Wednesday, November 11, 2009

Cineplex Galaxy fund posts record revenue as industry grapples with DVD window

TORONTO — A strong line-up of summer blockbuster movies helped Cineplex Galaxy Income Fund (TSX:CGX.UN) turn out higher attendance and record revenues at its theatres in the third quarter.

But, the narrowing amount of time before movies are released on DVD has Cineplex executives on high alert.

"We are very concerned about the theatrical window," said Cineplex Entertainment president and CEO Ellis Jacob in an interview on Tuesday.

"If the release between the theatrical and the DVD is so short, our concern is that people will not go as frequently to the movies, and they will wait for the DVD release."

"It's not just not a Cineplex problem, it becomes an industry issue," he said.

Jacob added his voice to the growing number of theatre owners worried that film studios are ignoring their pleas to stop rushing movies to DVD. Generally, both sides have agreed to a four-month window for theatrical releases.

Hollywood studio Paramount ignored that agreement last week when "G.I. Joe: Rise of the Cobra" landed on DVD last week, hardly three months after it hit movie screens. The distributor has said it was an exceptional case tied into the promotion of Hasbro's G.I. Joe toys for the holiday season.

However, Sony initially planned to shorten the theatrical window even further by releasing Michael Jackson's "This is It" concert documentary on DVD in time for Christmas, less than two months after its much-hyped theatrical debut. Exhibitors protested prompting Sony to cancel those plans until the New Year.

The changes mark a major shakeup in the industry as studios look for new ways to combat eroding DVD sales and exhibitors say it will put their profits in jeopardy.

On Tuesday, Cineplex, the largest motion picture exhibitor in Canada, said its box-office sales were the highest-ever for a given quarter at $155.9 million. The increase was attributed to a greater variety of films, and growing audience numbers.

The Toronto-based income trust also reported higher net income of $20.4 million for the third quarter, up from year-ago profit of $18.4 million.

Quarterly revenue from ticket sales, food and beverages and other sources totalled $257.5 million, up from $239.1 million last year.

Cineplex said theatre attendance grew nearly five per cent during the quarter, as well as box office per patron growth of three per cent and concession per patron growth of 4.5 per cent.

"We attribute this growth primarily to a greater breadth of film product," Jacob told analysts in a conference call.

"The third quarter of 2009 benefited from film products that catered to wider-ranging audiences, coupled with the success of premium-priced 3D and Imax film product."

The company screened 3D features like "Ice Age: Dawn of the Dinosaurs" and Imax format movies like "Harry Potter and the Half Blood Prince," both which drew a higher ticket price.

Cineplex added that select ticket price increases in November last year also helped increase revenue.

Concession revenues were up nine per cent from last year and helped by more family-oriented films, which attract stronger concession sales.

Odlum Brown analyst Cory O'Krainetz downplayed fears that shorter DVD windows could lead to fewer customers for Cineplex and its peers.

"Home theatres have been around for a long time," he said.

"People go out to the movies for the experience, and certainly we saw that throughout the recession. As long as there's new movies releases out that people want to see, they'll go to the movies."

Cineplex has cinemas across the country and a workforce of about 10,000 employees.

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