Good day, and welcome to the Cineplex Incorporated Third Quarter twenty eighteen Analyst Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melissa Prosecco. Please go ahead, ma'am.
Good morning. Before beginning the call, we would like to remind you that certain statements being made are forward looking and subject to various risks and uncertainties. Such forward looking statements are based on management's beliefs and assumptions regarding the information currently available. Actual results could differ materially from those expressed in the forward looking statements. Factors that could cause results to vary include, among other things, adverse factors generally encountered in the film exhibition industry, risks associated with national and world events, discovery of undisclosed material liabilities and general economic conditions.
I will now turn the call over to our President and CEO, Alex Jacobs.
Thank you, Melissa. Good morning, and welcome to Cineplex Inc. Twenty eighteen third quarter conference call. We are pleased you could join us this morning. I will begin by providing a brief overview of our third quarter results and a summary of our key accomplishments during the period.
Then we will take a look at some of the films coming out this holiday season and into 2019. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of our financials and then we will follow-up with a question and answer period. The Film Exhibition business continued to show growth during the third quarter. Strong performances for films like Mission Impossible Fallout, Ant Man and the Wasp, Fallen Kingdom and Crazy Rich Asians resulted in a 2.6% increase in Cineplex theater attendance, which was our second consecutive quarterly theatre attendance increase. This also contributed to a 5.3 increase in box office revenue and third quarter record PPP of CAD10.07.
However, despite growth in box office, adjusted EBITDA was negatively impacted by expenses related to share based compensation due to the increase in our stock price in the quarter, restructuring costs and declines in Cinema Media. Although this resulted in an adjusted EBITDA decrease of 9.3% to $53,400,000 if we exclude the $9,500,000 year over year impact of share based compensation expenses and restructuring costs that have resulted in a 7.7 increase. Now I'd like to highlight some of our key accomplishments during the third quarter. During the third quarter, we opened two new theaters, Cineplex Cinemas Pickering and VIP in Ontario and Cineplex Cinemas Seton and VIP in Calgary, Alberta. Both theaters include all recliner seating as well as an ultra AVX auditorium, reclining D Box motion seats and four VIP cinema auditoriums.
Cineplex Cinemas Pickering and VIP also includes Ontario's first location of the Cineplex Clubhouse, which is an auditorium designed specifically for children and their families. We also opened Edmonton's second VIP Cinemas location at Cineplex Cinemas North Edmonton and VIP by converting five existing auditoriums to four brand new luxurious VIP auditoriums and a fully licensed lounge. Also during the quarter, we announced plans to expand our 4Dx footprint by adding up to 13 additional Cineplex locations across the circuit. Alternative programming included strong performances of international films, including Indi, Punjabi and Filipino with the film The House of Us becoming the highest grossing Filipino title in Cineplex history. Additional performances include Andre Ryu's twenty eighteen Maestri concert, the stage musical An American in Paris and the documentary, Rachel Hollis Presents, Made for More.
Within Theatre Foodservice, we reported a third quarter record CPP of $6.25 an increase of 4% over the prior year period. We continue to roll out alcohol beverage service within non VIP cinemas to an additional four theaters. The service is now available at 20 locations in Ontario and Alberta with plans to expand to additional theaters across the country as provincial laws allow. In addition, Uber Eats continues to be a great success providing incremental sales revenue of our products to non theater guests. The Cineplex store registered a 90% increase in device activations over the prior year period and a 37% increase in registered users.
Online and mobile ticketing represented 24.8% of total admissions during the third quarter, up from 20.2% in the prior year period. As we continue to expand the functionality of our digital products, we launched a new Cineplex mobile app during the quarter. With a refreshed look and improved customer experience, the new app allows guests to easily purchase tickets, skip the line and scan their digital ticket for paperless entry. We've also added functionality for VIP guests to order food and beverage from the comfort of their seats using the app. This is the first step in the evolution of the guest experience using digital technology, and we will continue to add new services and features on an ongoing basis.
Our Cineplex Media Group faced a tough third quarter with the shifting of some key campaigns and less budget allocation from specific advertisers versus the prior year. While we were disappointed with the Cinema Media results this quarter, we believe this to be an anomaly. Cineplex Digital Media, on the other hand, had a strong quarter with revenue increasing six percent due to an expanded client base and growth with existing clients, which contributed to higher project installations and other digital service revenue compared to the prior year period. Additionally, CDM was selected to deploy, maintain and operate a complex merchandising network of digital menu boards for Subway Europe. CDM will work with Subway to provide ongoing strategic content, consulting and marketing services to over 5,400 locations across Europe.
