Good day, and welcome to the Cineplex Inc. third quarter 2018 analyst conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melissa Pressacco. 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, Ellis Jacob.
Thank you, Melissa. Good morning, and welcome to Cineplex Inc.'s 2018 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. 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, we will follow up with the 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," "Jurassic World: Fallen Kingdom," and "Crazy Rich Asians" resulted in a 2.6% increase in Cineplex theater attendance, which was our second consecutive quarterly theater attendance increase.
This also contributed to a 5.3% increase in box office revenue and third-quarter record BPP of CAD 10.07. 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 CAD 53.4 million, if we exclude the CAD 9.5 million year-over-year impact of share-based compensation expenses and restructuring costs, it would 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 UltraAVX 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. 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 Hindi, Punjabi, and Filipino, with the film "The Hows of Us" becoming the highest-grossing Filipino title in Cineplex history.
Additional performances include André Rieu's 2018 Maastricht concert, the stage musical "An American in Paris," and the documentary "Rachel Hollis Presents: Made for More." Within theater food service, we reported a third-quarter record CPP of CAD 6.25, an increase of 4% over the prior period. We continued 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 6% 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 Star Wars: Secrets of the Empire, which is also now available at The Rec Room in Toronto. The plan is for Cineplex to open at least five The Void experience centers over the coming years. In September, we announced a strategic agreement with VRstudios, 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 CAD 16.8 million 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 of The Rec Room and two Playdium locations in 2019. In esports, WorldGaming 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, WorldGaming was named the official tournament operator and host for the U.S. and Canadian qualifiers of the 2018 World Electronic Sports Games in partnership with Alisports. These tournaments occurred during the fourth quarter.
Our Scene loyalty program continues to grow as we reach 9.4 million members as of September 30th. During the quarter, as we continue to expand offerings and benefits to our members, Scene and Maple Leaf Sports & 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, Scene 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 CAD 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. We continued the execution of our cost reduction program during the quarter. As we close out 2019, we remain diligent and focused on controlling costs and expect to reach the CAD 25 million in annualized savings target by the end of the year. 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 Dr. Seuss "The Grinch" starring Benedict Cumberbatch.
Opening next weekend, the popular Harry Potter franchise returns to theaters with "Fantastic Beasts: The Crimes of Grindelwald." On November 21st, 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 Taron 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 14th, we have both the animated "Spider-Man: 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 21st.
Also opening December 21st, we have the next film in the DC Extended Universe, "Aquaman," and the new Transformers film, "Bumblebee." On December 28th, the action comedy "Holmes & 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 4," "Toy Story 4," "Spider-Man: Far From Home," "The Lion King," "It Chapter Two," "Frozen II," a Jumanji sequel, and "Star Wars: 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.
The 2018 box office has performed very well, surpassing many expectations and confirming our ongoing confidence in the industry. Cineplex year-to-date box 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 film product 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 on MD&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, and for the third quarter, total revenue increased 4.4% to CAD 386.7 million, a third-quarter record, with increases in theater 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 a CAD 8.4 million increase in share-based compensation expense. Headcount reductions as a result of the ongoing cost reduction program resulted in an additional CAD 1 million in restructuring costs during the quarter, and there was a non-recurring charge of CAD 2.1 million in the P1AG business.
In addition, the flow through the media revenue decline 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. Now turning to specific items. Cineplex's third quarter box office revenue increased 5.3% to CAD 173.3 million, compared to CAD 164.5 million in the prior year.
This was a result of the impact of the 2.6% increase in attendance, coupled with a BPP increase of 2.7%, which established a third-quarter record of CAD 10.07, up from CAD 9.81 in 2017. Food service revenue increased 8% to CAD 115.6 million. Included in food service revenue was CAD 8 million from The Rec Room. Excluding revenue from The Rec Room, theater 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 CAD 6.25. The CPP growth was attributed in part to increased basket size and expanded food offerings, including those available at Cineplex's VIP Cinemas at Outtakes and additional licensed locations. Total media revenue decreased CAD 6.4 million or 16% to CAD 33.5 million for the quarter.
Cinema media revenue, which is primarily theater-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 related to A&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 498 new locations to a total of 13,424 locations. Amusement revenue increased CAD 4.9 million or 10% due to strong revenue growth from The Rec Room, which contributed CAD 8.1 million of amusement gaming and other revenue. With respect to The Rec Room, total revenue grew CAD 6.2 million over the prior year, with five locations open 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 CAD 0.8 million, 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 P1AG's results by approximately CAD 2.1 million. Turning briefly to our key expense line items. Film costs for the quarter came in at 52.1% of box office revenue as compared to a 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, 2018, excluding CAD 2.3 million incurred at The Rec Room, was 20.5% as compared to 21.5% in the prior period.
