Good day, welcome to the Cineplex Inc. Q2 analyst conference call. Today's conference is being recorded. 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, welcome to Cineplex Inc.'s 2017 second quarter conference call. We are pleased you could join us this morning. I will begin by providing a brief overview of our second quarter results and a summary of our key accomplishments during the period. We will take a look at some of the most anticipated movies to complete this year's film slate. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of our financials, we will follow with the question-and-answer period. The results this quarter were mixed as attendance shortfalls and declines in media, coupled with the start-up costs associated with Cineplex's ongoing diversification strategy, resulted in decreased adjusted EBITDA. Gord will speak to these results in more detail later in the call.
A weaker-performing film slate resulted in decreased attendance this quarter versus the same period last year. However, BPP of CAD 10.36 and CPP of CAD 6.03 both represented all-time quarterly records as we continue to improve premium experiences and expand offerings outside of core concession, including offerings at VIP cinemas and Outtakes locations. Top-performing films during the period included "Guardians of the Galaxy Vol. 2", "Wonder Woman", "The Fate of the Furious", "Beauty and the Beast", and "Pirates of the Caribbean: Dead Men Tell No Tales." Although these films performed well, many films did not meet expectations. As I've said previously, box office revenue will fluctuate due to the film product release from quarter to quarter, which is outside our control. I would like to highlight some of our key accomplishments during the second quarter. Beginning with film, entertainment, and content.
During the quarter, we announced plans to open two new VIP cinema locations in West Vancouver and Burnaby, British Columbia, as well as a new theater in Calgary. This theater, Cineplex Cinemas East Hills, will feature an auditorium specifically designed for families with young children with its colorful interior, playful seating, and curated family-friendly films. We also continue to roll out luxury recliners in select theaters across the country with great success, converting 33 auditoriums during the second quarter. We now have 11 locations completed within our circuit. Alternative programming for the second quarter of 2017 included strong performances from international film programming, WWE WrestleMania 33, live national theater, and a special presentation of the Japanese anime film, "Your Name." cineplex.com registered a 30% increase in visits during the second quarter compared to the prior year period.
We also continued to direct guests to utilize our online offering, including ticket purchases. In the quarter, 22.5% of total admissions were purchased online and via mobile devices. The Cineplex Store remains a strategic area of focus for us. During the second quarter, the store registered a 30% increase in device activations and a 72% increase in monthly active users as we continue to develop and enhance the user interface and experience. We currently offer more than 8,100 titles ranging from classic films to the latest blockbusters available online, via web, and through a portfolio of devices. We continue to see this evolving business grow quarter by quarter, and I would like to reiterate that the store is one of many initiatives that differentiate Cineplex from other film exhibitors worldwide. Looking at media. Media was faced with a tough second quarter.
Cinema media experienced declines of approximately CAD 3 million due to lower-than-anticipated on-screen revenues. Cinema media was impacted by the NHL playoffs, where five Canadian teams made the playoffs versus zero teams in the prior year period, shifting media spend from cinema to television. Cineplex Digital Media was also impacted by approximately CAD 2 million due to delays in the timing of a number of project installations in the quarter. Looking at amusement, gaming, and leisure. In April, our Amusement Solutions group acquired Dandy Amusements International, a Western U.S.-based amusement game operator. The addition of Dandy to our Player One group, combined with our previous acquisitions in this space, enhances our ability to provide amusement services to a much broader and expanded market from coast to coast across North America. Also during the quarter, we opened our second location of The Rec Room at the historic Roundhouse in Toronto.
Located just across from the CN Tower, Ripley's Aquarium, and the Rogers Centre, The Rec Room could not be more perfectly located to capitalize on the numerous condo residents, office towers, and tourists to this area of the city. After five weeks of operation, The Rec Room at the Roundhouse has far exceeded our expectations and generated over CAD 2.5 million in revenue. This Rec Room is also home to Canada's first location of The VOID, a virtual reality experience that combines interactive sets, real-time effects, and special gear to bring you right into the action. This is one of only four locations in the world. In this instance, content for the experience was developed by Ghostbusters creator Ivan Reitman, Paul Feig, and Sony Pictures in conjunction with The VOID.
