Good day. Welcome to the Cineplex fourth quarter and full year 2016 call. Today's conference is being recorded. At this time, I'd like to turn the presentation over to Ms. Pat Marshall, Vice President of Communications and Investor Relations. Please go ahead, Ms. Marshall.
Good morning. Before beginning the call, we'd 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'd now like to turn the call over to Ellis Jacob, President and CEO.
Thank you, Pat. Good morning. Welcome to Cineplex Inc.'s fourth quarter and year-end 2016 conference call. We are glad you could join us today. I will begin by providing a brief overview of our top-line results as well as a summary of our key accomplishments during the fourth quarter. I will also highlight some of the most anticipated films for the first half of 2017. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of our financials. As always, once Gord has concluded his remarks, we will hold a question-and-answer period. Total revenue for 2016 increased 7.8% to CAD 1.5 billion, despite a decrease in attendance of 3.2% compared to 2015, which featured five of the top 11 grossing films of all time. This increase was primarily due to our newly acquired businesses and ongoing efforts to diversify our sources of revenue.
Our film entertainment results in the fourth quarter were impacted by a 12% decrease in attendance, largely driven by the tough comparator in 2015, where the top four movies in our circuit delivered CAD 98 million in box office compared to CAD 73 million in 2016. In addition, in the fourth quarter of 2016, there were a number of films released in North America that over-indexed in the U.S., including Tyler Perry's Boo!, Almost Christmas, Kevin Hart: What Now?, and The Birth of a Nation, which collectively grossed $145 million in the U.S. market and only CAD 1.8 million in the Canadian market. This resulted in a large difference between our results when compared to our North American peers. This phenomenon happens in certain quarters, negatively impacting our box office results. Gord will share the balance of our fourth quarter and full-year results with you in a few moments.
Now I would like to highlight our key accomplishments during the fourth quarter. Beginning with theater exhibition. Top-performing films during the period included Rogue One: A Star Wars Story, Doctor Strange, Fantastic Beasts and Where to Find Them, Moana, and Trolls, all of which were available in premium moviegoing experiences for our guests to enjoy. We opened Canada's first 4DX auditorium at Cineplex Cinemas Yonge-Dundas and VIP, which features specially designed motion seats and environmental effects that work in sync with the action on the screen. During the quarter, we continued to expand our D-BOX presence and install D-BOX motion seats in nine theater auditoriums, bringing our total to 77 across the circuit at year-end. We also announced plans to install recliner seating in six theaters across Canada, with an additional seven locations added subsequent to quarter end. Construction is already underway and expected to be completed by the summer.
Guests continue to seek our premium moviegoing experiences at our theaters. The percentage of box office revenue from premium experiences was 48% for the quarter, an all-time fourth-quarter record, driven mainly by the strength of 3D product, and 46.1% on a full-year basis. Within our theater exhibition business, we achieved record fourth-quarter results for BPP of CAD 9.90, an increase of 2.8%, and CPP of CAD 5.75, an increase of 3% compared to the prior year period. Looking at media. Our media business is comprised of two areas now referred to as cinema media and digital place-based media. While cinema media revenue decreased 12% for the quarter, it finished with a 0.9% increase for the full year. Digital place-based media experienced a 19.1% increase in revenue for the quarter and a 39% increase for the year, largely due to an expanded client base.
In November, we were very pleased to announce an agreement with Ivanhoé Cambridge to install, maintain, and operate a leading-edge digital display network at 21 Ivanhoé Cambridge shopping centers across Canada. The rollout of these digital displays has already begun and will result in increased advertising and service revenue once the network is fully installed and operational by the end of this year. On Monday, we announced an agreement with Morguard Investments LP to create, maintain, and operate a network of nearly 175 digital displays at 21 Morguard-managed shopping centers in B.C., Alberta, Saskatchewan, Manitoba, Ontario, and Quebec. With the addition of Ivanhoé Cambridge, Oxford Properties, Morguard, and other mall developers, Cineplex now impacts approximately 50% of all mall traffic in Canada. Since its inception, Cineplex Digital Media has been a strategic business for Cineplex, and we believe it is well-positioned for continued significant growth throughout North America and beyond.