Looking at amusement, gaming and leisure, during the quarter, we announced plans to further expand and enhance our virtual reality offerings across our network. In July, we announced an expansion agreement with The VOID that provides Cineplex with certain exclusivity rights in Canada to operate this hyper reality VR experience. Our second location opened at The Rec Room West Edmonton Mall featuring Secrets of the Empire, which is also now available at The Rec Room in Toronto. The plan is for Cineplex to open at these five Voigt Experience Centers over the coming years. Then in September, we announced a strategic agreement with VR Studios, which is one of the largest global providers of turnkey location based virtual reality solutions.
The agreement includes a commercial partnership and equity investment. In addition to installation opportunities across the Cineplex ecosystem, the agreement also provides broader expansion opportunities in North America and around the globe. We are proud to be leading the way in the growing location based VR market, a product set that will contribute across the Cineplex ecosystem in our location based entertainment centers, in our theaters and through the distribution network of Player One amusement group clients. Looking at The Rec Room, with five locations now open, The Rec Room continued to perform well, reporting third quarter revenues of $16,800,000 and an adjusted store level EBITDA margin of 20.9%. This was a result of the strong summer months and continued optimization of operations.
As we continue to scale this business, we look forward to opening four new locations at The Rec Room and two Palladium locations in 2019. In eSports, World Gaming held its Rocket League Canadian Championship finals with the top eight teams from the regional finals competing at the Scotiabank Theatre Toronto in August. As mentioned last quarter, World Gaming was named the official tournament operator and host for The U. S. And Canadian qualifiers of the twenty eighteen World Electronic Sports Game in partnership with Ali Sports.
These tournaments occurred during the fourth quarter. Our SCENE loyalty program continues to grow as we reached 9,400,000 members as of September 30. During the quarter, as we continue to expand offerings and benefits to our members, SCENE and Maple Leaf Sports and Entertainment launched the first campaign to bring MLSE Toronto Maple Leafs and Toronto Raptors teams to its members through exclusive access to money can't buy experiences and tickets. Subsequent to the quarter end, announced the pilot of a new premium SCENE Gold loyalty card that offers guests exclusive perks and more points. Only available in Edmonton right now for $6.99 a month, SCENE Gold provides guests with the ability to earn SCENE points faster, free upgrades from general admission to an enhanced movie experience, dedicated concession lineups, popcorn and drink upgrades and more.
This program was designed to deepen engagement with our most loyal and active SCENE members. We will monitor the results of the pilot and determine next steps based on our learnings. Finally, we continued the execution of our cost reduction program during the quarter. As we closed out 2019, we remain diligent and focused on controlling costs and expect to reach the $25,000,000 in annualized savings target by the end of the year. Now let's look at some of the films coming out for the balance of the year and what's in store for 2019.
The fourth quarter is already shaping up nicely with the Canadian box office up 36% in October, making it the strongest October box office ever for Cineplex with top performing films, including A Star is Born, Venom and Halloween. Opening strong last weekend, we had the animated Doctor. Seuss, The Grinch starring Benedict Cumberbatch, then opening next weekend, the popular Harry Potter franchise returns to theaters with The Crimes of Grindelwald. On November 21, we have four films opening including Disney's Ralph Breaks the Internet, Creed II starring Sylvester Stallone, a remake of the classic Robin Hood with Taryn Egerton and Jamie Foxx and the comedy drama Green Book, which won the People's Choice Award at TIFF this year. Looking at December, there's something for everyone over the holiday season.
On December 14, we have both the animated Into the Spider Verse and the post apocalyptic adventure film, Mortal Engines. Next up is the highly anticipated Mary Poppins returns with an all star cast, including Emily Blunt, Meryl Streep, Colin Firth and Dick Van Dyke opening December 21. Also opening December 21, we have the next film in the DC Comic Universe, Aquaman and the new Transformers film, Bumblebee. Finally, on December 28, the action comedy Holmes and Watson starring Will Ferrell and John Reilly opens in theaters right before the New Year. As you can see, we have what appears to be a promising film slate for the remainder of the year and are encouraged by what's coming out in 2019.