We see VR as a growth opportunity for us, with a number of initiatives underway to leverage this type of attraction in The Rec Room, our theaters, and with clients of Player One Amusement Group. In addition to the previously announced new locations for Calgary and the West Edmonton Mall, which will open in Q3 and Q4 respectively, we also announced plans to open The Rec Room in Mississauga at Square One and in Burnaby, B.C. at the amazing Brentwood development. In esports, Collegiate StarLeague, a subsidiary of World Gaming, hosted the 2017 North American Collegiate Grand Finals at the Scotiabank Theatre in Toronto. This was the first standalone grand finals we hosted in Canada and included 16 colleges and universities from the U.S. and Canada participating in the championships, with prizing totaling more than CAD 100,000 in scholarships.
During the quarter, World Gaming launched the Northern Arena Canadian Championship Series, the first multi-title Canadian championship tournaments, which culminated in the national finals also held at our Scotiabank Theatre Toronto. Due to its success, this promises to be an annual event in our overall Canadian championship series. World Gaming tournaments are becoming increasingly recognized as a destination for top-ranked gamers, not just within the local Canadian community, but also across North America. As previously disclosed, Cineplex acquired the remaining 20% of World Gaming that it did not already own for CAD 4 million and now owns and operates 100% of the business. Continuing in the location-based entertainment area, subsequent to quarter end, we announced an exclusive partnership to bring global sports entertainment leader Topgolf to Canada.
Topgolf venues are sports entertainment complexes that are typically three stories high and 65,000 sq ft, located on approximately 12 acres of land. Perfect for individuals, families, corporate events, and groups, Topgolf brings together people of all ages and skill levels, even non-golfers, to play in the comfort of a climate-controlled environment that is open year-round. There are currently 33 Topgolf locations operating within the U.S. and U.K. with great success. These are high-volume, high-revenue entertainment destinations that draw traffic from within a 50-km radius. Given the success of Topgolf in many cities across the U.S. with varied climates, we expect these locations to be very successful in Canada as well. The joint venture will bring multiple locations to markets across Canada over the next several years, with the first location expected to open in 2019.
This initiative marks another milestone within our diversification strategy and expansion of the location-based entertainment area of the business. Let's take a look at the film slate and some of the films we have coming later this summer and for the balance of the year. The third quarter got off to a strong start with films such as "Spider-Man: Homecoming," "War for the Planet of the Apes," and "Dunkirk." Opening this weekend, we have "The Dark Tower" based on the Stephen King novel, starring Idris Elba and Matthew McConaughey. On August 18th, we follow two brothers as they attempt to pull off a NASCAR race heist in "Logan Lucky," and on September 8th, the Stephen King remake "It" comes back to theaters. This one was filmed here in the GTA.
Next up is "The Lego Ninjago Movie," which high-kicks into theaters on September 22nd, as well as the highly anticipated sequel, "Kingsman: The Golden Circle" starring Colin Firth, which rounds out the third quarter. Looking at the fourth quarter and kicking off the holiday season, we have the return of "Blade Runner 2049," directed by Canadian Denis Villeneuve, which once again stars Harrison Ford, but this time is joined by Ryan Gosling. November begins with Marvel's "Thor: Ragnarok," which is the third film in the Thor standalone series.
On November 17th, DC Comics brings its heroes back together on the big screen with "Justice League." On December 15th, the saga continues as Rey carries on her epic journey in "Star Wars: The Last Jedi." Just in time for the holidays, we have the third installment of "Pitch Perfect" and "Jumanji: Welcome to the Jungle," starring Dwayne "The Rock" Johnson, Kevin Hart, and Jack Black, and "The Greatest Showman" starring Hugh Jackman. As you can see, the film slate has something for everyone for the remainder of 2017, and we're encouraged by the film slate for 2018. In May, we were very pleased to open the Cineplex O.E. Smith Theatre at the IWK Health Centre in Halifax. This charitable initiative offers patients and their families the ability to enjoy the escapism that movies provide while receiving treatment at the hospital.