In amusement and leisure, in the fourth quarter, we acquired SAW, LLC, a leading provider of coin-operated rides, amusement and redemption games, as well as bulk vending equipment to hundreds of shopping centers, restaurant locations, and big box retailers. We also completed the previously announced acquisition of Tricorp Amusements Inc., a leading provider of interactive video redemption and amusement game services in the U.S. In November, we rebranded Cineplex Starburst Inc. to Player One Amusement Group, unifying all of the Cineplex owned and operated amusement companies, including CSI, Brady Starburst, Premier Amusements, Tricorp, and SAW under a single brand. Player One Amusement Group is one of the largest distributors and operators of amusement games and vending equipment in North America. The Rec Room experienced its first full quarter of operation and exceeded our expectation.
We continue to move forward with plans to open 10 to 15 locations in the next few years and add subsequent to quarter end announce plans for two new locations, one in the iconic West Edmonton Mall in Alberta to open in the summer of 2017, and the other in London, Ontario, opening in 2018. Construction also continues at the Toronto Roundhouse and Calgary locations, which are expected to open this spring and fall respectively. Subsequent to quarter end, Cineplex and WorldGaming announced the first tournament of 2017 as part of the Cineplex WorldGaming Championship Series presented by PlayStation, which will see teams of four from across Canada competing in Call of Duty: Infinite Warfare for over CAD 65,000 in cash prizes. Teams qualify for the tournament through online qualifiers hosted on worldgaming.com or at one of our regional qualifier events held in theaters.
Teams will go on to compete in online playoffs, where the top eight teams from across Canada will meet in Toronto for the national finals to be held at Scotiabank Theatre Toronto on March 26th. Moving to Scene, we were very pleased to reach our 8 millionth member in November, marking another important milestone. We added 800,000 members in 2016, reaching a total of 8.1 million members as at December 31st, 2016. Scene provides us with great connectivity to all of our guests, helping us to better understand and communicate with them as we become the entertainment destination for Canadians. We look forward to seeing this program continue to grow and evolve in the future. We were pleased to be recognized as one of Canadian Business Magazine's 25 best brands in Canada for 2017.
As well, Strategy Magazine named Cineplex as one of their top picks for 2016's brand of the year. We are proud to be recognized as one of Canada's top brands as it reflects all of the great work that our employees have done to build the Cineplex brand and the company. Now let's take a look at the film slate for the first half of 2017. Looking ahead to what's in store this quarter, last Friday, "Fifty Shades Darker," the sequel to 2015's "Fifty Shades of Grey," hit theaters, generating CAD 46.8 million in box office revenue. Also opening this past weekend was "The Lego Batman Movie," which generated CAD 55.6 million in box office revenue, and "John Wick: Chapter 2," which did CAD 30 million in box office revenue in North America, surpassing initial estimates.
On March 3rd, X-Men fans rejoiced with the release of "Logan." On March 10th, we have the action-adventure film "Kong: Skull Island" with Tom Hiddleston, Samuel Jackson, John Goodman, and Brie Larson. Next is the highly anticipated "Beauty and the Beast" remake starring Emma Watson as Belle, which opens on March 17th. Moving on to the second quarter, we look forward to the eighth installment from the "Fast & Furious" franchise with "The Fate of the Furious" opening April 3rd. The Marvel sequel, "Guardians of the Galaxy Vol. 2" hits theaters on May 5th. In Quebec, the highly anticipated sequel to "Bon Cop, Bad Cop," which is the all-time highest-grossing Canadian movie to play in Canada, opens May the 12th. Johnny Depp returns as Captain Jack Sparrow in "Pirates of the Caribbean: Dead Men Tell No Tales," which opens on May 26th.
In June, the next installment in the DC Universe brings Wonder Woman to the big screen. The following week, Tom Cruise and Russell Crowe star in "The Mummy." Ending the month, children everywhere, as well as a few adults, will rejoice with the return of the third installment of the highly successful "Despicable Me" film. Even though our results in 2016 were negatively impacted by the film slate, we are very encouraged by the direction of our diversification strategy and where Cineplex has leveraged its assets and human capital for the future. This strategy will help us to offset the variations in box office as a result of content fluctuations from the studios. Before I turn the call over to Gord, I would like to take a moment to congratulate Pat Marshall on her Lifetime Achievement Award from IR Magazine.
Thanks, Ellis, and congratulations, Pat. I am pleased to present the fourth 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 fourth quarter, total revenues decreased by 5.4% to $385.4 million, and adjusted EBITDA decreased by 21.5% to $66.8 million. The results for the quarter were negatively impacted by a 12% decline in attendance due to weak film product as compared to the record fourth quarter in the prior year, and expenses arising from Cineplex's diversification into emerging businesses.
