Good day, and welcome to the Cineplex twenty seventeen Third Quarter Analyst Conference Call. Today's conference is being recorded. And at this time, would like to turn the conference over to Ms. Pat Marshall, Vice President of Communications and Investor Relations. Please go ahead, Ms.
Marshall.
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'll now turn the call over to our President and CEO, Ellis Jacob.
Thank you, Pat. Good morning, welcome to Cineplex Inc. Twenty seventeen 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'll take a look at some of the films coming out this holiday season and into the 2018. At the conclusion of my remarks, our Chief Financial Officer, Board Nelson, will provide an overview of our financials and then we will follow with a question and answer period. The results this quarter were mixed and adversely affected by the quality of film product. This coupled with incremental costs related to the opening, ramp up and integration of our new business initiatives resulted in a decrease in adjusted EBITDA for the quarter. Gord will speak to these results in more detail later in the call.
Top performing films during the period included Homecoming, It, Despicable Me three, Dunkirk and War for the Planet of the Apes. Although these films performed well, especially It, which went on to become the highest grossing horror film of all time, many others did not meet expectations, which resulted in a decrease in attendance of 12.8%. Excluding the month of August, our net box office for July and September together were up compared to the prior year period. The decline in the August box office negatively impacted the results for the quarter. If we exclude suicide scores from 2016, the box office for this quarter would have been up compared to the prior year.
Looking at our other key metrics, BPP of $9.81 and CPP of $6.01 both represented new third quarter records for Cineplex. Now I would like to highlight some of our key accomplishments during the quarter. Beginning with film entertainment and content. During the quarter, we announced plans to further expand and enhance our virtual reality offerings in our cinemas. Canada's first IMAX VR center opened at our Scotiabank Theatre Toronto last week.
It offers guests an immersive multi dimensional virtual reality experience, including movie entertainment content and games. In addition, we will be piloting the installation of a T BOX VR system in our Scotiabank Theater Ottawa. This system will be installed in the theaters lobby and include 10 D BOX DRCs. We now have multiple VR facilities in The Rec Room and Ahold Theaters, including The VOID, IMAX and Control V. We believe there's a significant opportunity to leverage our theaters and location based entertainment guests with attraction based virtual reality offerings to generate incremental revenue.
Also during the quarter, we announced an agreement with IMAX to install two new IMAX auditoriums. One at Cineplex Odeon Eglinton Town Centre Cinemas in Toronto, which opened last week in time for Ragnarok and the other Cineplex Cinemas Norman View in Regina, Saskatchewan, which will open in the first quarter of twenty eighteen. This will bring the total number of IMAX auditoriums in our theaters across Canada to 25. Alternative programming for the 2017 included the Mayweather versus MacGregor match featured within our Rec Room and VIP cinemas as well as concerts including Andrea Ryu's Masked Street concert and David Gilmore's Live in Pompe. Other performances for the quarter included international films in Mandarin, Hindi and Punjabi within select markets across the country.
Looking at our online initiatives, cineplex.com registered an 18% increase in visits during the third quarter compared to the prior year period. Additionally, the Cineplex store registered a 66% increase in device activations and a 73% increase in monthly active users. Moving to Media. Media was faced with a tough third quarter with declines due to decreased on street cinema advertising and the timing of digital signage installations. Additionally, although we are not yet able to formally announce the new client, Cineplex Digital Media signed an agreement and has started to roll out installations with a major U.
S. Bank to provide digital solutions into its 1,000 plus branches. Installations have commenced and will be substantially complete in the short term. Moving on to amusement, gaming and leisure. During the quarter, we opened our second Edmonton location of The Rec Room at West Edmonton Mall.
This shopping center attracts more than 30,000,000 visitors every year. Subsequent to quarter end, we opened our fourth location in Calgary at Deerfoot City. We remain focused on our plan to open 10 to 15 new locations at The Rec Room over the next few years with complexes already announced for London, Mississauga and Vancouver. Subsequent to quarter end, we also announced plans to roll out a similar small sized entertainment complex in communities across Canada under the reinvented Palladium brand. Palladium's primary audience is targeted to teens, their friends and family and those looking for an affordable option for everyday play and casual dining, whereas The Rec Room is designed with millennials as the primary target market with a wider food and beverage offering.
We plan to open our first Palladium location in Whitby, Ontario by the 2018. In eSports, some of North America's most talented and tenacious gamers came together and battled for over $90,000 in prizes and the coveted championship title for World Gaming's Global Offensive. The competition was held at our Scotiabank Theater Toronto in September with local fans and spectators enjoying the live competition in theater and others from around the world tuned in via Twitch TV. On Friday, we announced a three year sponsorship agreement with the National Football League that will bring Sunday Night Football and the Super Bowl live to select Cineplex theaters across Canada. The agreement also includes access to NFL brands and trademarks as well as events, sponsorship and marketing opportunities for Cineplex, including World Gaming, The Rec Room and Cineplex Store.
Now let's take a look at some of the films we have for the balance of the year and what's in store for early twenty eighteen. Opening last week, we had Marvel's Ragnarok, the third film in the tour standalone series starring Chris Hemsworth and Mark Ruffalo. The film exceeded expectations opening to an impressive 123,000,000 and is the fourth largest opening weekend film of 2017. Looking at the rest of the month, we have the sequel Daddy's Home two starring Mark Wahlberg and Will Ferrell opening on November 10. Then on November 17, we have three billboards outside Ebbing, Missouri, which was the TIFF Audience Award winner this year.
Next, we have the highly anticipated film Justice League, where DC Comics favorite superheroes come together in theaters on November 17. And Disney's animated film, Poco, which is a story about a young musician's journey through the land of the dead opens on November 24. We will see a number of exciting films open in December, including the next chapter in the Star Wars trilogy, The Last Jedi opening on December 15. We are very pleased with the advanced ticket sales to date. Then on December 20, the French film Les Tripatois goes wild in Quebec.
Mark your calendars for December 22 as we have five new films opening, including the third installment of Pitch Perfect, Welcome to the Jungle starring Dwayne The Rock Johnson, The Greatest Showman starring Hugh Jackman, downsizing with Matt Damon and Christian Wigg Molly's Game, the true story of Olympic Glaskier Molly Blue, who ran the world's most exclusive high stakes poker game and became an FBI agent. As you can see, we have what appears to be a promising film slate for the holiday season and are encouraged by what's coming up in 2018. Films such as 50 Shades three, the third installment in the 50 Shades trilogy, Red Sparrow, Ready Player One, Avengers, Infinity War, Deadpool two, Fallen Kingdom, Venom, the next Spider Man movie and the Fantastic Beasts sequel to name just a few. Before I turn the call over to Gord, I would like to address a few of the common questions we have received over the past several weeks while meeting with the investment community. Do we believe box office results to be cyclical or systemic?
If you have followed our box office over the past fourteen years, you will know that we have had periods of both strong and weak box office. The exhibition business is dependent on Hollywood film product and as such is outside our ability to control. However, previous years have generally not had two soft quarters run consecutively as they did this year. Additionally, the North American industry has delivered record breaking results for four of the past five years and also the 2017. As discussed earlier, the third quarter decline resulted from the poor results in August and one month does not equate to a systemic decline.
