Once current expansion plans are fully rolled out in 1998/99, the theatrical exhibition industry in Canada will have entered its full maturation phase.

The industry has shown healthy growth for the past three or four years, with domestic (u.s. and Canada) box office revenues rising about 4% annually, from $4.8 billion in 1991 to $4.9 billion in ’92, $5.2 billion in ’93, $5.4 billion in ’94 and $5.5 billion in ’95.

‘Basically what that tells you,’ says Howard Lichtman, vp marketing and communications at Cineplex Odeon, ‘is that the industry is in the mature phase of its life cycle. This is not a rapid-growth industry. Neither is it, as the pundits suggested five years ago, a dying industry.’

Three Toronto-based theatrical exhibitors, Cineplex, Famous Players and Imax Corporation, which also licenses technology to third-party exhibitors and producers, have scheduled major physical plants investments through to 1988.

Cineplex has just raised $114 million in funds, which it intends to use to open 487 new screens in the next three years, up to 40% in Canada. It now operates at more than 320 locations and has 891 screens in the u.s. and 621 in Canada.

Famous has announced plans for a 40% expansion of its operations, with the addition of 250 screens in Canada through to 1998, says Roger Harris, vp marketing.

Famous has 107 locations and 475 screens. It added 24 new screens in ’95 and will add another 48 this year.

A part of the entertainment operations of Viacom, Famous will use internal cash flow to finance its growth, adds Harris.

As for Imax, it has us$125 million in hand for its expansion program, which vice-chairman Richard Gelfond says will be invested in new owned-and-operated theaters, primarily in secondary markets in Canada. The company will also invest in new production.

Last month, the 29-year-old Imax announced the closing of a us$90 million offering of convertible subordinated notes, due in 2003, on a private placement basis.

Imax signed contracts for a record 24 permanent new theater installations in ’95, a 41% increase over ’94. Gelfond says these new theaters typically come online within 12 to 24 months.

Imax has 12 theaters in Canada and three in backlog for a total of 15. The Canadian theater lineup includes seven standard giant-screen installations, three 3D and two Imax Dome theaters.

At the end of ’95 there were 129 Imax theaters in 20 countries, representing a current annual international growth rate of just under 20%.

Lichtman says once the build-out phase is completed in 1998/99, ‘it is questionable how many additional opportunities there will be in Canada.’

The introduction of new technology – the improvement in seats, sights and sound as represented by the modern multiplex – is the cornerstone of the industry’s current marketing vision.

Other factors in today’s business equation include improved real estate prices and an ability to hang tough in bad times.

Production fuels exhibition

Lichtman says virtually all the major studios in Hollywood have expanded slates in the pipeline. And, as new film product is the ‘lifeblood of exhibition,’ Lichtman says basically this points to a healthy industry.

While theatrical exhibition remains the premium showcase for feature films in marketing if not dollar terms, the health of the exhibition business in North America and the studios’ ability to pay the associated production and marketing costs is increasingly contingent on other important revenue sources.

And although the domestic industry is fast approaching a cyclical end-game phase, the foreign theatrical business has entered a rapid-growth period. For the studios, foreign box office – for the first time – is now equal to or greater than the domestic take.

In 1994, u.s. and Canadian theatrical receipts made up 16% or $5.4 billion of earnings for the majors while domestic home video made up 26%.

Foreign video sales accounted for 19.9% of all revenues while foreign theatrical numbers matched the domestic take at 16%. Domestic tv revenues made up 11% of all revenues.

Licensing, merchandising, theme parks and rides represent additional revenues.

Shorter runs, wider releases

Famous’ Harris says there’s more product available, from both Hollywood and Europe, at a time of major reconfiguration to larger and more efficient complexes. Presently Famous has a 4.5-screen average per location, and Harris says the goal is to quickly increase the per-screen average to seven or eight.

‘More screens will open the door to an even greater variety of films and we will be able to show productfor longer than we are currently able to.’

The perceived downside to the production increase is being dubbed ‘a glut’ in the marketplace. Distributors claim reasonably performing product is being gobbled up in a Pac Man scenario, unable to reach its full audience potential.

Harris replies there are not enough screens and the issue is compounded by the studios, which continue to release the bulk of their product in the June to August period and over the Christmas holidays.

‘As exhibitors, we have continually asked film distribution to look at other times of the year when we believe releases can be as successful,’ he says.

Harris says the undervalued potential of the traditional ‘soft first quarter’ is being confirmed with a ‘dramatic growth in business’ in the current quarter and the success of films such as Mr. Holland’s Opus, The Birdcage, Primal Fear and Muppet Treasure Island.

