The exterior of Cineplex Junxion Erin Mills in Mississauga, Ont., on April 24.Nathan Denette/The Canadian Press
Cineplex Inc. CGX-T, the country’s largest theatre chain, has a problem: There’s only one Taylor Swift.
October’s release of Ms. Swift’s concert film, The Eras Tour, followed by this month’s debut of Beyoncé's Renaissance mean audiences continue to pack multiplexes. Cineplex posted record revenues in the summer, when Barbie, Oppenheimer and the latest instalment of Mission: Impossible lured moviegoers away from streaming services. Tay Tay and Queen Bey kept crowds coming.
This year’s boffo box office numbers paper over the strategic headwinds facing Cineplex and virtually every traditional media company. They are losing the battle for audience to services such as Netflix NFLX-Q, Amazon Prime Video AMZN-Q and Disney+ DIS-N.
For years, Cineplex chief executive officer Ellis Jacob’s survival strategy was to wean the company off its dependence on Hollywood blockbusters – and once-in-a-generation phenomena such as the Eras concert film – by diversifying away from cinema.
Mr. Jacob built up digital advertising and e-gaming businesses and introduced family-themed gaming and restaurants, under the Rec Room and Playdium banners.
In the wake of a failed 2019 takeover – buyer Cineworld Group PLC reneged on a proposed $2.18-billion acquisition during the early stages of the COVID-19 pandemic – Mr. Jacob has reversed course.
Cineplex has been selling divisions to pay down debt, returning the company to its roots as a theatre chain. Three years ago, Cineplex exited e-gaming. In late November, Cineplex sold its arcade game business, Player One Amusement Group, to private equity firm OpenGate Capital Management LLC for $155-million.
Strengthening Cineplex’s balance sheet when interest rates are soaring makes sense for investors. The moves also make the company far more attractive to potential buyers. In media and banking circles, there’s widespread speculation Mr. Jacob’s ultimate goal is a successful sequel to Cineplex’s takeover flop four years ago.
Cineplex hails end to Hollywood strikes after reporting record third quarter
In recent weeks, media outlets reported Cineplex held talks with potential buyers of its digital media unit. There were also reports that Kinepolis Group NV, one of the largest theatre operators in Europe, weighed making an offer for Cineplex, then backed off on concerns over winning regulatory approval. In Canada, Kinepolis operates Landmark Cinemas, a theatre chain with 39 locations.
In an interview, Cineplex vice-president Michelle Saba said: “We have not put Cineplex Digital Media or the company up for sale.”
While that may be the case today, it seems logical a Cineplex board and management team that signed off on one premium takeover offer, four years ago, would be open to another bid, if the price is right. And the Cineplex team signed off on the Cineworld deal, knowing it needed to win the federal government’s approval for the acquisition.
The challenge facing Mr. Jacob and his colleagues is navigating the entertainment sector when long-standing rules are being rewritten by tech companies and entrepreneurial talents such as Ms. Swift.
Historically, the movie industry was dominated by an alliance between studios and distributors such as Cineplex. The two sides controlled what audiences saw. Ms. Swift showed there’s a new way of doing business. She produced the Eras film herself and took it directly to theatre chains.
While the Eras and Renaissance releases worked to Cineplex’s advantage, the company still faces an existential challenge from the sector’s biggest trend, as audiences continue to shift to streaming.
Yesterday’s dominant media platforms are starting to look like dinosaurs. Last week, U.S. website Puck broke news that U.S. media mogul Shari Redstone, who inherited control of Paramount movie studios and television network CBS, is in talks with potential acquirers and outside investors. The leading contenders are reported to include tech companies with streaming platforms, such as Amazon, Apple AAPL-Q and Netflix.
Cineplex’s investments in e-gaming, arcades and restaurants haven’t kept the winds of change at bay. As Mr. Jacob moves to strengthen the chain’s balance sheet, the company becomes increasingly dependent on the movies it shows in 158 theatres.
In an entertainment industry that is consolidating around global companies, that’s a lonely strategy. And Ms. Swift doesn’t have another Eras movie in the works.