Films such as Captain Marvel, Avengers four, Toy Story four, Spider Man: Far From Home, The Lion King, Chapter two, Frozen two, a Jumanji sequel and Episode IX to name just a few. Overall, Cineplex experienced a good third quarter and accomplished a great deal. A year ago, there was great concern about the theater exhibition business. However, the 2018 box office has performed very well, surpassing many expectations and confirming our ongoing confidence in the industry. Cineplex year to date post office revenue is up 2.1, BPP is up 3.3%, CPP is up 6.9%, adjusted EBITDA is up 11.8% and our EPS is up 19.7%.
We are encouraged by the outlook of firm products for the remainder of the year and the ongoing growth in The Rec Room and our other businesses. Adding to this, with our focus on cost control and strategic spending to grow, we are confident that we are positioning the company for success in the future. With that, I'll turn the call over to Gord.
Thanks, Ellis. I'm pleased to present the third quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD and A have been filed on SEDAR this morning and are also available on our Investor Relations website at cineplex.com. We continue to execute our diversification strategy. For the third quarter, total revenue increased 4.4% to CAD386.7 million, a third quarter record with increases in theatre exhibition and amusement and leisure contributing to the growth.
Despite this top line growth, adjusted EBITDA comparisons were impacted by a number of items. The increase in share price as compared to the decline in the prior year resulted in an $8,400,000 increase in share based compensation expense. Headcount reductions as a result of the ongoing cost reduction program resulted in an additional CAD1 million in restructuring costs during the quarter, and there was a non recurring charge of CAD2.1 million in the P1AG business. In addition, the flow through of the media revenue declined negatively impacted Q3 adjusted EBITDA as did the ongoing impact of the minimum wage increases. The film exhibition and content business performed strong with increases in both total revenue and segment EBITDA.
The Rec Room business achieved its highest EBITDA margin to date of 20.9% and showed significant top line and bottom line growth compared to the prior year. Although there are a few items negatively impacting Q3, on a year to date basis, we are pleased to be reporting 5.1% top line revenue growth and an 11.8% increase in adjusted EBITDA. Turning to specific items. Cineplex's third quarter box office revenue increased 5.3% to $173,300,000 compared to $164,500,000 in the prior year. This was a result of the impact of the 2.6% increase in attendance, coupled with a PPP increase of 2.7%, which has established a third quarter record of $10.7 up from $9.81 in 2017.
Foodservice revenue increased 8% to $115,600,000 included in food service revenue was CAD8 million from The Rec Room. Excluding revenue from The Rec Room, theatre food service revenue increased by 6.7 from the prior year due to the previously mentioned increase in attendance combined with the 4% increase in concession revenue per patron to a third quarter record of CAD6.25. The CPP growth was attributed in part to increased basket size and expanded food offerings including those available at Cineparks' VIP cinemas, intakes and additional licensed locations. Total media revenue decreased CAD6.4 million or 16% to CAD33.5 million for the quarter. Cinema media revenue, which is primarily theatre based, decreased 26% due to lower cinema advertising as a result of the decreases in automotive, government, beverage and electronic and technology sectors.
Digital place based media revenue increased 6% compared to the prior year, primarily due to higher project installation revenue relates to A and W and Citizens Bank in addition to increases in other digital services revenue. Year to date, we have increased our location count by 3.9% or four ninety eight new locations to a total of 13,424 locations. Amusement revenue increased CAD4.9 million or 10% due to strong revenue growth from The Rec Room, which contributed CAD8.1 million of amusement, gaming and other revenue. With respect to The Rec Room, total revenue grew CAD6.2 million over the prior year with five locations opened for the full quarter. Margins were up 13.7% to a quarterly record of 20.9% on the strength of the summer months and continued improvement and optimization of operations.
P1AG revenues increased by $800,000 due in part to an increase in revenue in The U. S. As a result of the Cinemark agreement, partially offset by non recurring items with impacts to both revenue and OpEx in the current period, negative impacting P1AT's results by approximately $2,100,000 Turning briefly to our key expense line items. Film cost for the quarter came in at 52.1% of box office revenue as compared to historically low 50.6% reported in the prior year, which reflects the impact of the strong titles in the third quarter of this year. Cost of food service for Q3 twenty eighteen, excluding $2,300,000 incurred at The Rec Room was 20.5% as compared to 21.5% in the prior year period.