Lichtman adds films are indeed receiving shorter screen time and as such are being released on a much broader basis (3,000 screen releases instead of 1,000) ‘because they (distributors) can’t afford to advertise beyond the first couple of weeks.’

Teen comeback begins

Demographics is another subject which goes to the heart of the theatrical exhibition industry.

Lichtman says in addition to increased film production the industry is also benefiting from ‘the graying of the population.’

The theater-going base of the 40-plus crowd has increased from 15% in 1986 to 36% in ’94, while the overall share for teens has diminished.

However, Lichtman says this trend will slowly reverse itself with the attendance by teens, 13 to 19, rising progressively in 1996 through to the year 2010.

Imax

Imax went public in June 1994 at us$13.50 a share on Nasdaq and is currently listed at us$33. The stock is trading at $47 per share on the Toronto Stock Exchange.

Historically, Imax has licensed its giant-screen technology to third-party operators, but Gelfond says there will be more of a mix of Imax o&o installations in the future.

This spring Cineplex joined the Imax worldwide network with the acquisition of the Navy Pier Imax 3D Theatre in Chicago. In short order, the operation became one of the most successful Imax theaters in the world, says Gelfond.

‘We are very excited about our relationship with Cineplex,’ he says. ‘We have started early discussions with them about more cities.’

The breakthrough deal with Cineplex reflects the company’s deepening strategic alliances with a growing list of major world media companies.

Sony is putting up three new Imax theaters in Tokyo, Berlin and San Francisco, and Imax has a deal with Capital Cities/abc to jointly produce several movies.

About 15 (format 15/70mm) imax films are produced annually, with Imax involved as a producer/distributor in about five.

There are now some 115 films in the Imax library, including the first dramatized fictional movie, J.J. Annaud’s Wings of Courage, shot in the Rockies.

The company has a unique market niche akin to Disney, says Gelfond.

‘The Imax brand (recognition) is stronger in Canada than anywhere else in the world, in the 80% range.’

The number of Imax 3D theaters has increased from eight worldwide in ’94 to 16, and by the end of ’97 the number should be in the mid-30s, adds Gelfond.

Imax films draw some 60 million admissions each year with international box office receipts in the $250 million to $300 million range. Over half the receipts are from North America.

Imax is owned by chairman Brad Wechsler, Gelfond and legendary filmmaker Douglas Trumbull, who hold just over 15%; the former Canadian ownership group holds about 10%; while Wasserstein Perella, a New York investment bank, holds 45%. The balance of the shares are publicly owned.

Imax reported net earnings of us$3.6 million on revenues of us$88.5 million in ’95. eps was $0.23.

Famous

Famous president Joseph Peixoto says the Famous Players Paramount 15-theater complex in downtown Toronto, unveiled last fall, is part of a new generation of installations which will ‘change the way we go to the movies.’

The 3,500-seat thx and digital sound facility is slated to open in 1997, with plans to offer a licensed cafe and bar, retail stores, high-end video and arcade games, party and concession rooms, as well as videocube and lobby previews of upcoming and current attractions.

Peixoto says the complex will be used for conventions and will benefit from an ever wider array of movie product including specialty films, blockbusters and satellite-fed event spectaculars.

Marketing highlights at Famous in ’96 include primarily point-of-sale tie-ins with Mattel Toys for the animated feature film Pocahontas and with Thinkway for the box office blockbuster Toy Story. Major ’96 promos are planned for The Hunchback of Notre Dame this summer and for Space Jam and 101 Dalmatians during the holidays.

Cineplex

Cineplex reported total revenues of $513 million for the year ending Dec. 31, 1995, down from $541 million in ’94.

The reduction is attributed to the poor results in the first quarter of ’95, ‘the worst quarter for the exhibition industry in terms of both attendance and box office revenue since 1988.’ Net loss for the year was $32.9 million.

Cineplex ceo Allen Karp says the fourth quarter in ’95 points to a turnaround, up 12% over the same period the previous year, while the first quarter in ’96 is also strong.

Karp also announced mca and Charles Rosner Bronfman Trust, Cineplex’s principal shareholders, have committed a $50 million investment in the company’s expansion program.

Cineplex’s new Cinescape division inked a deal with Sega GameWorks to develop interactive game centers in North America as an adjunct to its theatre complexes. Sega GameWorks is a joint venture of Sega Enterprises, DreamWorks skg and mca. Cineplex will invest about u.s.$10 million in the Cinescape video game/virtual reality/motion-based interactive centers over the next three years.

Cineplex is listed on the New York and Toronto Stock Exchanges.

Cineplex and Famous each have about a 40% share of the Canadian theatrical exhibition market. Their share should rise as the current expansion is rolled out.