The multipurpose theater auditorium also provides an updated meeting and presentation facility and is home to the annual IWK Telethon for Children. In June, the world's leading cinema operators created the Global Cinema Federation, of which Cineplex is pleased to be one of the founding members. The group brings together 11 exhibitors from around the world, as well as members of the National Association of Theatre Owners and the International Union of Cinemas. The federation will focus on cinema issues and opportunities, including piracy, technology standards, accessibility, and matters of common interest with our partners in film distribution. As you have just heard, the quarter had mixed results. We may have some ups and downs in some quarters, but we remain focused on value creation and diversifying the business to build a stronger Cineplex for the future. With that, I'll turn the call over to Gord.
Thanks, Ellis. I'm pleased to present the second quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD&A have been filed on SEDAR this morning and are also available on our investor relations website at cineplex.com. For the second quarter, total revenue increased by 7.7% to CAD 364.1 million, a second-quarter record, and adjusted EBITDA increased by 11% to CAD 38.1 million. While the results for the quarter were positively impacted by higher amusement revenue, which increased to 85.9% to CAD 45.7 million, primarily related to acquisitions, a 2.2% drop in attendance, declines in media revenue, and costs associated with Cineplex's ongoing diversification strategy resulted in the decrease in adjusted EBITDA.
Cineplex's second quarter box office revenue increased 2.4% to CAD 170.7 million, compared to CAD 166.7 million in the prior year, as a result of a BPP increase of 4.8% to an all-time quarterly record CAD 10.36, up from CAD 9.89 in 2016. This was partially offset by an attendance decrease of 2.2%. The increase in BPP is due to price increases in selective markets as compared to 2016. Food service revenue increased 4.7% to CAD 101.4 million. Included in food service revenue is CAD 2 million from The Rec Room. Excluding the revenue from The Rec Room, theater food service revenue increased by 2.7% from the prior year due to the 5.1% increase in concession revenue per patron to an all-time quarterly record of CAD 6.03, partially offset by the decrease in attendance.
The FPP growth is primarily a result of increased visitation, basket size, and expanded food offerings, including those available at Cineplex's VIP cinemas and Outtakes locations. Total media revenue decreased CAD 3.6 million, or 9%, to CAD 36.6 million for the quarter. Cinema media revenue, which is primarily theater-based, decreased 8.7% due to a decline in cinema advertising, partially a result of the factors Ellis mentioned previously. Digital place-based media revenue decreased 9.5% due to lower project installation revenue compared to the prior year period, as the prior year included the impact of The Beer Store rollout. Amusement revenue increased CAD 21.1 million, or 85.9%, due primarily to two acquisitions in the U.S. made during the fourth quarter of 2016, and the acquisition on April 1st, 2017, of Dandy Amusements International Inc. In addition, amusement revenue includes CAD 1.7 million of amusement gaming and other revenue earned at The Rec Room.
Turning briefly to our key expense line items, film costs for the quarter came in at 53.6% of box office revenue as compared to 54.4% reported in the prior year. The decrease from the film cost percentage is a result of the reduced concentration of box office revenue from a select number of titles during the quarter as compared to the prior year period. Cost of food service for Q2 2017, excluding the CAD 0.6 million incurred at The Rec Room, was 22.7% as compared to 22.3% in the prior year period. Other costs of CAD 211.5 million increased CAD 28.2 million, or 15.3%. Other costs include theater occupancy expenses or operating expenses and general expenses. Theater occupancy expenses were CAD 52.6 million for the quarter versus a prior year actual of CAD 50.6 million, primarily due to the inclusion of favorable one-time real estate tax credits in the prior year.
Other operating expenses were CAD 138.9 million for the quarter versus a prior year actual of CAD 114.4 million, an increase of CAD 24.5 million. Major reasons for the increase include an increase of CAD 17 million in Amusement Solutions expenses, primarily due to the two acquisitions completed during the fourth quarter of 2016 and the one in the second quarter of 2017. An increase of CAD 0.7 million due to the impact of new and acquired theaters, net of disposed theaters, CAD 2.8 million in unit-level operating costs related to The Rec Room, and costs related to new businesses, including pre-opening costs for The Rec Room and payments on certain third-party digital place-based media networks. These increases were offset by decreases in other costs, including reduced marketing expenses of CAD 1.5 million due to the timing of expenditures.