We categorically believe this to be a cyclical content related scenario and look forward to a strong film slate for the fourth quarter that will continue into 2018. Another question is what will the impact of premium video on demand or PvOD be to exhibition? Unfortunately, there's been a great deal of speculation in the press over the past few months on this topic with much of the information being inaccurate and speculative. This has had a negative impact on all of the exhibition industry stock prices, including our own. I would ask you all to keep in mind that our fundamentals have not changed.
Our business, which we have diversified over the past few years, remains strong and will continue to grow. And if POA does come, it will be designed to grow the pie for studios and exhibitors alike. The movie business is strong and it is exhibition, not the home entertainment part of the business that continues to deliver results. Studio executives do not want to trade dimes for nickels and hurt a business that has been so successful. Theater exhibition is the engine that drives the train.
It is a social experience which drives the overall success of a film through its life cycle. Unfortunately, the home entertainment side of the business has been losing revenue year over year for several years, which are the losses the studios are trying to offset with D VAR. I will conclude by saying we remain encouraged by the outlook for the fourth quarter film slate and are confident that we are positioning the company for success in the future. I do not want to minimize the quarterly results. However, our company has delivered steady growth due to a strong entrepreneurial management team that is focused on creating long term growth and a diversified company.
Our startup businesses will continue to evolve and will make meaningful contributions to the company in the future. With that, I'll turn the call over to Gord. Thanks, Ellis. I am pleased to present
the third quarter financial results for Cooplux, Inc. 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. For the third quarter, total revenue decreased by 1.5% to CAD370.4 million and adjusted EBITDA decreased by 12.6% to CAD58.8 million. A 12.8% decline in attendance from a weaker film slate resulted in lower box office, theatre, food service and media revenues. This decrease more than offset a CAD48.9 million increase in amusement revenues, which was primarily a result of acquisitions in the T1HE business.
These decreases coupled with costs arising from our diversification strategy, including $4,400,000 in integration costs, opening costs resulted in an EBITDA decrease. Cineplex's third quarter box office revenue decreased 11.3% to CAD164.5 million compared to CAD185.4 million in the prior year as a result of an attendance decrease of 12.8%. This was partially offset by a BPP increase of 1.7% to an all time third quarter record $9.81 up from $9.65 in 2016. The increase in BPP is primarily due to select price increases in certain markets as compared to 2016. Foodservice revenue decreased 2.3% to CAD107 million.
Included in Foodservice revenue is CAD6.3 million from The Rec Room. Excluding Rec Room, sorry, revenue from The Rec Room Theater, foodservice revenue decreased by 7.8% from the previous year due to the decrease in attendance, partially offset by the 5.6% increase to concession revenue per patron to a third quarter record of $6.1 The CPP growth was primarily a result of increased visitation, increased basket size and expanded food offerings, including those available at Cineplex's VIP and Outtakes locations. Total media revenue decreased CAD 5,000,000 or 11.1% to CAD 39,900,000.0 for the quarter. Cinema media revenues, which is primarily theatre based, decreased 5.8% due to decline in cinema advertising. Digital place based media revenue decreased 20.9% due to lower project installation revenue compared to the prior year period, as the prior year included the impact of project work for a provincial tourism marketing partnership.
We increased our location count by 1.9% or two twenty six new locations to a total of 11,847 locations. New clients announced in late twenty sixteen are in the QSR sector and QSR sector deployments typically take three to four years to roll out given the franchise relationships. Ellis mentioned earlier that we have begun deployment for a new U. S. Financial sector client in excess of 1,000 branches.
A financial sector client would typically deploy over an accelerated timeline and as such, we would expect this deployment to occur over the near term. Amusement revenue increased CAD22 million or 81.5% due primarily to two acquisitions in The U. S. Made during the 2016 and the acquisition on 04/01/2017 of Bambi Amusements International Inc. In addition, amusement revenue includes $4,300,000 of amusement, gaming and other revenue earned at The Rec Room.
Turning briefly to our key expense line items. Film cost for the quarter came in at 50.6% of box office revenue as compared to 51.5% reported in the prior year. The decrease in the film cost percentage was primarily a result of the lack of strong product during the quarter. Cost of food service for Q3 twenty seventeen, excluding $2,000,000 incurred at The Rec Room was 21.5% as compared to twenty two point two percent in the prior year period. Cost of food service at The Rec Room was 31.3%, which is in line with expectations.
Other costs of $204,800,000 increased $15,700,000 or 8.3 percent. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses. Theater occupancy expenses were $52,300,000 for the quarter versus a prior year actual of $51,700,000 primarily due to the inclusion of favorable one time real estate tax credits in the prior year. Other operating expenses were $143,400,000 for the quarter versus a prior year actual of CAD120.4 million, an increase of CAD23 million. Major reasons for the increase include an increase of CAD15.8 million in amusement solutions expenses, primarily due to the two acquisitions completed during the 2016 and one in the 2017.
An increase of CAD0.4 million due to the impact of new and acquired theatres net of disposed theatres, dollars 7,800,000.0 in unit level operating costs related to The Rec Room and an increase of $3,400,000 in costs related to new businesses, including preopening costs for The Rec Room and integration costs incurred by P1AT. These increases were offset by decreases in other costs, including a $2,900,000 decrease in payroll due to proactive cost controls and a $1,300,000 decrease in media costs due to the decrease in media revenue. G and A expenses were CAD9.1 million for the quarter, which was CAD8 million lower than the prior year period due to the reduced costs arising from share based compensation, mainly due to Cineplex's lower stock share price. Net CapEx for the third quarter was CAD45.3 million as compared to CAD27.5 million in the prior year. Current year expenditures include amount for ongoing construction of the three new rec room locations and the continued rollout of our recliner program.
We continue to estimate that our net CapEx will be approximately $150,000,000 for 2017 and this includes $40,000,000 related to our recliner program and $10,000,000 related to new business initiatives and retail concepts in the Player One Amusement Group business. For 2018, we continue to estimate that our net CapEx will be approximately $125,000,000 as previously communicated. Also during the quarter under provisions in our existing credit facility, we increased our revolving facility by $75,000,000 with the purpose being to fund new acquisitions, the convertible debenture maturity, capital expenditures, including the recently announced Topgolf partnership and the normal course issuer business. On September 7, we announced a normal course issuer bid and during the quarter we acquired 157,192 shares, which were canceled for an aggregate cost of CAD6 million. While results for the third quarter were down from the prior year, we continue to remain comfortable with where Cineplex Inc.
Is positioned today. We look forward to benefiting from future strong film products. 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 that deliver ongoing benefits to our shareholders in the future. That concludes our remarks for this morning. And we'd now like to turn the call over to the conference operator for questions.
Thank you. And we will go ahead with our first question from Mr. Drew McReynolds of RBC. Please go ahead.
Thanks very much. Good morning. A couple for me. First on Simplex Digital Media, Gord or Ellis, you alluded to a new contract. Did we see any of that revenue in Q3?
Or is that all forthcoming? Second question, just on the integration costs for P1AG, do those phase out now in Q4? Do they continue? And then lastly, just on The Rec Room, can you comment on maybe some different performance across the different locations, if there is a different performance than what you're expecting, just maybe a little bit more granularity on operations to
question, so the new agreement that Ellis referred to, we are just commencing the rollout in the fourth quarter, so there's nothing included in the third quarter results for that new customer. And your question on the integration costs related to P1AG, I would suggest that you would see integration costs over the first year of integrating the various assets. So the last acquisition was done in April 2017. So I would expect that you'll continue to see some additional costs into sort of into the first half of next year.
