Cineplex: From Popcorn To Pixels
By: Noah Gray
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
A Preview of the Canadian Cinema Industry
Cineplex is a Canadian company operating predominantly in the film entertainment industry. Founded in Toronto, Cineplex opened its first movie theatre in 1979. Through diversification of its services, strategic theatre placements, and a successful history of acquisitions, Cineplex now holds approximately 75 percent market share in Canada – recording $764 million in revenue through the first two quarters of 2023. Cineplex offers premium viewing experiences of new movies for customers through features such as 3D, IMAX, VIP, and online pay-per-view.
Cineplex also runs one of the largest loyalty programs in Canada, called Scene, which rewards customers at any Cineplex establishment. Upon accumulation, Scene points can be used as a payment method for Cineplex’s products and services. While point collection rates vary by location, redemption tends to follow this formula: For every dollar amount spent, you earn a certain number of points. The most efficient way to earn points is by spending in Cineplex theatres, where every $1 spent earns 5 Scene points.
From the Big Screen to Households
In 2022, the Canadian movie theatre industry saw box office revenues of $674 million. While revenues are rebounding, the industry is still a long way from reaching pre-COVID levels of over a billion in 2019. Notably, the Canadian film industry is heavily dependent on the American landscape, with American films remaining amongst the most popular media in Canada; Canadian domestic films represent only 5.2 percent of 2021’s revenue. This leaves the industry vulnerable to headwinds from the American film industry. For example, the recent Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) strike banned the promotion of films by actors, causing some releases to underperform at Canadian theatres.
Currently, the movie theatre industry is battling against the rise of online streaming services. Many Canadians prefer to watch movies at home, growing from 6.6 million users of subscription video-on-demand in 2017, to 16.7 million in 2023. Due to this trend, large companies such as Disney and HBO have introduced streaming services (Disney+ and HBO Max) to take advantage of the rising demand. This demand detracts from in-theatre movie sales, shown by the 34 percent decline in box office revenues across the movie theatre industry in Canada from 2019 to 2022, compared to Canadian subscription video-on-demand, which grew by 107 percent in the same time frame. Further, in 2022, Forbes estimates that the average Canadian uses 2.8 subscription services. With over 10 million Scene users, Cineplex is in a prime position to capitalize on the streaming market by integrating its loyalty program with a streaming service.
Movie theatres like Cineplex are currently losing revenues as consumers opt to watch at home, implying theatres should consider how to diversify company revenue streams to compete with the growing demand for streaming services.
Cineplex: Recommended For You
Cineplex could utilize its strong market position, brand loyalty, and current online capabilities to create the first streaming service offering a customer loyalty program. Further, Cineplex boasts relationships with global film distributors (eg. Warner Bros, Sony Pictures, 20th Century Studios, Disney etc.), and is dedicated to maintaining these relationships. Therefore, Cineplex could utilize these partnerships to implement a streaming service of its own, which allows viewers to stream the newest movies from their living room. Currently, Cineplex runs an online pay-per-view model, but current demand trends towards subscription models where users can stream multiple movies without making individual payments.
Cineplex could convert its existing model into a streaming service, offering monthly and annual subscriptions to allow movie fans to watch the most popular films. To enhance their existing brand loyalty while continuing to support in-theatre sales Cineplex could integrate their Scene rewards program into the streaming service, allowing users to collect loyalty points upon subscription renewal. The points collected by the customers could then be spent in theatres, encouraging streamers to visit Cineplex to redeem their points for discounts on tickets and concessions. Further, to incentivize growth, Cineplex could offer extra Scene points for any user that signs up during the first six months of release. Offering 500 Scene points for registration would give a $5 discount per sign-up, which is a small portion compared to the average revenue of $33 that Cineplex would earn from each customer. Notably, approximately 60 percent of movie tickets in Canada are purchased by “heavy movie-goers” who prefer watching movies in theatres and therefore would continue their existing purchasing habits alongside a subscription.
Movies on the Cineplex’s streaming site would be uploaded immediately following a film’s departure from the theatres to minimize the cannibalization of ticket sales. The movie would stay on Cineplex’s streaming site for the duration of time before it is released to other streaming services. This is to avoid direct competition with streaming services owned by movie distributors, such as Disney+, and to mitigate the possibility of film distributors barring their movies from Cinplex’s streaming site. Typically, this underserviced period of inaccessibility lasts between one to two months, which would be the ideal timeframe for Cineplex’s streaming service. The service itself would have a robust rotation of movies, which provides a unique value proposition, similar to the brick-and-mortar theatres well-adorned by existing Cineplex customers.
Blockbusters Across the Industry
Currently, there are a plethora of streaming services available to Canadians. Each service has varying prices, benefits, and trial periods. Cineplex’s main competitors are outlined below.
Based on the existing competitor landscape, Cineplex should price its streaming service at a competitive rate. Since the company would offer new and critically acclaimed movies, Cineplex could price its service on the higher end (between $13.99-18.99 per month). While a higher price point risks a lower adoption rate, this is mitigated by the cost savings the consumer would realize through not spending money on tickets at the theatre to watch every new release. Further, the integration of the Scene program with the service incentivizes customers, as they would be receiving “cash back” via Scene points for subscribing. To further incentivize sign-ups, Scene members should receive bonus Scene points if they sign up during the first six months the service is available, with 50 extra Scene points rewarded each month for subscription renewal. This would allow members to enjoy the streaming service and earn enough points to collect discounts.
In order to secure movies for the streaming site, different compensation models could be used. For example, Netflix pays an upfront fee to get the rights to a movie, while Amazon uses a revenue-sharing model. For Cineplex, it is recommended that the company use a revenue-sharing model, as the company has already adopted this practice when selling movies both on-demand and in theatres.
Admit One: Top-Line Growth
Various factors would affect the success of Cineplex when launching a streaming service, as outlined below.
Failing to obtain the rights from major film studios like Disney may save Cineplex’s copyright costs but would risk a lower adoption rate. Additionally, adoption rates may suffer if Cineplex is unable to acquire films from well-established distributors, making it a strategic necessity to obtain streaming rights. Cineplex already possesses relationships with these distributors which should ease the negotiation process for obtaining additional streaming rights. Moreover, offering movies on Cineplex’s streaming service during the gap between in-theatre and regular streaming services would prevent cannibalization on both ends. Price variability shown above is dependent on the number of film distributors Cineplex could secure. With more distributors, Cineplex’s offerings become more competitive, so the company could raise the price to match accordingly with the value of the service.
Closing Credits
Overall, Cineplex could capitalize on its strong market position, loyal fanbase, and long-standing relationships with film producers to effectively launch a subscription-based streaming service. The streaming service would provide Cineplex with consistent revenue growth and create a strong incentive toward in-theatre sales as customers accumulate Scene points.
In 2023, it is finally time for Cineplex to trade its popcorn for pixels, and invest in a streaming service to sit back and enjoy the future of movie viewing.