Cineplex's fourth quarter box office revenue decreased 9.6% to CAD 177.5 million, compared to CAD 196.3 million in the prior year, as a result of an attendance decrease of 12%, partially offset by a BPP increase of 2.8% to an all-time quarterly record CAD 9.90 from CAD 9.63 in 2015. The increase in BPP is due to an increase in the premium product percentage in the fourth quarter, increasing to 48% of box office revenue in 2016 from 46.8% in 2015. The impact of premium priced product on the average ticket price was CAD 1.34 for this quarter as compared to CAD 1.22 in the prior year. This was primarily due to the success of 3D product, with all of the top five films in 2016 being released in 3D as compared to three films in the prior year.
Food service revenue decreased 7.3% to CAD 105.5 million as a result of the lower attendance, partially offset by a 3% increase in concession revenue per patron to CAD 5.75, an all-time quarterly record. Included in food service revenue is CAD 2.4 million from The Rec Room. The CPP growth was primarily a result of increased visitation and expanded food offerings, including those available at Cineplex's VIP Cinemas and Outtakes location. Total media revenue decreased CAD 2.6 million, or 4.6%, to CAD 52.7 million for the quarter. Cinema media revenue, which is primarily theater-based, decreased 12%. Digital place-based media revenue increased 19.1% due to increased project revenue for recently announced new clients, including A&W and American Dairy Queen, and growth in existing and new business opportunities, including advertising revenue from the TimsTV network deployment and the Oxford Properties Group digital installations.
Other revenue includes an increase in revenue from our amusement solutions business of CAD 7.9 million, or 37.2%, due primarily to two key acquisitions in the U.S. made during the quarter. In addition, other revenue includes CAD 2.2 million of amusement gaming and other revenue earned at The Rec Room. In total, The Rec Room generated approximately CAD 4.6 million in total revenue during its first full quarter of operations. Turning briefly to our key expense line items, film cost for the quarter came in at 54.1% of box office revenue as compared to 53.6% reported in the prior year. The increase in the film cost percentage is the result of the continued concentration of box office revenue from a select number of titles during the quarter.
Cost of food service for Q4 2016, excluding the CAD 0.9 million incurred at The Rec Room, was 23.2% as compared to 21.8% in the prior year as a result of the mix of food offerings, including those at our VIP Cinemas. Other costs of CAD 198.1 million increased CAD 5.7 million, or 3%. Other costs include theater occupancy expenses, other operating expenses, and general and administrative expenses. Theater occupancy expenses were CAD 49.6 million for the quarter versus a prior year actual of CAD 50.5 million. Other operating expenses were CAD 134.7 million for the quarter versus a prior year actual of CAD 123.3 million, an increase of CAD 11.4 million. Major reasons for the increase include an increase of CAD 7.7 million in amusement solutions expenses, primarily due to the two acquisitions completed during the quarter. An increase of CAD 1.6 million due to the impact of new and acquired theaters, net of disposed theaters.
Higher media expenses of CAD 2.4 million due to higher digital place-based media business volumes, CAD 33 million in unit-level operating costs related to The Rec Room, and costs related to new businesses, including the WorldGaming Network and The Rec Room. These increases were offset by decreases in other costs, including a decrease in same-store theater payroll of CAD 3.2 million due to decreased attendance levels. G&A expenses were CAD 13.8 million for the quarter, which was CAD 4.7 million lower than the prior year, primarily due to lower LTIP expenses. Interest expense of CAD 4.5 million was CAD 0.8 million lower than the prior year amount of CAD 5.3 million. Contributing to the decrease was a CAD 1.6 million decrease in non-cash interest, mainly as a result of the full accretion of the EK3 earn-out in 2015, offset by higher cash interest, mainly due to higher average borrowings.
The company recorded tax expense of CAD 10.9 million during the fourth quarter of 2016, comprised substantially of current tax expense. Our blended federal and provincial statutory tax rate currently is 26.8%. Net CapEx for the fourth quarter was CAD 26.6 million as compared to CAD 22.3 million in the prior year. Net CapEx for the year was CAD 99.3 million, which was in line with our previous target. We continue to estimate that our net CapEx will be approximately CAD 125 million for 2017, and this includes approximately CAD 25 million related to our recliner program. While box office results for the fourth quarter were softer than expected and greatly affected our overall results for the quarter, we are optimistic about the 2017 film slate. 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. If you'd like to signal for a question, please press star one. Once again, that's star one to be placed in the queue, we'll pause for a moment to allow everyone an opportunity to signal. Once again, as a reminder, that's star one to signal. We'll go first to Adam Shine with National Bank Financial.