And looking at The Rec rooms, as of now, we've got four in operation. We are very pleased with the one that we opened in South Edmonton, which we've had for years of business. As you know, the one down at the Roundhouse is doing extremely well and exceeding our expectations. The West Edmonton opened slightly soft and we are working on that marketing program as we move that location forward and Calgary at Deerfoot opened strong also.
Okay. Thanks very much.
And our next question will come from the line of Aravinda Galappatthige from Canaccord Genuity. Please go ahead.
Good morning. Thanks for taking my questions. I'll start with media, cinema advertising, cinema media. It seems to have been flattish in recent times and I think it's down 5.8 in Q3.
Good day, and welcome to the Cineplex twenty seventeen Third Quarter Analyst Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Ms. Pat Marshall, Vice President of Communications and Investor Relations. Please go ahead, Ms.
Marshall.
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'll now turn the call over to our President and CEO, Ellis Jacob.
Thank you, Pat. Good morning, and welcome to Cineplex Inc. Twenty seventeen 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'll take a look at some of the films coming out this holiday season and into the 2018. At the conclusion of my remarks, our Chief Financial Officer, Board Nelson, will provide an overview of our financials and then we will follow with a question and answer period. The results this quarter were mixed and adversely affected by the quality of film product. This coupled with incremental costs related to the opening, ramp up and integration of our new business initiatives resulted in a decrease in adjusted EBITDA for the quarter. Gord will speak to these results in more detail later in the call.
Top performing films during the period included Homecoming, It, Despicable Me three, Dunkirk and War for the Planet of the Apes. Although these films performed well, especially It, which went on to become the highest grossing horror film of all time, many others did not meet expectations, which resulted in a decrease in attendance of 12.8%. Excluding the month of August, our net box office for July and September together were up compared to the prior year period. The decline in the August box office negatively impacted the results for the quarter. If we exclude suicide squad from 2016, the box office for this quarter would have been up compared to the prior year.
Looking at our other key metrics, BPP of $9.81 and CPP of $6.01 both represented new third quarter records for Cineplex. Now I would like to highlight some of our key accomplishments during the quarter. Beginning with film entertainment and content. During the quarter, we announced plans to further expand and enhance our virtual reality offerings in our cinemas. Canada's first IMAX VR center opened at our Scotiabank Theatre Toronto last week.
It offers guests an immersive multi dimensional virtual reality experience, including movie entertainment content and games.
I wanted to get your thoughts in terms of sort of the structure of the deals that you have right now, the ad contract. From a structural basis, Ellis, what are you looking to change there? I mean, terms of maybe the structural breakdown or maybe sort of the length of the contracts? Is there anything that any initiatives that you are thinking about that will potentially kind of revise the growth in that sector?
Well, we continue to look at opportunities to work with our partners that have spent money with us in the past. We've also got specific contracts with companies like Scotiabank and Coca Cola. So those ones are recurring contracts. But what ends up happening, Arvinda, is sometimes budgets are moved from one quarter to the next depending on product launches, depending on where things are at. So we do see that this quarter was a softer quarter.
But when you look back a couple of from 2015 to 2016, we grew the business by close to 16. And we are anticipating that we will have a strong fourth quarter given the movie slate and the prior advertisers with the movies that we have coming into the fourth quarter. So I think it's not something that is going to continue. It just happens to be that we got impacted this quarter because of budgets of advertisers and also the timing. But we're quite comfortable with the fourth quarter numbers.
Okay. Thanks for that, Ellis. And just a bigger picture question. In light of sort of the headlines around MoviePass that we saw over the last few months, Can you maybe just sort of revisit the subscription model? I know it's something that's sort of being utilized in U.
K. And maybe certain parts of Europe. If you don't mind, just maybe revisit the pros and cons of that model. I mean, that something that you reconsider down the road in light of some of the recent developments?
Arvinda, we continue to experiment and we had a program again this year, the summer movie pass where basically people could buy and purchase five or eight packs to go to multiple movies. It ran from June 2 to September 30. We also did an additional thirty day of summer program, which was not a subscription based program, but it was all about driving attendance during week periods at the box office. So we will continue to experiment, but we also have to work with our studio partners to make sure overall that we are doing the right thing for the business going forward. And as you know, we are very entrepreneurial and always looking for opportunities to grow the business, but we also have to do it on a smart basis with the proper returns.
Thanks. And just lastly for me, perhaps for Gord. With respect to the $125,000,000 CapEx number for 2018, can you just remind us, Gord, how much is included in that for the recliner program? And does that include a provision for Topgolf? Or is that something that's likely to kind of spill over to 2019?
Yes. So as was mentioned previously, we would expect that first location Topgolf location to open in 2019. But with that said, I would expect some level of expenditure in 2018. So I'll break out that 125,000,000 for you. It's roughly $30,000,000 in maintenance CapEx, which is around the historic level that we've had, roughly $35,000,000 towards The Rec Room.
So we're looking to open two Rec Rooms and one of the smaller, the Palladium versions next year as we've announced. About $30,000,000 in the exhibition business, which would include new builds and VIPs and about $30,000,000 which would include new businesses, including digital signage and the Player One Amusement Group as well as some potential for some premium enhancements in the exhibition business, which could include some additional recliner programs.
Thank you.
And we'll go ahead with our next question from Adam Shine of National Bank. Please go ahead.
Thanks a lot. I want to focus a little bit maybe on the recliner program. We had Cinemark last week, AMC, I think yesterday night talking sort of 40%, 41% reclined already. Maybe Gord or Ellis, you can talk to where you're at right now. Additionally, one of the things that they were talking about, at least Cinemark last week, was that all their recliners are doing sort of advanced seat booking.
And they talked to how concessions were up about 50% among patrons that were sort of doing the advanced seat booking. So maybe you can talk to where you're at as well in regards to advanced seat booking. I think it would apply to IMAX, AVX and maybe even VIP, but I don't know that would take you to around 10% versus those higher numbers stateside. And are you getting the same sort of lift at the concession stand as The U. S.
Guys are? Thanks.
Yes. Good question, Adam, because as you know, when we looked at the recliner program, one of the key areas of focus for us is the area of capacity utilization. And we've been very conscious about that. And so far, we've done 12 locations. The results have been quite strong, especially as you say, the concession side, we've seen a lift.
And we will continue to evaluate locations as we come across situations where we feel it's going to be beneficial to the bottom line. But we also have to be careful as to our best applications of capital and where we deploy them as we move forward between the different new businesses and the exhibition business. That's not to say we won't be opportunistic as required to continue to enhance that experience. On reserve seating, we continue to have all of our Ultra AVX, IMAX, four DXs, and D BOX with the ability to get preassigned seats. And in VIP also in most of our locations, you have that privilege also.
And those are the first seats that people purchase, and then they go on to the other seats within the auditorium within the complex. And as you can see, we've come close to 50% of our box office from premium offerings, which is part of that whole experience that we offer. So hopefully, I've answered all of your questions.