G&A expenses were CAD 119.9 million for the quarter, which was CAD 1.6 million higher than the prior year due to higher head office costs, including payroll costs and costs arising from share-based compensation. Net CapEx for the second quarter was CAD 50.2 million as compared to CAD 16.4 million in the prior year. Current year expenditures include amounts for ongoing construction of three new The Rec Room locations and the continued roll-out of our recliner program. We estimate that our net CapEx will be approximately CAD 150 million for 2017, and this includes an incremental CAD 15 million related to our recliner program based on the success of the initial program and CAD 10 million related to new business initiatives and retail concepts in the Player One Amusement Group business. During the quarter, we completed the acquisition of Dandy Amusements International Inc. for approximately CAD 13.7 million.
We acquired the remaining 20% of the Canadian Network LP, which we did not already own, for CAD 4 million. We substantially paid the deferred consideration on the EK3 acquisition, which amounts to CAD 10 million. While the results for the second quarter were down from the prior year, we are pleased with the results from the amusement business, and we're optimistic about the remainder of the 2017 film slate, in particular, the fourth quarter. We continue to remain comfortable with where Cineplex Inc. is positioned today. Our strong balance sheet and low leverage ratio allows us to continue to invest in future growth opportunities for the company and benefit from future strong film product. That concludes our remarks for this morning. We'd now like to turn the call over to the conference operator for questions.
Thank you, sir. 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 will now take our first question from Derek Lessard from TD Securities. Please go ahead.
Yeah, thanks. Good morning, everybody. You guys did identify a few areas where you believe the discrepancy between the actual results and consensus EBITDA lied. Just wondering if you could add some color in terms of where you think these costs would be one time in nature versus ongoing.
Yes. Derek, it's Gord. There's a couple items which we identified, particularly related to The Rec Room, where we opened our Roundhouse location this year. We're going to have the pre-opening costs related to those, the party, the marketing, the launch, training, payroll, et cetera. In addition, as we're building out new locations, when we take control of the construction of the project, we typically start accruing non-cash straight-line rent at the point of time of taking over control of construction. During the quarter, there was about CAD 1.9 million in costs related to these straight-line non-cash rent items. The remainder of the variance. The total pre-opening costs line item was about CAD 3.6 million during the quarter. Primarily pre-opening rent, and primarily straight-line non-cash rent, and the remainder marketing and launch costs.
I identified some items related to realty tax appeals where we had a number of successful realty tax appeals in the prior quarter, which amounts to about CAD 2 million. Those are the more significant of what I would characterize as more one-timers. We've got a number of timing-related matters. When we look at the digital media installation schedules, we modified some of those during prepared script. Those were the majority of timing and more one-timers.
Gord, thanks for that. In terms of The Rec Room, is it really one-time, or do you think you have to spend as much on marketing and launch costs as you open more of these going forward?
Yeah. Each location-- sorry, that cost really relates to three locations ongoing. I think what we've typically said and what people have typically modeled is the pre-opening costs related to single Rec Room is typically in that kind of million-dollar range.
Okay. Maybe just switching gears to the recliner program, just wondering how much disruption you guys expect for the remaining retrofits. Of that 2.2% drop in traffic, how much of that was due to the 33 auditoriums going dark at one point?
Derek, it's Ellis. Basically, the recliner program, as we get them started and take the screens off, they have an impact on us during the period that they are
taken off service because we don't have as many auditoriums in those particular locations. The results so far have been extremely positive. We've completed 11 of them. We look to complete another four by the end of this year. We will continue to roll them out in specific locations as it continues. Now, a reason for the difference between the industry and ourselves in Canada was also driven by the Quebec movie, called "Bon Cop, Bad Cop 2," which did extremely well in the marketplace. When you look across the country, Quebec is where there are more independent theaters, and that's why we ended up with a lower percentage increase as a result of the performance of Quebec, which was one of the highest growth provinces in the second quarter.
Okay. That will [allow me cue]. Thanks for that.
We will now take our next question from Drew McReynolds from RBC. Please go ahead.
Yes. Excuse me. Thank you very much. In the opening remarks, Ellis, I think you alluded to CAD 2.5 million in revenue. Is that from the Toronto Rec Room? Did I get that correctly?
Yes, that's correct. I said that during the first five weeks of operation, it grossed CAD 2.5 million, and we are quite pleased with the performance, and we feel very comfortable with the location and the feedback we are getting from our guests.