Thanks a lot. Good morning, I guess congrats to Pat. In terms of some of what we've been hearing, Ellis, I might as well ask the question. It'll be asked at some point on this call. Talk regarding the windowing, probably not much progress of late per se, anything you can add to the discussion heading into what might be something more concrete coming out of maybe CinemaCon later in March?
Adam, as you are aware, we have a great relationship with our studio partners. We are always very innovative when we come to doing things. Last year, we were one of the few exhibitors that did a test with Paramount on a different window where we shared in the revenue, and discussions continue to take place. Again, I think this is more discussions between us as exhibitors and the studios. The bottom line is the studios or ourselves are not looking to trade dimes for nickels in a business that's a CAD 50 billion business worldwide. There's really nothing new to report at this stage, and when there is, we will definitely make it public.
Is it fair if I could push you a little bit further? Initial commentary in the fall, winter last year seemed to be a bit more broad-based, I think some of the commentary from last week from the studios seemed to be a bit more focused, particularly narrow on the drama genre in particular. Is that a fair assessment of where the focus is, really?
Not really. I don't think that's what I read from the comments from the studios.
Okay, fair enough. Then let me ask a question to Gord. In terms of the P1AG margins, we saw these drop down to maybe the 8%-8.5% range in the Q4. That's after a rise in the Q3. We've seen obviously some M&A in the period. There's a degree of seasonality or any other issues you can talk to and maybe also focus on where you might see these margins heading forward deeper into 2017. Thanks.
Thanks, Adam. Absolutely, in a portion of the P1AG business with cinema customers being a significant client base, the overall results are somewhat impacted by overall attendance volumes year-over-year. In addition, what you would've seen in the fourth quarter is some integration expenses, obviously. There's some expenses related to the rebranding of the business with the P1AG. Certain unusual items also during that quarter. As you look forward, and I know when you look at the margins, you tend to exclude our theater gaming business from those margins, and that's why you're coming up with these sort of lower numbers than we would characterize the overall businesses coming in at. As we move forward, the mix of route versus distribution is the sale of amusement gaming equipment, which impacts the overall margins.
As we add route businesses to the acquisitions of Tricorp and SAW, you will see those margins increase into the next year.
Great. Thanks for that color.
Thank you.
We'll go next to Derek Lessard with TD Securities.
Yeah, thanks. Maybe this one's for Ellis, and congratulations, Pat, as well. Obviously, you guys are doing a pretty good job at diversifying the business away from the box office. I was just wondering what your view is on getting into production and the distribution of content similar to Netflix. Do you see an opportunity here?
Deric, we look at all opportunities, but again, we have to be careful as to where we take our organization, and we are definitely not going to be doing major productions. If there are opportunities that come about in Canada or doing some partnerships with other distribution companies, we will look at it. As far as major productions, that's not something that we are going to be focused in.
Okay. Maybe one for Gord. Can you tell us what the expected revenue contribution is from the Morguard investment contract, and maybe just an update on the digital media pipeline?
Sure. We typically don't comment on specific contractual relationships. I think what we have said historically is that we look to invest in 2017 about CAD 10 million in digital media installations, which are either going to be hybrid or advertising revenue-shared businesses. That we've typically expected about 30% returns on those investments and at run rates, sort of 30% EBITDA margins. I'm not going to comment on a specific agreement, but in totality, that's where we would expect to be on some of our new installations.
Maybe just a comment on the pipeline.
Sure. With respect to the pipeline is from the more traditional signage digital place-based business. As we've mentioned before, we've been very encouraged by the opportunities that we're seeing based on our presence in the U.S. We have made some announcements throughout 2016. I can say we continue to remain optimistic and are in sort of pilot-type situations with a number of other potential customers.
Okay. Thanks for that.
Thanks, Gord.
We'll go next to Aravinda Galappatthige with Canaccord Genuity.
Good morning. Thanks for taking my questions and congrats, Pat. I wanted to spend the time on the digital signage business, the place-based media. You had very good growth through the year, every quarter and 30+% growth for the year. As you think about sort of the consistent signings that you've been getting and your entry into the U.S., can you perhaps give me a sense of sort of what the market opportunity is, number one? Secondly, the level of competition. I mean, as you look around, despite being a fairly attractive space, you don't see too many significant players in this area. I was wondering, Ellis, if you had any thoughts on that as well.
I'll let Gord start with the first part, and then I'll take the second part.