Yes. Thank you for that, Ellis. Maybe I can push Gord just a little bit. When we look at the box office revenue sort of same store about minus actually, no, your net net, I think, was around minus 12%, if I'm correct, and then sort of minus 10% for the industry. So maybe some of the differential or underperformance was due to some of the theater closings associated to not theater closings, but some auditorium closings associated with the recliner effort.
Are we going to see a bit of that bleeding into Q4 at all? Or would maybe some of that activity already happened sort of pre this past weekend's store release? Yes.
Look, Adam, I think particularly when you look at Q3, which is obviously the summer months in Canada and some of the regional circuits and regional locations, get a little bit more summer business and are open for extended hours. What I would say that you see in the third quarter is, again, Quebec had a strong quarter in the third quarter, so we under indexed in Quebec. So I would say half of that differential is related to us under indexed in Quebec. A quarter of that difference is related to us having screens closed during the recliner conversion and the remainder would include other effects, including kind of that enhanced seasonal business and sort of some of the regional locations.
And
our next question comes from the line of Derek Lessard of TD Securities.
Ellis, you talked about some of media inaccuracies out there. I was wondering if you'd be able to touch on one that you didn't talk about was the regarding film costs and how they're typically negotiated.
Well, the film cost, as you saw in the quarter, it was down because again of the performance of the films during the quarter. And it's all dependent on how large the box office is for a particular movie. If we end up with massive home runs, our film costs will be higher. If they are made up of singles and doubles, then on average, the film costs will be lower. So it's largely dependent on the performance of the films, and that would result in where we end up in a particular period.
So it's not really studios who are pushing for a bigger piece of the pie?
No, we've had long standing deals with all of our studio partners and we do not see any of that changing in the relative short term here.
Okay. Thanks for that. We don't talk about digital commerce very much, but maybe just if you could talk about what's driving the growth there and maybe more specifically the growth in active users of the Cineplex store?
Yes, the store continues to improve. And part of that is as the awareness level increases and people continue to get attracted to that way of enhancing their Cineplex and their experience both on the bricks and the click side. And we've also got the UI and enhancements within the store itself and we continue to enhance the capabilities of the app. And I think it's an awesome experience as far as being able to access close to 8,000 movies, you know, which is a phenomenal ability from the perspective of just using one specific app.
Okay.
Thank also part of the super ticket that we, you know, we talked about previously where you can watch a movie and then you have forty eight hours where you can download it and store it in your Cineplex ecosystem and that also is very helpful overall.
Are you taking share from the other providers?
Yes. I think we're also enhancing our position because of the relationship we have through the SCENE loyalty program, our awareness of what you've seen at the theaters, what you haven't seen and we can basically send you notifications that you didn't come to the theater and this movie is now moved on to the next cycle on the EST, so we can prompt you to go and watch it on our store. So we have some great information and data, which we can use to continue to grow that business. Thanks for that guys.
And our next question will come from the line of Rob Goff of Echelon. Please go ahead.
Thank you very much. My first question would be with respect to the Mayweather MacGregor fight. Can you give us some sort of benchmarks in terms of how successful that might have been within the VIP auditoriums? And within that context, can you talk to how you may be looking at the VIP auditoriums as a network and how that may impact the programming you can run through there?
Well, it's all about giving people options as to what's available and to diversifying the viewing within the box. The fight did well, and I can tell you definitely that The Rec Room locations were pretty much sold out across the country. In the VIP, it varied depending on the individual theaters. But overall, it was quite a success and we will continue to use that from the perspective of being able to expand, for example, with the announcement we made on the NFL on Friday. But overall, the revenue from an overall perspective, we were quite happy with it.
And it would rank as one of the top 10 events during the quarter for the event cinema business.
Thank you. And if I may, as a follow-up, I don't think I've ever asked a four year question before, but in looking at your release, you showed the change in the revenue composition tracking back over the past four years. And I noted that the amusement side has gone from 1% to 13%. Could something like 20% be a realistic threshold to look four years out?
Look at Rob. I think when we look at our business models and the business map that we've provided in the MD and A, as we've probably communicated historically, the vision is as we look to diversify the business, this could at some point and not four years, extending beyond four years, could each of those three business sectors be of equal contributors.
Okay. Thank you.
And your next question comes from the line of Kenric Ty of Raymond James. Please go ahead.
Thank you. Good morning. Ellis, I'm going
to try to go after the some of the more recent headlines a little more directly,
which is I struggle to believe that on the film cost side that some of the headlines with respect to Star Wars relate to the larger national chains and wouldn't perhaps relate more to the independents in terms of potential film cost hikes or otherwise. Is it a fair characterization for me to believe that you wouldn't expect to see any major changes in your film costs or in the length of time you or Regal or the likes of the expected to carry a Star Wars and that we're what we're not seeing is any major shift in the balance of power here by the studios? Or am I perhaps misreading that and it does apply to the majors as well as the independents? I just struggle to get my head around that sort of a move by the studios. Am I perhaps missing something here?
No. You summed it up correctly in the fact that we have relationships with large studios, and nothing has changed from the last number of years. And what you see when you see the changes from quarter to quarter, it's largely a result of the performance of the movies.
And just on that one, Elsa, we could perhaps just continue down that line. I think certainly the retail for a number of people on some of these headlines has been looking at being something of a rebalancing of the ecosystem or a bit of a leading indicator on cash grab by some of the studios? I mean, would that also be a bit of a mischaracterization or a bit of a misunderstanding of how the space is evolving?
Yes. So studios are our partners, and it's in their interest for us to be a business that's healthy and continues to grow. And we do a number of things with them at Cineplex. For example, in the case of Disney, we have The VOID in our rec rooms. Disney is a partner in that particular virtual reality space.
We sell games to Disney in their parks. We work on many, many things together. So I think the relationship goes in most cases way beyond just the movie theater, especially in the case of Cineplex. All right. Thanks so much,
We will take our next question from Mr. Jeff Fan of Scotiabank. Please go ahead.
Thank you. Good morning. I've got a few to finish it off here. First, on the box office for the year. Obviously, the biggest debate out there, one of the biggest debate is whether what we're seeing in box office performance is secular or just cyclical.
But if I just look at the full year for this year, a lot is certainly riding on the fourth quarter and a lot is riding on the film slate, especially Star Wars. As you look out, I know it's difficult to predict, but I think in order for the market to start to side with the bulls and think that this is not a secular trend is to have a very strong April showing. Do you think that there's enough fuel there to bring you from what the year to date performance has been to a positive box office number for the year? And then my second question is is on the on the PVOD. Assuming that the studios are gonna try this model, the distribution inside the home, are there any things that you guys can do, to ensure that the the the distribution inside the home is not a fair game between yourselves and and some other distributors out there, you know, cable companies, telcos, etcetera, who have boxes sitting inside the home.
Wondering if you can if there's anything that you can secure to ensure that you protect your economics there.
Okay. To your first question, Jeff, on the issue of cyclical versus systemic, I think the best example is the movie, IT, which came out in September, became the highest grossing horror movie ever. And what it boils down to is the fact that content is there, people do want to have that social experience. We saw it this weekend with Tor, which opened great numbers, much higher than most people had anticipated. In Canada, for the fourth quarter, we are in a better position because Blade Runner actually over performed in Canada compared The U.