Cost of food service at The Rec Room was 28.2%, in line with expectations. Other costs of CAD 218.9 million increased to CAD 14.1 million or 6.9%. Other costs include theater occupancy expenses, other operating expenses, and general and administrative expenses. Theater occupancy expenses were CAD 53.2 million for the quarter versus a prior year actual of CAD 52.3 million. Other operating expenses were CAD 147.8 million for the quarter versus a prior year actual of CAD 143.4 million, an increase of CAD 4.4 million. Increases included CAD 3.2 million related to additional Rec Room locations, a CAD 2.4 million increase for P1AG due to increased business volumes and the non-recurring item, and CAD 3.9 million 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 CAD 2.4 million due to a decrease in business and improved cost management, and a CAD 1.2 million reduction in Scene cost due to the timing of expenses. Pre-opening 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&A expenses were CAD 18 million for the quarter, which was CAD 9 million higher than the prior year, due to an CAD 8.4 million increase in share-based compensation expenses, mainly due to Cineplex's higher share price, which increased CAD 5.82 during the current quarter as compared to a decrease of CAD 13.82 in the prior year period, and restructuring costs in the amount of CAD 1 million related to our cost reduction program.
As we have said earlier, we expect the annualized impact of the business unit and G&A cost reduction programs to be approximately CAD 25 million, 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&A. Net CapEx for the third quarter was CAD 27.1 million as compared to CAD 45.3 million in the prior year. As a result of some timing adjustments, we are reducing our net CapEx estimate to approximately CAD 115 million, a CAD 10 million reduction, and increasing our 2019 net CapEx amount estimate by that same amount to CAD 160 million from CAD 150 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 CAD 150 million component extending seven years.
We also increased our borrowing capacity to CAD 800 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 a diversified 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. 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, we'd now like to turn the call over to the conference operator for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from Jeff Fan of Scotiabank. Please go ahead. Your line is open.
Thanks. Good morning. Let's start with the cinema media line. Ellis, 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. What kind of volume or pacing, I guess, are we seeing in the fourth quarter? Do you expect that to bounce back? 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. 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 then whether we could see that percentage start to return. Thanks.
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. 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. 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. Advertisers want to be there for the holiday season. We'll have to see how it plays out with the product that we have available in the fourth quarter from a movie perspective.
On the premium percentage question, I guess, Jeff, one of the roughly half of the premium mix comes from 3D products. To the extent that the quantity and the quality of the 3D 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 UltraAVX, it's primarily that shift in the quantity and quality of the 3D product.
If I can just follow up to the media question. Are we going to expect a positive fourth quarter on the Cineplex Media line, or I was 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. Just to follow up with Gord, that premium percentage number, yes, 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 3D films to support the box office revenue.
On the media area, Jeff, we're hoping that the fourth quarter will be in line with our prior year fourth quarter. Again, we are well into the quarter and we should be able to get a firmer number closer in the next couple of weeks. I don't expect to see a decline like you saw in the third quarter. On an annual basis, I think when you look at the decline year-to-date, it's closer to 6% overall. This is not a business where the floor is falling out from under it. We look at it as continuing to strengthen going into 2019.
On the mix question again, yes, that impact that you're seeing is primarily related to quantity and quality of the 3D product.
Okay, thanks.
Thank you.
Our next question is from Adam Shine of National Bank Financial. Please go ahead. Your line is open.
Thank you. Good morning. Ellis, maybe just to start on the box office vis-à-vis the underperformance versus the industry. Can you speak to any particular qualifiers off of the Quebec sort of dynamic? Anything else to speak to?
Well, a couple of things. In the quarter we continued to work on the reseating in our lounger program, which resulted in a number of locations where the screens were off for a period of the quarter, which resulted in a lower box office percentage for Cineplex. We've also had institutional IMAXs, which did extremely well with the movie Pandas, and that's in the total, which we basically play, but we play usually the Hollywood films. Those institutional IMAXs are counted as part of box office. Finally, there's been a couple of new theaters built across the country. Those also impact the total because of significant market share if a new theater opens. These are in 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, 450 basis points of outperformance and 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 in a few more theaters and other initiatives underway. Maybe you can just elaborate on that.
Yeah, really, honestly, it totally relates to film mix, in particular September. 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 it was "It." 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. 6% up in the two strong summer months, but the September being up just up nominally is what ended up with the 4% increase. 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.
Hey, good morning, everybody. Maybe if we can just talk about the CAD 2.1 million in non-recurring charge in P1AG. Maybe just what that was, and was that excluded from your adjusted EBITDA number?
No, Derek. It was in there. The CAD 2.1, 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 one-time. 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 of, and so I characterize as more of an integration one-time cost.
Okay. Sorry, it was excluded or included in the adjusted EBITDA?
No, it's included as a charge in our adjusted EBITDA.
Okay, thank you. You mentioned Uber Eats in your prepared remarks. Just wondering if you are 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. Overall, it does provide us with additional dollars. 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. 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.