Cost of food service at The Rec Room was 28.2% in line with expectations. Other costs of $218,900,000 increased $14,100,000 or 6.9%. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses. Theater occupancy expenses were $53,200,000 for the quarter versus a prior year actual $52,300,000 Other operating expenses were $147,800,000 for the quarter versus a prior year actual of CAD143.4 million, an increase of CAD4.4 million. Increases included CAD3.2 million related to additional rec room locations, a $2,400,000 increase for PE1AG due to increased business volumes and the non recurring item and $3,900,000 in same store theater payroll, mainly due to the impact of minimum wage changes, which more than offset the labor efficiencies realized in the quarter.
These increases were offset by a decrease in media costs of CAD2.4 million due to a decrease in business and improved cost management and a CAD 1,200,000.0 reduction in scene costs due to the timing of expenses. Preopening costs for The Rec Room were also reduced due to the timing of openings in the current year as compared to the prior year. G and A expenses were $18,000,000 for the quarter, which was $9,000,000 higher than the prior year due to a $8,400,000 increase in share based compensation expenses, mainly due to Cineplex's higher share price, which increased $5.82 during the current quarter as compared to a decrease of $13.82 in the prior year period and restructuring costs in the amount of $1,000,000 related to our cost reduction program. As we have said earlier, we expect the annualized impact of the business unit and G and A cost reduction program to be approximately $25,000,000 and this will ramp up over the remainder of the year. Business unit level cost reductions will be reflected in the other operating expenses as detailed in our MD and A.
Net CapEx for the third quarter was CAD27.1 million as compared to CAD45.3 million in the prior year. As a result of some timing adjustments, we are reducing our net CapEx estimate to approximately CAD115 million, a CAD10 million reduction and increasing our 2019 net CapEx amount estimate by that same amount to CAD160 million from CAD150 million. In anticipation of an uncertain credit environment ahead and subsequent to the quarter end, we entered into an amended and restated credit agreement extending our debt a further five years with a CAD150 million component extending seven years. We also increased our borrowing capacity to CAD800 million to provide availability to settle the maturing convertible debenture liability in cash and to provide additional resources for growth opportunities. As Ellis mentioned earlier, we have steadfastly focused on creating entertainment and media company for the future.
We are prepared to prudently use both our operating cash flow and our credit facilities to invest in these new businesses. We continue to remain comfortable with where Cineplex Inc. Is positioned today. We are in the early execution phase of a number of our diversification initiatives and our balance sheet allows us to continue to invest in these growth initiatives to deliver future value for our shareholders. That concludes our remarks for this morning.
And we'd now like to turn the call over to the conference operator for questions.
Thank We'll take our first question from Geoff Fan of Scotiabank. Please go ahead. Your line is open.
Thanks. Good morning. Let's start with the Cinema Media line. Alas, I think you mentioned that some of the volume decline may be an anomaly. Wondering if you can just elaborate a little bit on that.
And what kind of volume or pacing, I guess, are we seeing in the fourth quarter? Do you expect that to bounce back? And then my second question is related to the box office per patron, revenue per patron and specifically the premium mix. I guess from quarter to quarter, there can be some volatility in that number because of the type of format. But I guess what we've seen in the last few quarters now is a decline in that percentage mix.
Wondering what you're seeing with respect to patrons and whether you we could see that percentage start to return? Thanks.
So on the media, Jeff, as I said, basically, it was a tough quarter. It was to us an anomaly because we ended up with the larger contracts in some of the automotive areas, which got pushed out or reduced. And then we also have the government where we had a change in the government and there's been less spending as compared to the prior year. And for the fourth quarter, we expect things to be at a strong level. And the fourth quarter is usually our best quarter of the year and advertisers want to be there for the holiday season.
But we'll have to see how it plays out with the product that we have available in the fourth quarter from a movie perspective.
And on the premium percentage question, I guess, Jeff, one of the roughly half of the premium mix comes from three d products. So to the extent that the quantity and the quality of the three d product finds favor with the audience. That's probably the primary driver of why the mix is kind of going up and down in any given quarter. We still continue to see strength in the VIP program and Ultra AVX, but it's primarily that shift in the quantity and quality of the three d product.