S. With the Canadian producer director behind it. So we are in a better position going into the fourth quarter. And I think given the product that's available with Justice League being a big movie, Coco, Star Wars, Jumanji, Showman, there's a ton of movies that are coming out. And I feel we should at least get to a position where we'll probably balance out for the year compared to 2016.
And you have to remember the 2017 was a very strong quarter. So you're going to have these variations from quarter to quarter, and I always suggest you gotta take a longer term view of, you know, where things are at. On your PVOD question, again, you know, when we look at Cineplex, we've spent a great deal of time and money developing our Cineplex store, which would basically allow us to be part and parcel of the whole Pvot experience. We also have the advantage of the SCENE loyalty program, which share 8,700,000 members and great data on them. And we are working closely with our studio partners to whatever ends up happening to be in a situation where it's a win win for both of us.
Great. And if I can just just one final one for Gord. On the capital spending for this year, can you just remind us of what the general plans are for the year and also for if we can look ahead to 2018?
Sure. I mean, we kind of confirmed the previous guidance that this CapEx for 2017 would be roughly 150,000 sorry, 150,000,000. And then the guidance for 2018 was $1,500,000 This year, as you recall, the additional CapEx that puts us over and above that, our traditional run rate is about CAD40 million that we're spending on the recliner program as well as additional sort of CAD10 million that we've been investing in the P1AG business to set up a retail display installation in The U. S. As well as some additional CapEx in that business.
But maintenance continues to be around CAD30 million in both 2017 and 2018, and then the remainder is our investment in growth CapEx, which I broke out the totals earlier on in the call.
Great, thanks. Thanks, Joe.
There are no further questions on this call. I would like to hand it back over to Mr. Ellis Jacob for closing remarks.
Thank you very much, and thank you for joining us this morning. We wish you all a very happy and healthy holiday season and look forward to speaking with you in the New Year with our Q4 and year end results. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect your lines and have a wonderful day.
In addition, we will be piloting the installation of a D BOX VR system in our Scotiabank Theater, Ottawa. This system will be installed in the theater's lobby and include 10 D BOX DRC. We now have multiple VR facilities in The Rec Room and AVO Theaters, including The VOID, IMAX and Control V. We believe there's a significant opportunity to leverage our theaters and location based entertainment guests with attraction based virtual reality offerings to generate incremental revenue. Also during the quarter, we announced an agreement with IMAX to install two new IMAX auditoriums, One at Cineplex Odeon Eglinton Town Centre Cinemas in Toronto, which opened last week in time for Ragnarok and the other at Cineplex Cinemas Norman View in Regina, Saskatchewan, which will open in the 2018.
This will bring the total number of IMAX auditoriums in our theaters across Canada to 25. Alternative programming for the 2017 included the Mayweather versus MacGregor match featured within our Rec Room and VIP cinemas as well as concerts including Andrea Ryu's Masked Street concert and David Gilmore's Live in Pompe. Other performances for the quarter included international films in Mandarin, Hindi and Punjabi within select markets across the country. Looking at our online initiatives, cineplex.com registered an 18% increase in visits during the third quarter compared to the prior year period. Additionally, the Cineplex store registered a 66% increase in device activations and a 73% increase in monthly active users.
Moving to Media. Media was faced with a tough third quarter with declines due to decreased cinema advertising and the timing of digital signage installations. Additionally, although we are not yet able to formally announce the new client, Cineplex Digital Media signed an agreement and has started to roll out installations with a major U. S. Bank to provide digital solutions into its 1,000 plus branches.
Installations have commenced and will be substantially complete in the short term. Moving on to amusement, gaming and leisure. During the quarter, we opened our second Edmonton location of The Rec Room at West Edmonton Mall. This shopping center attracts more than 30,000,000 visitors every year. Subsequent to quarter end, we opened our fourth location in Calgary at Deerfoot City.
We remain focused on our plan to open 10 to 15 new locations at The Rec Room over the next few years with complexes already announced for London, Mississauga and Vancouver. Subsequent to quarter end, also announced plans to roll out a similar small sized entertainment complex in communities across Canada under the reinvented Palladium brand. Palladium's primary audience is targeted to teens, their friends and family and those looking for an affordable option for everyday play and casual dining, whereas The Rec Room is designed with millennials as the primary target market with a wider food and beverage offering. We plan to open our first Palladium location in Whitby, Ontario by the 2018. In eSports, some of North America's most talented and tenacious gamers came together and battled for over $90,000 in prizes and the coveted championship title for World Gaming's Global Offensive.
The competition was held at our Scotiabank Theatre Toronto in September with local fans and spectators enjoying the live competition in theatre and others from around the world tuned in via Twitch TV. On Friday, we announced a three year sponsorship agreement with the National Football League that will bring Sunday Night Football and the Super Bowl live to select Cineplex theaters across Canada. The agreement also includes access to NFL brands and trademarks as well as events, sponsorship and marketing opportunities for Cineplex, including World Gaming, The Rec Room and Cineplex Store. Now let's take a look at some of the films we have for the balance of the year and what's in store for early twenty eighteen. Opening last week, we had Marvel's Ragnarok, the third film in the tour standalone series starring Chris Hemsworth and Mark Ruffalo.
The film exceeded expectations opening to an impressive 123,000,000 and is the fourth largest opening weekend film of 2017. Looking at the rest of the month, we have the sequel Daddy's Home two starring Mark Wahlberg and Will Ferrell opening on November 10. Then on November 17, we have three billboards outside Ebbing, Missouri, which was the fifth Audience Award winner this year. Next, we have the highly anticipated film Justice League, where DC Comics favorite superheroes come together in theaters on November 17. And Disney's animated film Poco, which is a story about a young musician's journey through the land of the dead opens on November 24.
We will see a number of exciting films open in December, including the next chapter in the Star Wars trilogy, The Last Jedi opening on December 15. We are very pleased with the advanced ticket sales to date. Then on December 20, the French film Les Tripatois goes wide in Quebec. Mark your calendars for December 22 as we have five new films opening including the third installment of Pitch Perfect, Jumanji Welcome to the Jungle starring Dwayne The Rock Johnson, The Greatest Showman starring Hugh Jackman, downsizing with Matt Damon and Christian Wigg Molly's Game, the true story of Olympic last year, Molly Blue, who ran the world's most exclusive high stakes poker game and became an FBI agent. As you can see, we have what appears to be a promising film slate for the holiday season and are encouraged by what's coming up in 2018.
Films such as 50 Shades Free, the third installment in the 50 Shades trilogy, Red Starro, Ready Player One, Avengers, Infinity War, Deadpool two, Jurassic World Fallen Kingdom, Venom, the next Spider Man movie and the Fantastic Beasts sequel to name just a few. Before I turn the call over to Gord, I would like to address a few of the common questions we have received over the past several weeks while meeting with the investment community. Do we believe box office results to be cyclical or systemic? If you have followed our box office over the past fourteen years, you will know that we have had periods of both strong and weak box office. The exhibition business is dependent on Hollywood film product and as such is outside our ability to control.
However, previous years have generally not had two soft quarters run consecutively as they did this year. Additionally, the North American industry has delivered record breaking results for four of the past five years and also the 2017. As discussed earlier, the third quarter decline resulted from the poor results in August and one month does not equate to a systemic decline. We categorically believe this to be a cyclical content related scenario and look forward to a strong film slate for the fourth quarter that will continue into 2018. Another question is what will the impact of premium video on demand or PvOD be to exhibition?
