last year.

Cineplex is hoping to advance its alternative business even further in the future. The company is talking to broadcasters that hold the rights to sports events in Canada, to do more live screenings. Compared to the price of a ticket to a live event, the in-theatre experience is relatively affordable for fans. Royalty payments from the theatres also provide another small source of revenue to the broadcasters, and helps them to market their own channels to those audiences.

With an uncertain economic future now looming, Mr. Jacobs – who has repeatedly touted the value of the affordable night out – sounded upbeat.

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"I always talk about affordable escapism," he said. "Well, with the market dropping 500 points, the first thing you want to do is escape reality."

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