Okay. No, that's definitely a good number. Just two other ones. Just first on the outlook for Cineplex Media and then digital media. I guess for you, Gord, you've said in the last couple of quarters, you've thrown out a couple of kind of broad parameters on how you expect these businesses to grow. When you look at the Q2 impacts that more or less look a little bit transitory to us, is there any change in that full year outlook for media or the growth outlook for the underlying businesses altogether? Secondly, just on the CapEx, I think you've alluded to kind of a normalized level of about CAD 100 million if you strip out some of the recliner-related CapEx. Just wondering if that's kind of a longer-term targeted run rate that's still intact just based on your updated guidance for 2017. Thank you.
Yeah. Look, we had previously guided CAD 125 million in CapEx was increased that to CAD 150 million. Two different incremental additions. Additional CAD 15 million related to recliners based on the success seen to date, and then CAD 10 million related to some retail concepts and some few business growth related to Player One Amusement Group. We now have a guided number of CAD 150 million for 2017, of which CAD 40 million is recliners and CAD 10 million is the Player One Amusement Group. We continue to kind of indicate that CAD 100 million is what we would have on a run rate going forward. I would suggest with our announcement of Topgolf, and as we look to roll that out, is that as you look forward is it is CAD 125 million would be more of a run rate going forward than the CAD 100 million including the introduction of this new concept.
Okay, thanks.
And then, sorry about-
Yep.
Did I answer your second question? On the first one, as we've mentioned, particular on the Cineplex Digital Media side, there are some timing issues related to installations. When we look at the QSR business, in particular with the franchise relationships, sometimes those can be a bit more challenging to get off the ground. We're behind where we initially thought we were in terms of installations. I would suggest that kind of the numbers that we've given previously now might be more challenging to reach for the full year 2017. On a go-forward basis, we're still comfortable with kind of that longer-term outlook.
Thank you.
We will now take our next question from Tim Casey from BMO. Please go ahead.
Thanks. Could you provide a little more color on what you saw in the cinema media advertising line on the quarter and what you're hearing about that business going forward from your key advertisers?
We got impacted, as I mentioned on the call, Tim, from the hockey, which people had reallocated dollars. We are comfortable where we are going to end up on a full year basis, and we'll continue in that business to see single-digit growth going forward. We aren't getting any pushbacks from the advertisers themselves because the cinema is still a great location to get people's undivided attention when it comes to the advertising.
Okay, thanks for that. Just on the recliner program, can you provide a little more color on what you're seeing in terms of throughput that's causing you to accelerate that program? Also on that, with the CAD 40 million full spend, is that sort of it, or do you think that you may even go further? Lastly, just what's the timing on it? Is that all going to be done this calendar, or do you think that some of it will flow into next year? Thanks.
Well, we basically are committed to completing 15 by the end of this year. Based on the results, we may continue to look at opportunities right across the country. As we open the newer theaters, they will all be fully reclined. I think you're going to see the returns start to flow in as the quarters move forward. Hello?
As a reminder, to ask a question, please press star 1. We will now take our next question for Aravinda Galappatthige from Canaccord Genuity. Please go ahead.
Good morning. Thanks for taking my question. I wanted to kind of follow quickly on the extra CAD 10 million in CapEx on the Player One segment there. Maybe Gord or Ellis, I was wondering if you could just expand on what the new retail concepts are that you're sort of experimenting with. I just wanted to make sure. This sounds like it's more of a one-time spend. I was wondering if you can expand on that investment a little bit. Thanks.
Sure. As I mentioned, the business that we've created in the U.S. has really created a consolidated national position. We're serving multinational or serving national customers across the U.S. We have introduced one concept in Mall of America. This would be one of our standalone concept for us. I would characterize it as limited, more of a showcase location for us. There's been some capital spent in terms of both equipment and creating a location within the Mall of America.
Okay, thanks, Gord. Just staying within that segment. Obviously, the quarterly numbers move around a bit given the acquisitions that you made. Just to help us with forecasting. How much seasonality do you get in this business? I'm trying to use Q2, which includes all three acquisitions. I know Dandy was completed in April. How can we kind of think about the seasonality of the business as well as the margins? This is just the Player One component, excluding Rec Room and excluding Cineplex acquisition.