Unfortunately, there's been a great deal of speculation in the press over the past few months on this topic with much of the information being inaccurate and speculative. This has had a negative impact on all of the exhibition industry stock prices, including our own. I would ask you all to keep in mind that our fundamentals have not changed. Our business, which we have diversified over the past few years, remains strong and will continue to grow. And if POR does come, it will be designed to grow the pie for studios and exhibitors alike.
The movie business is strong and it is exhibition, not the home entertainment part of the business that continues to deliver results. Studio executives do not want to trade dimes for nickels and hurt a business that has been so successful. Theater exhibition is the engine that drives the train. It is a social experience which drives the overall success of a film through its life cycle. Unfortunately, the home entertainment side of the business has been losing revenue year over year for several years, which are the losses the studios are trying to offset with D VAR.
I will conclude by saying we remain encouraged by the outlook for the fourth quarter film slate and confident that we are positioning the company for success in the future. I do not want to minimize the quarterly results. However, our company has delivered steady growth due to a strong entrepreneurial management team that is focused on creating long term growth and a diversified company. Our startup businesses will continue to evolve and will make meaningful contributions to the company in the future. With that, I'll turn the call over to Gord.
Thanks, Ellis. I am 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. For the third quarter, total revenue decreased by 1.5% to $370,400,000 and adjusted EBITDA decreased by 12.6% to $58,800,000 A 12.8% decline in attendance from a weaker film slate resulted in lower box office, theatre, food service and media revenues. This decrease more than offset a CAD48.9 million increase in amusement revenues, which was primarily a result of acquisitions in the T1HE business. These decreases coupled with costs arising from our diversification strategy, $4,400,000 in integration costs, opening costs resulted in an EBITDA decrease.
Cineplex's third quarter box office revenue decreased 11.3% to $164,500,000 compared to $185,400,000 in the prior year as a result of an attendance decrease of 12.8%. This was partially offset by a BPP increase of 1.7% to an all time third quarter record $9.81 up from $9.65 in 2016. The increase in BPP is primarily due to select price increases in certain markets as compared to 2016. Foodservice revenue decreased 2.3% to $107,000,000 included in foodservice revenue is CAD6.3 million from The Rec Room. Excluding Rec Room, sorry, revenue from The Rec Room Cedar, foodservice revenue decreased by 7.8% from the previous year due to the decrease in attendance, partially offset by the 5.6% increase to concession revenue per patron to a third quarter record of $6.01 The CPP growth was primarily a result of increased visitation, increased basket size and expanded food offerings, including those available at Cineplex's VIP and Outtakes locations.
Total media revenue decreased CAD5 million or 11.1% to CAD39.9 million for the quarter. Cinema media revenue, which is primarily theatre based, decreased 5.8% due to decline in cinema advertising. Digital place based media revenue decreased 20.9% due to lower project installation revenue compared to the prior year period as the prior year included the impact of project work for a provincial tourism marketing partnership. We increased our location count by 1.9% or two twenty six new locations to a total of 11,847 locations. New clients announced in late twenty sixteen are in the QSR sector and QSR sector deployments typically take three to four years to roll out given the franchise relationships.
Ellis mentioned earlier that we have begun deployment for a new U. S. Financial sector client in excess of 1,000 branches. A financial sector client would typically deploy over an accelerated timeline and as such, we would expect this deployment to occur over the near term. Amusement revenue increased CAD22 million or 81.5% due primarily to two acquisitions in The U.
S. Made during the 2016 and the acquisition on 04/01/2017 of Dandy Amusements International Inc. In addition, amusement revenue includes $4,300,000 of amusement, gaming and other revenue earned at The Rec Room. Turning briefly to our key expense line items. Film cost for the quarter came in at 50.6% of box office revenue as compared to 51.5% reported in the prior year.
The decrease in the film cost percentage was primarily a result of the lack of strong product during the quarter. Cost of food service for Q3 twenty seventeen, excluding $2,000,000 incurred at The Rec Room was 21.5% as compared to 22.2% in the prior year period. Cost of food service at The Rec Room was 31.3%, which is in line with expectations. Other costs of $204,800,000 increased $15,700,000 or 8.3%. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses.
Theater occupancy expenses were $52,300,000 for the quarter versus a prior year actual of $51,700,000 primarily due to the inclusion of favorable one time real estate tax credits in the prior year. Other operating expenses were $143,400,000 for the quarter versus a prior year actual of $120,400,000 an increase of $23,000,000 Major reasons for the increase include a increase of CAD15.8 million in amusement solutions expenses, primarily due to the two acquisitions completed during the 2016 and one in the 2017, An increase of CAD0.4 million due to the impact of new and acquired theatres net of disposed theatres, CAD7.8 million in unit level operating costs related to The Rec Room and an increase of CAD3.4 million in costs related to new businesses, including pre opening costs for The Rec Room and integration costs incurred by P1 twenty eighteen. These increases were offset by decreases in other costs, including a $2,900,000 decrease in payroll due to proactive cost controls and a 1,300,000 decrease in media costs due to the decrease in media revenue. G and A expenses were $9,100,000 for the quarter, which was $8,000,000 lower than the prior year period due to reduced costs arising from share based compensation, mainly due to Cineplex's lower stock share price.
Net CapEx for the third quarter was $45,300,000 as compared to $27,500,000 in the prior year. Current year expenditures include amounts for ongoing construction of the three new rec room locations and the continued rollout of our recliner program. We continue to estimate that our net CapEx will be approximately $150,000,000 for 2017 and this includes $40,000,000 related to our recliner program and $10,000,000 related to new business initiatives and retail concepts in the Player One Amusement Group business. For 2018, we continue to estimate that our net CapEx will be approximately $125,000,000 as previously communicated. Also during the quarter under provisions in our existing credit facility, we increased our revolving facility by $75,000,000 with the purpose being to fund new acquisitions, the convertible debenture maturity, capital expenditures, including the recently announced Topgolf partnership and the normal course issuer business.
September 7, we announced a normal course issuer bid. And during the quarter, we acquired 157,192 shares, which were canceled for an aggregate cost of CAD6 million. While results for the third quarter were down from the prior year, we continue to remain comfortable with where Cineplex Inc. Is positioned today. We look forward to benefiting from future strong film products.
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 that deliver ongoing benefits to our shareholders in the future. That concludes our remarks for this morning. And we'd now like to turn the call over to the conference operator for questions. Thank you.
And we will go ahead with our first question from Mr. Drew McReynolds of RBC. A
couple for me. First, on Simplex Digital Media, Gord or Ellis, you alluded to a new contract. Did we see any of that revenue in Q3? Or is that all forthcoming? Second question, just on the integration costs for P1AG, do those phase out now in Q4?
Do they continue? And then lastly, just on The Rec Room, can you comment on maybe some different performance across the different locations? If there is a different performance than what you're expecting, just maybe a little bit more granularity on operations to date? Thanks,
Drew. On the CDM question, so the new agreement that Ellis referred to, we are just commencing the rollout in the fourth quarter, so there's nothing included in the third quarter results for that new customer. And your question on the integration costs related to P1AG, I would suggest that you would see integration costs over the first year of integrating the various assets. So the last acquisition was done in April 2017. So I would expect that you continue to see some additional costs into sort of to the first half of next year.
