The disastrous effect of the Covid-19 pandemic on the cinema industry was further evidenced in the Q4 2020 earnings call of Canada’s Cineplex, the largest movie theater circuit in the country and fourth-largest in North America. The circuit reported a 96 percent year-over-year drop in box office over the fourth quarter, stemming from a 95.3 percent decline in attendance.
The pandemic first forced Cineplex to temporarily close its locations on March 16, 2020. It began a gradual re-opening effort in June that culminated in late August, when it became one of the first major circuits in the world to re-open all its locations ahead of the Canadian release of Christopher Nolan’s Tenet. The return to moviegoing in Canada was short lived, however, with most major studios further delaying the release of their films into 2021 and beyond. By the fourth quarter, a rise in Covid-19 cases across Canada had forced most Cineplex locations to close once again.
Cineplex finished the year with an 81.2 percent drop in box office sales and 80.3 percent decline in attendance against the previous year, translating into a cumulative fall of 74.9 percent in revenue. The lone silver lining in a difficult year was a surprising 3.9 percent increase in concessions revenue per person a result of big increase in concessions per caps since the circuit re-opened in the summer. In Q4, for example, Cineplex reported a 33percent increase in concessions revenue per person when compared to the same period last year.
Cineplex has had a slightly more turbulent year than its competitors during the crisis. U.K.-based Cineworld had announced plans to acquire the circuit in December 2019, a deal that fell apart six months later, in June 2020, in a matter that will be resolved in court in a trial scheduled to begin in September 2021.
In the meantime, Cineplex has focused its efforts on strengthening liquidity and reducing expenses. “Key liquidity actions included the receipt of $60 million [Canadian Dollars] related to the reorganization of the SCENE loyalty program and advancing the $57 million sale-leaseback of our Head Office in Toronto, which closed in early January 2021,” said President & CEO Ellis Jacob in a press release. “We also recently announced further relief from certain financial covenants under our Credit Facilities and the planned financing of a minimum $200 million in the form of Second Lien Secured Notes. These initiatives, combined with our ongoing focus on minimizing cash burn, will provide the liquidity we need to see us through the pandemic recovery period as vaccines are rolled out, restrictions are lifted and a return to normalcy begins.”
The circuit has also used this time to focus on upgrades to some of its locations. Cineplex opened two new ScreenX premium large format auditoriums (Scotiabank Theatre Halifax in Nova Scotia and Cineplex Cinemas Ottawa in Ontario) and converted four auditoriums to recliner seating in 2020. It also expanded alcohol service to four additional auditoriums, now offering adult beverages at 91 screens, not including VIP sites.
“We know Canadians are going to be looking for safe and affordable out of home entertainment choices coming out of the pandemic and our focus right now is how best to leverage and capitalize on this inevitable resurgence. We remain confident in our strategy and will continue to take the necessary actions to ensure that Cineplex not only survives, but thrives in the future,” he said.
On the digital front, Cineplex followed in the steps of U.S. colleagues AMC and Cinemark in signing a shortened exclusivity window for Universal releases. Universal titles will now play exclusively at their locations for a period of 17 to 31 days before becoming available for digital rental online, including in Cineplex’s own Premium Video on Demand (PVOD) platform, the Cineplex Store. The circuit’s PVOD channel experienced considerable growth during the pandemic, increasing its number of registered users by 39 percent to reach over 1.9 million accounts. Active monthly users for the Cineplex Store increased by 36 percent over the prior year, including a 57 percent bump in device activations when compared to 2019.
The drive to digital hasn’t exactly redefined Cineplex’s business model. The circuit’s executives have yet to commit to any longstanding agreements on booking titles that release simultaneously to the home, opting instead to take things on a case-by-case basis through the duration of the crisis. “A lot of things that we are doing are driven by the fact that we are in the middle of [the pandemic],” admitted Jacob during the earnings call. “For example, with Wonder Woman 1984 we worked out a deal where we played it in the cinemas, but we also played it in the Cineplex Store on a Premium VOD format. It did extremely well whether it was playing in the store or in the theaters that were open, even if there were limited theaters that were open. So we are trying to balance the two and we’ll continue to do that until we see the other side. I feel and I know our partners feel that the theatrical window is an important part of the overall box office…both in Canada and around the world.”
With a curtailed year of new movies and moviegoing in general for Canadians, it is of little surprise that the circuit’s top three performing titles in 2020 were all December 2019 releases. Universal’s 1917, Disney’s Star Wars: The Rise of Skywalker, and Sony’s Jumanji: The Next Level finished the year as the company’s highest earners due to their uninterrupted theatrical runs.
Despite these setbacks, Cineplex President and CEO Ellis Jacob remains confident audiences will return to the cinema as soon as the vaccine becomes more widely available in Canada. “Although the pandemic has lasted longer than any of us initially expected, we know that the exhibition, amusement, and leisure industries will recover. The box office numbers coming out of countries where theaters are permitted to operate––Japan, China, and Australia––have exceeded expectations. In Japan, the anime film Demon Slayer, which opened late last year, went on to become the highest-grossing film ever [for that market]. We are also reassured by a recent survey from Abacus Data that puts moviegoing as the most missed in-person activity among Canadians. We know our guest will be looking for safe and affordable out of home entertainment experiences coming out of the pandemic.”