Yeah. With respect to the seasonality, a lot of it follows the patterns of majority of the audience is younger demo. If you follow kind of the school and the holiday patterns more closely than you would, say, from the movie attendance perspective. A little bit heavier in the summer months as people are off school, and then heavier kind of around those Christmas vacation periods. Other than that, there's not as significant seasonality as there would be in the film industry, as an example.
Typically kind of a lower-end teen type margins there, right? In the lower teens, let's call it. Is that sort of reasonable?
Yeah. Again, there's two elements to the business. There's one which is the distribution, which is the sales of equipment, which is a relatively low-margin business. Then there's the route business. The distribution business where we're placing equipment in third-party venues and operating under a rev share. Dandy, as an example of an acquisition, was primarily a rev-based business. The margins under the distribution business would be low single or high single digits, sorry. Under the rev business, you're closer to that 20% range. As we add more rev business, which we did through the acquisition of Dandy, you'll see the margin in that business increase.
Thanks for that, Gord. Just a big picture question, perhaps for Ellis. Premium VOD is back, was being sort of the headlines again. I know you've discussed it in the past. We're seeing sort of contradicting comments coming from various parties. I know that Bob Iger at Disney has said he's really not interested in the format, whereas others may be on the Time Warner side, and surprisingly even AMC seems to sort of be more positive about it. I was just wondering if there were any updated thoughts around discussions that are being had or any updates you can provide on that front. Thanks.
We continue to have discussions with our distribution partners about the Premium VOD. Nothing has been put in place, and I can't comment on different rumors that are out there. All that being said, we are positioned very differently than most of our exhibitor peers because we've been in the Cineplex Store business for close to five years. We've got our own delivery mechanism. We have 8,100 titles. We have SuperTicket. For us this is something that we will continue to discuss with our partners moving forward. Again, neither of the parties, either the studios or ourselves, want to be in a position where we are trading dimes for nickels. We are very focused on doing whatever happens, the right thing for both of us.
Okay, thank you. I'll pass the line.
We will now take our next question from Rob Goff from Echelon. Please go ahead.
Good morning, and thank you for taking my question. If I could, I'd like to go back to the recliners. There, I appreciate you probably don't want to go as far as Regal, where they're suggesting that they're getting incremental CAD 77 million in EBITDA from an investment to date of CAD 140 million. Could you give us perhaps some data points in terms of the initial traction of the recliners? Perhaps, is your threshold IRR 20%-30% with respect to the initiative? Thank you.
Yeah, we are seeing some great results, Rob, on the initial installs. I think what we have to do is give it a bit of time to get an annualized run rate for all of the ones that we've completed. Where we are seeing a lift too is on the concession per person at the same time as the attendance and the penetration of the locations themselves. We would be looking at definitely a 20% return on our investment, and in some cases, it may be higher or lower depending on the positioning. Our big concern compared to the U.S. is they have many screens per location. In Canada, we run around 10 screens. They're at 14 to 16. We have a capacity issue. We need to deal with that also when we look at individual sites as to whether they warrant having recliners.
Okay. If I might, could you perhaps provide any additional color on the box? I know Q2 started off well for you and then fell off. Could you talk to what you've seen in Q3?
Yeah. Q3, it started off, as I said, quite strongly. The first couple of weeks we were ahead, then we ended up, I guess, this past week where we had Legally Blonde open and that was competing— Atomic Blonde, sorry. That was competing against the Bourne franchise last year. The coming week, we've got the movie this year, which is going to be Dark Tower and Logan Lucky the week after that, and that is competing against last year's Suicide Squad. Those are the two tough weeks. When I look at the balance of the quarter, we've got movies like Hitman's Bodyguard, Logan Lucky. We've got a number of movies like Lego Ninjago and Kingsman. That weekend, I'm sure we will definitely outgross the prior year.
I did a week-by-week comparison from last year to this year, and really the big difference for the third quarter is really Suicide Squad, and it'll all depend on how Lego and Kingsman do towards the end of the quarter to see where we end up. In the fourth quarter, we again look quite strong with Blade Runner. We've got Geostorm. We've got the Bad Moms. We've got Thor, which should be huge. We've got Justice League, we've got Coco, then, of course, this year's Star Wars I expect to be significantly stronger than the prior year.