If I can just follow-up to the media question. I mean, are we going to expect a positive fourth quarter on the Cinema Media line? Or I'm wondering if you can just give some better outlook because I think investors are asking a lot of questions about that, whether this is really timing or whether there's some more significant shift in advertisers' behavior towards other format. And then just to follow-up with Gord, that premium percentage number, I mean, yes, I mean, we do have quarter to quarter fluctuations, but it's been down, I guess, for the last five quarters year on year. I'm wondering if that's a change in consumer behavior or is that just the format coming out or no longer as many three d films to support the box office revenue?
So on the media area, Jeff, we're hoping that the fourth quarter will be in line with our prior year fourth quarter. But again, we are well into the quarter and we should be able to get a firmer number closer in the next couple of weeks. But I don't expect to see a decline like you saw in the third quarter. And on an annual basis, I think when you look at the decline year to date, it's closer to 6% overall. So this is not a business where the floor is falling out from under it.
And we look at it as continuing to strengthen going into 2019.
And on the mix question again, so yes, that impact that you're seeing is primarily related to quantity and quality of the three d products.
Okay, thanks.
Thank you.
Our next question is from Adam Shine of National Bank Financial.
Ellis, maybe just to start on the box office vis a vis the underperformance versus the industry. Can you speak to any particular qualifiers, often it's a Quebec sort of dynamic, anything else to speak to?
Well, couple of things. In the quarter, we continued to work on the receding in our lounger program, which resulted in a number of locations where the screens were off in for a period of the quarter, which resulted in a lower box office percentage with Cineplex. We've also had institutional IMAX's, which did extremely well with the movie Panda, and that's in the total, which we basically play, but we play usually the Hollywood films. So those institutional IMAX's are counted as part of box office. And then finally, there's been a couple of new theaters built across the country and those also impact the total because of a significant market share.
If a new theater opens, these are mainly smaller markets, but they still do have an impact on the overall percentage.
If I look at concession, maybe more for Gord, we've seen over the last four quarters the growth rate in concession given some of the push among the initiatives you've been doing driving something like, I don't know, four fifty bps of outperformance in growth versus the box office trend. We saw a much more subdued sort of delta in the Q3. Is that more a function of a lapping amidst some of the efforts? Or it certainly looks as though there's further dynamics afoot, whether it's alcohol and a few more theaters and other initiatives underway. Maybe you can just elaborate
Really, I mean, it totally relates to film mix, particular, September. So we were throughout July and August, we were up just around 6% in terms of CPP. In the month of September, given that this year, top performing film included Crazy Rich Asians, last year was It. So last year, our CPP for September was up roughly 12% year over year on the strength of it. This year, we were up, but just marginally up.
So 6% up in the two strong summer months, but the September being up just up nominally is what ended up with the 4% increase. So it's all related to kind of the film mix that played during the month of September.
Okay. I'll leave it there
and queue up again. Thanks. Thanks.
Our next question comes from Derek Lessard from TD Securities. Please go ahead. Your line is open.
Hi, good morning, everybody. Maybe if we can just talk about the $2,100,000 in nonrecurring charge in P1AG. Maybe just what that was? And was that excluded from your adjusted EBITDA number?
No, Derek. So it was in there. So the $2,100,000 again, related to some of the number of acquisitions that was done in The U. S. From an operations perspective is initially early on, we had a number of integration costs, which we characterize as kind of onetime.
This is something that came up during the third quarter, which, again, related to the previous kind of operations of the business that we needed to take care. And so I characterize it as more of an integration onetime cost.
Okay. So sorry, that was it was excluded or included in the adjusted EBITDA?
No, it's included as a charge in our adjusted EBITDA.
Okay. Thank you. And you mentioned Uber Eats in your prepared remarks. Just wondering if you're able to talk about the materiality of that revenue stream?
Look, in total, it's not that material, but the bottom line is it's incremental money that we are getting and it's also the awareness and what it's doing for us in the Cineplex store. So overall, it does provide additional dollars. But again, it's more about the guest and what we are offering them both in our bricks and in our clicks, and this is another additional item that they're able to access.
Okay. And in your digital, I'm just wondering if you can maybe just talk a little bit about your digital media pipeline and maybe frame the Subway Europe announcement around how long this rollout should take and maybe your progress on Arcos Dorados as well?
Yes. So Derek, I mean, as we
always have kind of mentioned,
the QSRs, we have the kind of the franchisee structure that we need to navigate through. Now ArcoSeratos is a little bit different given that they're the largest. They are the franchisee. But as we look at the rollouts, we typically have slow deployment in the first year as we work with the brands and navigate through some of the technical issues and show and demonstrate the continued ROI. And then it speeds up over the remaining two years.