And looking at The Rec rooms, as of now, we've got four in operation. We are very pleased with the one that we opened in South Edmonton, which we've had for years of business. As you know, the one down at the Roundhouse is doing extremely well and exceeding our expectations. The West Edmonton opened slightly soft and we are working on that marketing program as we move that location forward and Calgary at Deerfoot opened strong also.
Okay. Thanks very much.
And our next question will come from the line of Aravinda Galappatthige from Canaccord Genuity. Please go ahead.
Good morning. Thanks for taking my questions. I'll start with media, cinema advertising, cinema media. It seems to have been flattish in recent times and it's down 5.8% in Q3. I wanted to get your thoughts in terms of sort of the structure of the deals that you have right now, the ad contracts.
From a structural basis, Ellis, what are you looking to change there? I mean, terms of maybe the stress or the sector will break down or maybe sort of the length of the contracts? Is there anything that any initiatives that you are thinking about that will potentially kind of revise the growth in that sector?
Well, we continue to look at opportunities to work with our partners that have spent money with us in the past. We've also got specific contracts with companies like Scotiabank and Coca Cola. So those ones are recurring contracts. But what ends up happening, Arvinda, is sometimes budgets are moved from one quarter to the next depending on product launches, depending on where things are at. So we do see that this quarter was a softer quarter, but when you look back a couple of from 2015 to 2016, we grew the business by close to 16%.
And we are anticipating that we will have a strong fourth quarter given the movie slate and the prior advertisers with the movies that we have coming into the fourth quarter. So I think it's not something that is going to continue. It just happens to be that we got impacted this quarter because of budgets of advertisers and also the timing. But we're quite comfortable with the fourth quarter numbers.
Okay. Thanks for that, Ellis. And just a bigger picture question. In light of sort of the headlines around MoviePass that we saw over the last few months, Can you maybe just sort of revisit the subscription model? I know it's something that's sort of being utilized in UK and maybe certain parts of Europe.
If you don't mind, just maybe revisit the pros and cons of that model. Mean, that something that you reconsider down the road in light of some of the recent developments?
Arvinda, we continue to experiment and we had a program again this year, the Summer Movie Pass, where basically people could buy and purchase five or eight packs to go to multiple movies. It ran from June 2 to September 30. We also did an additional thirty day of summer program, which was not a subscription based program, but it was all about driving attendance during week periods at the box office. So we will continue to experiment, but we also have to work with our studio partners to make sure overall that we are doing the right thing for the business going forward. And as you know, we are very entrepreneurial and always looking for opportunities to grow the business, but we also have to do it on a smart basis with the proper returns.
Thanks. And just lastly for me, perhaps for Gord. With respect to the $125,000,000 CapEx number for 2018, can you just remind us, Gord, how much is included in that for the recliner program? And does that include a provision for Topgolf? Or is that something that's likely to kind of spill over to 2019?
Yes. So as we've mentioned previously, we would expect our first location Topgolf location to open in 2019. But with that said, I would expect some level of expenditure in 2018. So I'll break out that 125,000,000 for you. It's roughly $30,000,000 in maintenance CapEx, which is around the historic level that we've had, roughly $35,000,000 towards The Rec Room.
So we're looking to open two Rec Rooms and one of the smaller, the Palladium versions next year as we've announced. About $30,000,000 in the exhibition business, which would include new builds and VIPs and about $30,000,000 which would include new businesses, including digital signage and the Player One Amusement Group as well as some potential for some premium enhancements in the exhibition business, which could include some additional recliner programs.
Thank you.
We'll go ahead with our next question from Adam Shine of National Bank. Please go ahead.
Thanks a lot. I want to focus a little bit maybe on the recliner program. We had Cinemark last week, AMC, I think yesterday night talking sort of 40%, 41% reclined already. So maybe Gord or Ellis, you can talk to where you're at right now. Additionally, one of the things that they were talking about at least Cinemark last week was that all their recliners are doing sort of advanced seat booking.
And they talked to how concessions were up about 50% among patrons that were sort of doing the advanced seat booking. So maybe you can talk to where you're at as well in regards to advanced seat booking. I think it would apply to IMAX, AVX and maybe even VIP, but I don't know that would take you to around 10% versus those higher numbers stateside. And are you getting the same sort of lift at the concession stand as The U. S.
Guys are? Thanks.
Yes. Good question, Adam, because as you know, when we looked at the recliner program, one of the key areas of focus for us is the area of capacity utilization. And we've been very conscious about that. And so far, we've done 12 locations. The results have been quite strong, especially as you say, on the concession side, we've seen a lift.
And we will continue to evaluate locations as we come across situations where we feel it's going to be beneficial to the bottom line. But we also have to be careful as to our best applications of capital and where we deploy them as we move forward between the different new businesses and the exhibition business. That's not to say we won't be opportunistic as required to continue to enhance that experience. On reserve seating, we continue to have all of our Ultra AVX, IMAX, four DXs and D BOX with the ability to get preassigned seats. And in VIP also in most of our locations, you have that privilege also.
And those are the first seats that people purchase, and then they go on to the other seats within the auditorium within the complex. And as you can see, we've come close to 50% of our box office from premium offerings, which is part of that whole experience that we offer. So hopefully, I've answered all of your questions.
Thank you for that, Alex. Maybe I can push Gord just a little bit. When we look at the box office revenue sort of same store about minus actually, no, your net net, I think, was around minus 12%, if I'm correct, and then sort of minus 10% for the industry. So maybe some of the differential or underperformance was due to some of the theater closings associated to not theater closings, but some auditorium closings associated with the recliner effort. Are we going to see a bit of that bleeding into Q4 at all?
Or would maybe some of that activity already happened sort of pre this past weekend's store release? Thanks.
Look, Adam, I think particularly when you look at Q3, which is obviously the summer months in Canada and some of the regional circuits and regional locations, get a little bit more summer business and are open for extended hours. What I would say that you see in the third quarter is, again, Quebec had a strong quarter in the third quarter, so we under index in Quebec. So I would say half of that differential is related to come off under indexing in Quebec. A quarter of that difference is related to us having screens closed during the recliner conversion. And the remainder would include other effects, including kind of that enhanced seasonal business and sort of some of the regional locations.
Great. Thanks for that.
And our next question comes from the line of Derek Lessard of TD Securities. Please go ahead.
Good morning, everybody. Ellis, you talked about some of the media inaccuracies out there. I was wondering if you'd be able to touch on one that you didn't talk about was the regarding film costs and how they're typically negotiated.
Well, the film cost, as you saw in the quarter, it was down because again of the performance of the films during the quarter. And it's all dependent on how large the box office is for a particular movie. If we end up with massive home runs, our film costs will be higher. If they are made up of singles and doubles, then on average, the film costs will be lower. So it's largely dependent on the performance of the films, and that would result in where we end up in a particular period.
So it's really studios who are pushing for a bigger piece of the pie?
No, we've had long standing deals with all of our studio partners and we do not see any of that changing in the relative short term here.
Okay. Thanks for that. We don't talk about digital commerce very much, but maybe just if you could talk about what's driving the growth there and maybe more specifically the growth in active users of the Cineplex store?