Okay. Thank you.
We will now take our next question from Adam Shine from National Bank Financial. Please go ahead.
Thanks a lot. Good morning. Just to press a little bit on Cineplex Media and Cineplex Digital Media again. I don't think it was explicitly stated, although we don't expect to see maybe the same degree of weakness, particularly on Cineplex Media heading into Q3, are we still working through a bit of a troughing dynamic ahead of, I guess, better traction reasserting itself in Cineplex Digital Media in Q4 and certainly on the back of the strong box office expectations that Ellis just alluded to on Cineplex Media coming back with some strength? Can we just talk to that in terms of Q3?
Adam, in terms of the digital media, as was said, kind of the installation revenue gets a little bit lumpy. There's a number of different. We're focused on three kind of key verticals at QSR, retail, and financial institutions. The retail and financial institution vertical tends to be very focused on wide-scale installations occurring relatively quickly. QSR, when you're dealing with franchise situations, you get very lumpy installation programs in place. As I mentioned last year, we had a retail customer in the first half of the year at The Beer Store, which in essence fully deployed within the first half of last year. This year we're rolling out some of those recently announced QSR customers. As I mentioned, those are a little bit lumpy. As we look forward, we're still comfortable with where we ultimately think the business is and what we've historically communicated.
We just got into some kind of quarter-over-quarter comparisons where the lumpiness is a little bit more intact or more evident to you guys.
From a media perspective, I think the fourth quarter, given the movie slate, you're going to see a lot of advertisers wanting to be in front of those movies. Movies like Thor, Blade Runner, Justice League, Star Wars are all going to drive the cinema media business.
Ellis, if I could ask you one question, it's maybe a bit hard to address exactly, and maybe a bit moot to a degree in the context of you're not likely to do acquisitions outside of Canada. In as much as Aravinda touched on PVOD, I guess another interesting issue that's been out there in the market, particularly talked about in recent weeks, is the idea that we've seen some degree of domestic weakness for a number of titles, as you alluded to earlier. Some of that is being mitigated by strength overseas. Net-net for some of these studios who'd love to see strength on both sides. Nevertheless, they come out somewhat pleased by some of the upside they're getting internationally. As it relates to Cineplex, which is more Canada-focused, how do you look at that dynamic?
Maybe, again, this is just a specific quarterly issue and/or specific titles that are simply not resonating, it looks to be a bit of an interesting potential trend.
Yes. Adam, that is the case. We do get impacted in Canada, sometimes in a great way and sometimes in a not so good way, especially with the kinds of movies that are being released. Like we know things like the Potter franchise, Star Wars, and all of those kinds of movies. Bond movies do extremely well in Canada. Movies that are related to books also over-index in Canada. One of the things, though, we've had, as you saw in the second quarter, is a big Quebec feature which helped us comparatively to how the U.S. performed because the box office in Canada, both for Cineplex and the industry, was up compared to the U.S. in the second quarter. You are correct, there are expansions taking place around the world, and there are certain movies that have underperformed in North America but have made up the difference internationally.
I don't see that as an ongoing trend. It's just the growth in the business outside North America is partially causing that increase in the rest of the world.
Okay. Thanks for that, Ellis. I appreciate the color.
No problem.
As a reminder, to ask a question, please press star one. We'll now take a follow-up question from Derek Lessard from TD Securities. Please go ahead.
Yeah, guys, just on maybe on the minimum wage. There appears to be some dialogue going on with the government and the industry. I was just wondering if you had any further insight into the negotiations or discussions.
Derek, we are not directly discussing or negotiating with the government. We are basically doing all of the necessary measures that we need to from a technology perspective and other things to look at the different wage structures from what's taking place across the country. We are part of the Retail Council of Canada, which is representing us as part of the issue of the whole minimum wage and the speedy increase that they're looking at implementing.
Maybe your level of confidence in being able to offset any of those increases.
Well, we are looking at all of the different avenues from efficiency, technology, pricing, whatever we need to the buttons we need to and the levers we need to pull to get us to the right level so it does not have a long-term impact on Cineplex.
Okay. Maybe just a housekeeping question for Gord. I was wondering if you had the number of digital media installs that you have this quarter.
