Cineplex Entertainment LP
With the amalgamation of Famous Players and the former Cineplex in October 2005, Cineplex Entertainment Limited Partnership (LP) gained a dominant leadership position (65.1% of box office revenues) as the largest motion picture theatre exhibitor in Canada. The Toronto-based partnership serves approximately 60 million customers under the following five brands: Cineplex Odeon, Galaxy, Famous Players (including Coliseum, Colossus, and SilverCity), Cinema City, and Scotiabank Theatres. This portfolio utilizes multi-branding to target a wide scope of quality seeking segments without damaging its premium end brands.
Critical Success Factors in the Movie Theatre Industry
The core service of exhibition theaters is its ‘full motion picture’, which is crucial to the success of the business as it accounts for 57% of the earned revenue. While the ‘digital pre-show’, which includes trivia and advertisements, has climbed in importance to 26% since its introduction with digital projection technology in early 2005[i], attracting advertisement contracts is reliant on patronship and the quality of the core business. ‘In-lobby entertainment options’ continue to be popular differentiation strategies in the theatre business, but comprise less than 3% of revenues and contribute questionably to the pull of patrons to one specific theatre. Factors such as location, and a desirable movie portfolio have proven to be much more important to attracting customers.
External Analysis: Opportunities to Improve the Core Business
Industry and Competition
The movie theatre industry’s core service business has increasingly come under threat from more relevant new competitors. In their heyday, Cineplex and Famous Players were easily able to exercise their sheer size to invest more heavily in state of the art equipment and theatre ambiance, as bargaining power to negotiate for exclusive showing rights.[ii] Theatres were only positioned against their brand competitors on their quality and the competitiveness of their price offering. Cineplex is not only being challenged by its brand competitors, who have made auxiliary order-taking improvements such as self-service, online ticketing and hospitality expansions within their food offerings, it is also encountering new product competitors such as the iTunes store, Netflix, TiVo, and emerging digital streaming companies like Intel’s Viiv.
Industry analysis under Porter’s Five Forces model clearly indicates that the power of buyers is increasing not only by the number, but also technical quality of substitutes near par with that of theatres, and often at cheaper prices. Online options can even be free in the case of illegal downloading. The strongest product competitors have truly understood both the changing consumer entertainment desires toward convenience, personalization, and luxury and how technological advancements can fulfill it. Their core service product, a movie, remains the same, but their service innovations in the auxiliary delivery element of the flower of service are certainly better synergized and add value for consumers to the main service product. This introduction of at-home quality entertainment has lead to a positioning innovation. Consumers now use a ‘convenience’ axis to evaluate their entertainment options in addition to the traditional ‘price’ element. Furthermore, as the old axis of ‘quality’ has been made commonplace by product competitors, consumers have added the ‘social excitement’ evaluation that they generally look for in other entertainment category competitors such as bars, sporting games, and concerts.
Cineplex Entertainment LP continued to exhibit steady growth in annual revenues from 2003 to 2006 driven predominately by rising ‘per guest’ box office and concession expenditures. During 2006, the company had a box office revenue growth of...