Yes, the store continues to improve. And part of that is as the awareness level increases and people continue to get attracted to that way of enhancing their Cineplex and their experience both on the bricks and the click side. And we've also got the UI and enhancements within the store itself and we continue to enhance the capabilities of the app. And I think it's an awesome experience as far as being able to access close to 8,000 movies, you know, which is a phenomenal ability from the perspective of just using one specific app.
Okay. Thank
you. Also part of the super ticket that we, you know, we talked about previously where you can watch a movie and then you have forty eight hours where you can download it and store it in your Cineplex Cineplex ecosystem and, you know, that also is very helpful overall.
Are you taking share from the other providers?
Yes. I think we're also enhancing our position because of the relationship we have through the SCENE loyalty program, our awareness of what you've seen at the theaters, what you haven't seen, and we can basically send you notifications that, you know, you didn't come to the theater and this movie is now moved on to the next cycle on the EST, so we can prompt you to go and watch it on our store. So we have some great information and data, which we can use to continue to grow that business. Thanks for that guys.
And our next question will come from the line of Rob Goff of Echelon. Please go ahead.
Thank you very much. My first question would be with respect to the Mayweather MacGregor fight. Can you give us some sort of benchmarks in terms of how successful that might have been within the VIP auditoriums? And within that context, can you talk to how you may be looking at the VIP auditoriums as a network and how that may impact the programming you can run through there?
Well, it's all about giving people options as to what's available and to diversifying the viewing within the box. The fight did well, and I can tell you definitely that The Rec Room locations were pretty much sold out across the country. In the VIP, it varied depending on the individual theaters. But overall, it was quite a success and we will continue to use that from the perspective of being able to expand, for example, with the announcement we made on the NFL on Friday. But overall, the revenue from an overall perspective, we were quite happy with it and it would rank as one of the top 10 events during the quarter for the event cinema business.
And if I may, as a follow-up, I don't think I've ever asked a four year question before, but in looking at your release, you showed the change in the revenue composition tracking back over the past four years. And I noted that the amusement side has gone from 1% to 13%. Could something like 20% be a realistic threshold to look four years out?
Look at Rob. I think when we look at our business models and the business map that we've provided in the MD and A, as we've probably communicated historically, the vision is as we look to diversify the business, this could at some point and not four years, but extending beyond four years, could each of those three business sectors be of equal contributors.
Okay. Thank you.
And your next question comes from the line of Kenric Ty of Raymond James. Please go ahead.
Thank you. Good morning. Ellis, I'm
going to try to go after the some of the more recent headlines a little more directly,
which is I struggle to believe that on the film cost side that some of the headlines with respect to Star Wars relate to the larger national chains and wouldn't perhaps relate more to the independents in terms of potential film cost hikes or otherwise. Is fair it characterization for me to believe that you wouldn't expect to see any major changes in your film costs or in the length of time you or Regal or the likes of the expected to carry a Star Wars and that we're what we're not seeing is any major shift in the balance of power here by the studios? Or am I perhaps misreading that and it does apply to the majors as well as the independents? I just struggle to get my head around that sort of a move by the studios. Am I perhaps missing something here?
No. You summed it up correctly in the fact that, you know, we have relationships with large studios and, you know, nothing has changed from the last number of years. And what you see when you see the changes from quarter to quarter, it's largely a result of the performance of the movies.
And just on that one, Elsa, we could perhaps just continue down that line. I think certainly the retail for a number of people on some of these headlines has been looking at being something of a rebalancing of the ecosystem or a bit of a leading indicator on cash grab by some of the studios? I mean, would that also be a bit of a mischaracterization or a bit of a misunderstanding of how the space is evolving?
Yes. So studios are our partners, and it's in their interest for us to be a business that's healthy and continues to grow. And we do a number of things with them at Cineplex. For example, in the case of Disney, we have The VOID in our rec rooms. Disney is a partner in that particular virtual reality space.
We sell games to Disney in their parks. We work on many, many things together. So I think the relationship goes in most cases way beyond just the movie theater, especially in the case of Cineplex. Right. Thanks so much,
We will take our next question from Mr. Jeff Fan of Scotiabank. Please go ahead.
Thank you. Good morning. I've got a few to finish it off here. First, on the box office for the year. Obviously, the biggest debate out there, one of the biggest debate is whether what we're seeing in box office performance is secular or just cyclical.
But if I just look at the full year for this year, a lot is certainly riding on the fourth quarter and a lot is riding on the film slate, especially Star Wars. As you look out, I know it's difficult to predict, but I think in order for the market to start to side with the bulls and think that this is not a secular trend is to have a very strong April showing. Do you think that there's enough fuel there to bring you from what the year to date performance has been to a positive box office number for the year? And then my second question is is on the on the PVOD. Assuming that the studios are gonna try this model, the distribution inside the home, are there any things that you guys can do, to ensure that the the the distribution inside the home is not a fair game between yourselves and and some other distributors out there, you know, cable companies, telcos, etcetera, who have boxes sitting inside the home.
Wondering if you can if there's anything that you can secure to ensure that you protect your economics there.
Okay. To your first question, Jeff, on the issue of cyclical versus systemic, I think the best example is the movie, IT, which came out in September, became the highest grossing horror movie ever. And what it boils down to is the fact that content is there, people do want to have that social experience. We saw this weekend with Tor, which opened great numbers, much higher than most people had anticipated. In Canada, for the fourth quarter, we are in a better position because Blade Runner actually over performed in Canada compared The U.
S. With the Canadian producer director behind it. So we are in a better position going into the fourth quarter. And I think given the product that's available with Justice League being a big movie, Coco, Star Wars, Jumanji, Showman, there's a ton of movies that are coming out. And I feel we should at least get to a position where we'll probably balance out for the year compared to 2016.
And you have to remember the 2017 was a very strong quarter. So you're going to have these variations from quarter to quarter, and I always suggest you gotta take a longer term view of, you know, where things are at. On your PVOD question, again, you know, when we look at Cineplex, we've spent a great deal of time and money developing our Cineplex store, which would basically allow us to be part and parcel of the whole Peabody experience. We also have the advantage of the SCENE loyalty program, which 8,700,000 members and great data on them. And we are working closely with our studio partners to whatever ends up happening to be in a situation where it's a win win for both of us.
Great. And if I can just just one final one for Gord. On the capital spending for this year, can you just remind us of what the general plans are for the year and also for if we can look ahead to 2018?
Sure. I mean, we kind of confirmed the previous guidance that this CapEx for 2017 would be roughly 150,000 sorry, 150,000,000. And then the guidance for 2018 was $125,000,000 This year, as you recall, the additional CapEx that puts us over and above that our traditional run rate is about $40,000,000 that we're spending on the recliner program as well as additional sort of $10,000,000 that we've been investing in the P1AG business to set up a retail display installation in The U. S. As well as some additional CapEx in that business.
But maintenance continues to be around $30,000,000 in both 2017 and 2018. And then the remainder is our investment in growth CapEx, which I broke out the totals earlier on in the call.
Great. Thanks.
Thanks, Joe.
There are no further questions on this call. I would like to hand it back over to Mr. Ellis Jacob for closing remarks.
Thank you very much, and thank you for joining us this morning. We wish you all a very happy and healthy holiday season and look forward to speaking with you in the New Year with our Q4 and year end results. Thank you.
This concludes today's call. Thank you for your participation. You may
now
disconnect your lines and have a wonderful day.