Last year we were about 10,600. We're about 11,600 at the end of Q2.
Okay. Thanks for that.
One thing I'll just mention on locations, though, is as we're branching out into some of these mall networks in the past, the purchases that Yorkdale is one location and a small QSR in a single location is also one location. Not all locations are equal, but just to remember that as you look forward.
We will now take the next question from Jeff Fan from Scotiabank. Please go ahead.
Thanks. Good morning, and thanks for taking the questions. I've got a few. First, on the recliners, if we can just do a quick clarification. How much in total CapEx are you spending in 2017 for the 15 locations, and what's the plan for 2018?
It's CAD 40 million. We increased it from 25 by an additional 15. As Ellis mentioned in his comments with respect to 2018 is to date, we have a plan, and that's what we're looking to address in 2017. To the extent that we see future opportunities, we could potentially deploy additional, but at this point in time, we've identified the first, I would say, 2 phases of where we think we would go, and there may be opportunities, but there may not be as many in 2018.
The CAD 40 million, is that for the same 15 locations? Are you adding more screens to-
Yeah, that adds an incremental approximately six or so locations.
Six or so locations. Okay. On to the Topgolf. What's the plan here with respect to the size of the investment that you think Cineplex is going to have to make into this joint venture? Just want to get a sense as to the magnitude of this and then also the return profile that you expect to see from that JV.
Yeah. Look, the size of the site needed to deploy a Topgolf location is roughly 12 acres. The size of the box is about 65,000 sq ft. As we look and benchmark against our other LVE concepts, including The Rec Room, I would suggest that the cost of deploying Topgolf, our costs would likely be roughly twice the cost of a Rec Room, in the major market Rec Room, and we'll likely deploy half as many as we would Rec Room deployments in major markets.
Jeff, we are quite excited about this opportunity, and the reason being, it really is about we were a cinema company, now we are an entertainment destination. To me, that's really important for us. With our SCENE loyalty program and all the different businesses that we have with our gaming business and our signage business, it fits well into our Topgolf facilities. I don't know if you've gone to one of these in the U.S., but today I got more emails this morning about Topgolf than I did about our financials. We're quite positive about this joint venture.
Jeff, sorry, just also in terms of the return profiles, with our LVE concepts and the ones that we've announced today prior to Topgolf our cash on cash returns is 25% and EBITDA margins around 25%. I would suggest that the expectation would be is that we would be consistent with those as we look to roll out all our LVE concepts, including Topgolf.
Just maybe one final question, more of a big picture as we sit back. Can't help but think to see that some of the investments in some of these growth initiatives are increasing, not only for this year, but looks like for the next couple of years. As you sit back, is this because you're a little bit more concerned about the box office recovery this year not having as big a bounce so far at least, that you think you have to spend a little bit more in order to drive some of these growth initiatives? I'm not questioning really whether these are great opportunities. It sounds like they certainly are, but just wondering how you're thinking about bridging the box office trends also from contribution from these growth initiatives.
That's a great question. It's not that we started this quarter. We have been looking at diversifying as a company for the last five to 10 years. As we grow those different businesses, we expect contributions to continue to basically minimize our risk when it comes to the Hollywood movies. The issue becomes is you're going to have situations where there are quarter-to-quarter variations on the box office, year-to-year variations. When you look at the overall movie business, it has been quite strong and significant, even though there's been a lot of disruptions over the last 25 years in the business because it still is a social experience, it still is a night out, and it's all about giving that guest the best experience. Our diversification wasn't based on this quarter's results or the last number of quarters.
It was a long-term thought-out process that we wanted to continue to use our infrastructure and human capital to diversify our business so we are less reliant on just one facet. There's a lot of growth opportunities in Canada because of some of these entertainment complexes that have done well south of the border that we're able, as a result of our infrastructure, our relationships to build. Given where things are theatrically in our market share, it's harder for us to grow in that space in Canada.
Thanks for the color.
There appears to be no further questions. I would like to turn the call back to Ellis Jacob for any additional or closing remarks.
Thank you all for joining us this morning. We hope you have a great balance of the summer and enjoy the Rec Room at the Roundhouse, and we'll speak to you again during our third quarter conference call in early November. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.