So we're early on. We're in that first year. So it's kind of those initial deployments, which we would expect to speed up over the next two years.
And Europe, you haven't started the process yet? Sorry, several months. No.
Sorry, we have started the process, but it's not a significant number of deployments that we've done to date, and that's included in the third quarter results.
Okay. Thanks,
Our next question comes from Rob Goff from Echelon. Please go ahead. Your line is open.
Thank you very much. Since we saw the negative upfront impact of the reclining chairs on box office attendance with downtime, Can you talk to the upside in terms of some of the theater economics that you were realizing where you have deployed those recliners? And as a second question, where you do have alcohol available, would that be something like 5% to 10% of the CPP or just I'm trying to get some parameters on that.
Yes. So on the first question with the recliners, as you know, when the screens are out of commission, we take a bit of a hit. And then once we basically get them back on, we see a lift in the overall attendance and growth. And also it's helped us on the CPP side interestingly because there's less capacity. So we're able to floor a lot more people through the theaters.
But again, it varies by location. So I don't want to tell you that every location we see a significant increase because in some cases we've got two theaters very close proximity where we own both of the theaters. So it kind of has some cannibalization impact.
And then on alcohol, I would characterize the amount as being less than 5% of the CPD number. In the theaters where it is available, correct? Correct.
Okay. Thank you very much.
Thank you.
Our next question comes from Aravinda Galappatthige from Canaccord Genuity. Please go ahead. Your line is open.
Good morning. Thanks for taking my question. For Ellis or Gord, just to go to the delta versus the industry, I mean obviously since you've started the rollout of the recliner program and also an individual quarters where Quebec came into play, we've seen sort of this underperformance versus the industry. As we look beyond 'eighteen, I mean for our forecasting purposes should we sort of look for this delta to kind of taper off and perhaps go back to a premium or at least sort of track the industry because lot of the reasoning that you've indicated seems transitionary. It doesn't seem like it's something that's going to last for an extended period of time.
Just wondering if you can just help me out in terms of sort of the outlook there beyond 2018?
Yes, Aravinda, beyond 2018, I think we are going to be more in line with the industry and track. But then you have situations, for example, the theater in Fort McMurray took a big hit with the fires and things like that. And the owner there basically decided to redo the theater, so there will be increased box office from that particular location. Now it's not going to change things that significantly, but those are the kinds of things that cause the imbalance sometimes. But I think for 2019, we should be definitely in line with the industry numbers.
Okay. And just on the strength of the box office, obviously Q2 we knew was going to be strong and the Q3 and so far Q4 is I'll give you done better than I think was most expected. I know that a couple of quarters don't make a trend, but when you look at the composition of the films that are doing well, I mean is there anything that you see in terms of sort of a secular shift? I mean it looks like it's not so much the bigger blockbusters that's driving the outperformance. It's more the I don't want to call it mid tier, but certainly let's call it the non block so the 100,000,000 to $150,000,000 North American box office size, that category seems to be where the outperformance is coming from.
I was wondering if there's anything you're noticing, Ellis or Gord, with respect to sort of that outperformance?
Yes. And when you look at a movie like Crazy Rich Asians, which was a movie that actually Netflix was bidding on and Warner Brothers looked at it and their senior executives decided to and the individuals who own the movie wanted to go with the theatrical release. And when you look at that movie in North America, it's going to do close to $200,000,000 and did extremely well in our circuit in Canada. And then you had A Star Is Born, which has done again extremely well for us overall. So those are the kinds of movies that really are important to the overall mix of the movies that are being offered.
And I think that you saw because when we started 2018, everybody was nervous about the box office, but some of these movies have come out and delivered and the audiences want to see it on the big screen in a social environment.
And I
think that's going to continue into 2019 again.
Okay, great. Last question for me on esports. Obviously, the sector seems to be sort of generating a lot more interest both here and in North America in general. Any sort of thoughts on your initiatives, your plans on that space that you can share?
Yeah. So a lot of
the traction, a lot a lot of the focus is what I would call kind of the pro series as publishers are establishing pro leagues. And, you know, and teams are are joining these pro weeks for an entry fee. Our focus has always been kind of on that path to the pro and establishing a North American presence for the competitive gamer looking to transition to a pro series. So there's lots of interest, which is great for us because as you are all aware, the whole value stream and the monetization of the esports business is primarily on sponsorship and advertising. As the space grows and more sponsors become interested in the space, that's going to kind of bode well for us.