Yeah. Derek, as we always have kind of mentioned the QSRs, we have the franchisee structure that we need to navigate through. Now, Arcos Dorados is a little bit different given that 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. Then it speeds up over the remaining two years. 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.
Europe, you haven't started the process yet? Sorry, Subway.
No. Oh, 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, Gord.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. If you find your question has been answered, you may remove yourself from the queue by pressing star two. 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 the downtime, can you talk to the upside in terms of some of the theater economics that you are realizing where you have deployed those recliners? As a second question, where you do have alcohol available, would that be something like 5%-10% of the CPP or just I'm trying to get some parameters on that?
On the first question with the recliners, as you know, when the screens are out of commission, we take a bit of a hit, then once we basically get them back on, we see a lift in the overall attendance and growth. Also it's helped us on the CPP side, interestingly, because there's less capacity, we're able to floor a lot more people through the theaters. Again, it varies by location. 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, it kind of has some cannibalization impact.
On alcohol, I would characterize the amount as being less than 5% of the CPP 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 back to the delta versus the industry. Obviously since you've started the rollout of the recliner program and also in individual quarters where Quebec came into play, we've seen sort of this underperformance versus the industry. As we look beyond 2018, 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 a 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.
Yeah, Aravinda, beyond 2018, I think we are going to be more in line with the industry and track. 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. It's not going to change things that significantly, those are the kinds of things that cause the imbalance sometimes. I think for 2019, we should be definitely in line with the industry numbers.
Okay. Just on the strength of the box office. Obviously Q2 we knew was going to be strong, the Q3 and so far Q4 has arguably done better than I think what most expected. I know that a couple of quarters don't make a trend, when you look at the composition of the films that are doing well, is there anything that you see in terms of sort of a secular shift? 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-blockbusters. The $100 million-$150 million 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 that outperformance.
When you look at a movie like "Crazy Rich Asians" which was a movie that actually Netflix was bidding on, Warner Bros. looked at it, their senior executives decided to, the individuals who owned the movie wanted to go with the theatrical release. When you look at that movie in North America, it's going to do close to $200 million and did extremely well in our circuit in Canada. You had "A Star Is Born" which has done again extremely well for us overall. Those are the kinds of movies that really are important to the overall mix of the movies that are being offered.
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.
Thanks, Gord.
I think that's going to continue into 2019 again.
Okay, great. Last question from 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 in that space that you can share?
Yeah. A lot of the traction, a lot of the focus is in what I would call kind of the pro series as publishers are establishing pro leagues. Teams are joining these pro leagues 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. 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.
Once again, if you would like to ask a question, please press star one. We will 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 is probably buried somewhere in the MD&A, but do you have that number handy?
Yeah. I would say at the end of Q3, we're at about CAD 19 million, just slightly over CAD 19 million. If I were to take you through the components, it's in the MD&A, but if you looked at the theater OpEx, and sort of adjusted it from some of the volume changes, you'd see about half a million CAD in the quarter. In the media business the expense was down about CAD 2.4 million. Part of that was a result of the drop in business volume. It's about a million and a half CAD that is related to the cost savings program. P1AG is certainly not 2.4, but as I mentioned before, there's a CAD 2.1 million charge in that business. Then there's been some volume increase. There's about CAD 400,000 related to the P1AG business.
Between marketing and Scene, as you'll see in the bridge, there's about a million CAD number. In the other category, it's down CAD 3 million. Part of that's primarily related to the large component that is related to pre-opening costs for the London location from last year. There's about a million CAD in other savings. Then in G&A, you'll see the CAD 400,000 in savings in the MD&A. That's about CAD 4.8 million in the quarter. Annualized, that is about CAD 19.2 million.
Good. That's great. Switching gears, just on The Rec Room, with respect to kind of the whole 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 food service revenue and amusement revenue per location. Do you see that more of a steady state now? Are there certain levers for you to pull in these restaurants to increase that? Again, obviously, seasonally adjusted. 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 our EBITDA margin targets have not changed. We're continuing to ramp up. We made great headwinds in the third quarter. 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 sq ft box. We tend to pilot concepts there. As we go forward, the newer locations are tracking on those margin levels, and we'll bring the overall margin up. In terms of tweaking, we're always doing tweaking to the concept, whether it's to the menu, whether it's to the allocation of floor space between food and beverage and 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 VRstudios that could go on some new concepts going forward. 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? 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, presumably that seasonality comes out a little bit more. Maybe just drilling down a little bit in those things. Thank you.
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 it'll continue to be strong. 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. In the case of government, if you've got a change in focus, you end up with a change in the amount of money you're allocating to the screen. As we add clients and we continue to nurture them, I think you will continue to see the business build up over time.
Given all of the different media assets we have with the shopping centers and TimsTV and things like that, we have a bigger portfolio to offer our clients and our agencies. 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 us this morning. 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.