Look, Aravinda, I think when we look at the solution that we provide to our potential customers, we're supplying, we always describe this as sort of four key elements. We provide a technology solution through the licensing of our product, our proprietary product. We provide a network operation solution, so we will manage these mission-critical signage installations in locations across North America or globally. We provide a creative services solution for our customers. We create content, the compelling content that changes customer behavior and improves the brand's presence within their physical location. Lastly, if a customer wants an advertising solution, we will also provide an advertising solution to them. There are very few players, and we're probably one of the only players in the space that provides all those four elements, which makes us an attractive solution for customers.
I believe that is why we're gaining traction in the marketplace. There are other competitors out there in the space that there are technology-based solution providers that don't provide the other elements, and there are advertising solution-based providers, again, that don't provide some of the other elements that we provide. With respect to the marketplace, we do have a bit of a unique position, and I believe that's contributing to the success that we're seeing in a number of these announcements over the last year.
Yeah, Aravinda, I think Gord has summed it up nicely. I think really what it does for us is we are a one-stop shop for individuals looking to get into that space, and that's the advantage that we have over competitors.
Thanks, Ellis. Just a quick second question on the cost side. Obviously, I know film cost was discussed in previous calls as well, but we continue to see that sort of tick up from sort of the 52% level that we saw a couple years ago to at 54% and now I think closing in on 55%. I know that obviously the film slate and the combination plays a big role, but is there anything other than that? Is there any update on that front that could perhaps structurally readjust that film cost rate on a go-forward basis?
Aravinda, it is really driven by the number of films and how they gross in the marketplace. What we are seeing recently, and as you have noticed, is most of the box office is coming from a very few films out there. What we need is more singles and doubles and films like "Lion," "La La Land," all of those kinds of movies help us. When you have got the big blockbusters, you end up with the higher film rental because it is very concentrated. That is the situation where it is hard to predict, and it really depends on the types of movies that are released in each individual quarter. That could vary from quarter to quarter.
Great. Thank you. I will pass the line.
We will go next to Kenric Tai with Raymond James.
Thank you, and good morning. Ellis, just a quick one for you. With respect to the attendance numbers, in terms of "Star Wars," how much of an impact did people going previously to see the "Star Wars" maybe two or three times in "Force Awakens" versus perhaps only once or twice to "Rogue One" have on attendance numbers in this quarter?
Interesting. The difference actually, yes, this one did not perform to the same level as the previous "Star Wars." One of the things in the fourth quarter is in 2015, the kids were off school for 2 weeks in December, and in 2016, 1 week fell in December and the second week fell in January. That actually had an impact on our fourth quarter because of the shift with the holidays over the Christmas season. In the case of the movie itself, basically we also had "Spectre" in 2015, which was a Bond film, and we over-indexed with those movies in Canada, which helped us in 2015, which we didn't have in 2016. That movie was the second highest grossing movie after "Star Wars" in 2015 for the fourth quarter.
Thank you. Then maybe one for Gord. Gord, are you able to provide any insight on the impact, if any, of that small price increase you put through on the base ticket prices? I know it was pretty modest, and I think it went into effect early in October. What impact, if any, that had on attendance sort of trends in quarter and how we should think about the impact that had on the business in this quarter?
Look, I think the 2 biggest impacts in terms of the overall kind of BPP were, 1, the shift in the product deployed during the quarter, and primarily the percentage of premium box office. When you're looking at the overall trends, I think those are sort of the more dominating effects than that price increase had on the BPP during the fourth quarter.
Thanks very much. I'll leave it at that.
We'll go next to Tim Casey from BMO.
Thanks. Good morning. Two from me. Could you talk a little bit about your in-theater media sales? That was a pretty sharp decline, and I thought your revenue strategy there was less geared to attendance. Could you just maybe refresh us on how we should think about revenue monetization on in-theater? Gord, you mentioned on the digital placement strategy that you seem more optimistic on the U.S. Have you dedicated more sales resources to the U.S.? Because I thought there was just one sales office. Could you talk a little bit about how you're executing and what is making you more opportunistic down there? Thanks.
I'll talk about the first part, then Gord deal with the future in the U.S. On the cinema advertising itself, we were really looking at a tough comp when you compared us from 2015 to 2016, because 2015 was up over 30% when you compared it to 2014. The fourth quarter in 2015 was a massive quarter. We also had a number of key categories of customers that delayed some of their campaigns, which had an impact on us in 2016. We still are quite optimistic about the business. We feel confident about 2017. As you saw for the full year, we did go up, albeit a small amount, but it was an increase from the prior year. That we feel with the media business, will continue to increase as we continue to ramp through 2017.