Great. Thank you.
Thank you.
We'll take our next question from Drew McReynolds from RBC. Please go ahead. Your line is open.
Thanks very much. Good morning. First couple of questions for you, Gord, just in terms of your cost savings realized, I guess, on an annualized basis as of Q3. That's probably buried somewhere in the MD and A, but do you have that number handy?
Yes. So I would say at the
end of Q3, we're at about $19,000,000 just over slightly over $19,000,000 If I were to take you through the components, it's in the MD and A. But if you looked at the theater OpEx and sort of adjusted it from some of the volume changes, you'd see about $05,000,000 in the quarter. In the media business, the expense was down about $2,400,000 but part of that was reduced that was a result of the drop in business volume. So it's about 1,000,000 point dollars that is related to the cost savings program. P1AG is showing up 2,400,000.0 but as I mentioned before, there's a $2,100,000 charge in that business.
And then there's been some volume increase, so there's about 0.4 so $400,000 related to the P1AG business. Between marketing and scene, as you'll see in the bridge, there's about $1,000,000 number. In the other category, it's down $3,000,000 but part of that is primarily related to the large component of that is related to preopening costs for the London location from last year. So there's about $1,000,000 in other savings. And then in G and A, you'll see the $400,000 in savings in the MD and A.
So that's about $4,800,000 in the quarter. So annualized up is about $19,200,000
Okay. That's great. Switching gears, just on The Rec Room, with respect to kind of the full quarter from the five locations, I know it's still kind of seasonal here. But in terms of what you're generating in terms of average foodservice revenue and amusement revenue per location, Do you see that kind of more of a steady state now? Are there kind of certain levers for you to pull on these restaurants to increase that, again, obviously seasonally adjusted?
And on the margin side of things, just remind us, has your target EBITDA margin on this business changed based on your experience to date? Thank you.
I'd say EBITDA margin targets have not changed. We're continuing to ramp up. We're making great headwinds in the month of sorry, in the third quarter. And when you look at our population of locations, as we always kind of remind people, the first location, the North Edmonton location is a 60,000 square foot box. We tend to pilot concepts there.
So as we go forward, the newer locations are tracking on those margin levels and will bring the overall margin up. In terms of tweaking, we're always doing tweaking of the concept, whether it's to the menu, whether it's to the allocation of floor space between food and beverage, amusement gaming, West Edmonton Mall, we added The Void, there was not a VR concept there That was added during the third quarter. We've transitioned over the VOID concept roundhouse in Toronto. We've made that announcement with VR studios that could go on some new concepts going forward. So we're always tweaking and refining.
Okay. If I could maybe add one last one for you, Ellis. Just back to Cineplex Media here. Just wondering if you could provide some additional kind of context in terms of what you referred to as the allocation of advertising dollars from your advertisers. When you have discussions with them, is there any kind of change in how they're looking at the format and medium?
You've talked about expanding the verticals in the past. Is there still some potential to do that to diversify here in the event you get a quarter like you just did? And then also, is there some added seasonality now? I know you've commented on that in the past. As the format kind of gains a little bit more steady state, assuming we presumably that seasonality comes out a little bit more, maybe just drilling down a little bit in those things.
Thank you.
So on your question regarding the value of the movie advertising, I still feel and we know that the clients still like that as a medium because you've got a captive audience. And it's something that's easily measurable and we feel that, that it will continue to be strong. And I think it was, as I said, an anomaly and part of it was driven by the fact that in the auto sector, if you're selling more cars than you can produce, you don't need to spend as much money advertising. And in the case of government, if you've got a change focus, you end up with a change in the amount of money you're allocating to the screen. But as we have clients and we continue to nurture them, I think you will continue to see the business build up over time.
And given all of the different media assets we have with the shopping centers and Tim's TV and things like that, we have a bigger portfolio to offer our clients and our agencies. So I would not take this as basically, as I said earlier, that this is a major collapse of this business in any way.
Okay. Thank you.
Thanks.
It appears there are no further questions at this time. Mr. Ellis Jacob, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you all for joining We wish you a very happy and healthy holiday season and look forward to speaking with you in the New Year at our Q4 year end conference call. Thanks very much.
This concludes today's call. Thank you for your participation. You may now disconnect.