Ellis, is it fair to say there is a less direct relationship, though, to attendance and in-theater advertising sales than what is obviously completely direct on concession and box?
Yes, that's true, but we also have to remember when advertisers see big movies that are planned to come out, they tend to want to advertise with those movies. When we had "Star Wars: The Last Jedi" and "Spectre" and all of those movies, they were more keen to put their ads in front of those movies.
How do you feel about this year's slate with respect to advertising specifically?
Look, there's a lot of tentpoles. I think in 2017, the fourth quarter looks really strong. Even when you look at the summer, from starting next week and moving forward, there's a lot of big films. Like you've got the "Logan" which is the XXX, you've got "Kong," you've got "Beauty and the Beast," you've got "The Fate of the Furious," which is the eighth film in that franchise and has done extremely well. You've got "Guardians of the Galaxy," "Wonder Woman," there's a "Spider-Man," there's "Transformers," "Despicable Me," "Pirates." I think there's a lot of strong films out there.
Tim, with respect to the question on kind of the digital sale and the sales infrastructure, look, we've definitely bulked up our business development teams. We've integrated our two existing operations in Canada. We've been able to create a larger infrastructure to support any sales initiatives going forward. Also, it's a large team that represents us from a technology perspective to a creative perspective, to an advertising perspective when we go and meet with clients. We've definitely made our sales process and business development process a larger resource for us and a more efficient resource. That's allowed us to have sort of this continued success in the U.S. I will just remind you, too, is our focus is typically on larger customers where it's mission-critical installations.
Our focus is on a kind of a smaller but larger customer base than someone who operates a couple of restaurants or a couple of pizza places.
Thank you.
Once again, as a reminder, that's star one to signal. We'll go next to Ben Thogo with Stifel.
Hi, good morning, and thanks for taking my question. In terms of the concentration, I don't know if you disclosed, what was the sort of top five concentration, as a % of box office in 4Q16 versus 2015?
It was higher in 2015 than 2016. I don't have the percentages in front of me, but when I had made the comment, I said that CAD 98 million of box office was from 2015, and comparatively, it was CAD 73 million in 2016.
Got it. Okay. On the landlord contribution, a bit of an increase this year in, sorry, in 2016, in terms of how much landlord was contributing for some of the CapEx that you're spending. The U.S. exhibitors, some of them have leaned really extensively on the landlords, others of them have really not. Philosophically, how much do you want to lean on landlords with the offset, of course, being lease extensions and higher rents? I'm sort of curious your view on how much you need to lean on them given you've got a lower leverage ratio than some of your U.S. peers.
Yeah. Ben, I think you want to have the right balance between risk and reward. With the landlord money, it always comes at a cost, and that cost is your future rent stream. I think there are some of our other exhibitor peers who have similar types of targets to us, where you look at a 20% return on new theater investment but also maintain a 20% EBITDA margin. I would say that's similar to a strategy that we would look at as we look to landlord financing.
Okay. Following up on Tim's question about the sort of in-theater advertising. Any concern that you're getting from advertisers, not so much on theater attendance trends, which obviously vary quarter to quarter, but any concerns that the sort of amount of captive time that users are spending looking at ads as opposed to looking at their phones, et cetera, and also the advent of online reserved seating where customers can come in a lot closer to the showtime and not have to watch as much advertising. Any concerns that you're hearing from them on those fronts?
Not anything of significance, Ben. I think there was a great article yesterday which talked about the recall on cinema advertising compared to the Super Bowl, and what a difference, and the amount of penetration, and the benefits for the advertisers from using cinema advertising.
Okay. That's great. Pat, congratulations.
Thanks.
Thank you.
We'll go next to Jeff Van with Scotiabank.
Thanks, and good morning. Couple of quick ones. One on the digital media. In 2016, if we look at quarter to quarter, we've seen a nice sequential increase of a couple million dollars each year. Q4 was sort of flat versus Q3. Wondering if you can just help us think about the growth rate going into 2017, considering new contracts, backlog, pipeline, et cetera. The second question is regarding The Rec Room. I know it's early, and I know it's still only one location, can you talk about the success you've had in the fourth quarter with the Edmonton location? I guess whether there's been a slowdown or seasonality impact into early Q1 that you're seeing, or has the attendance and traffic been still pretty strong?
Jeff, I'll take the first half of the question, which is on the revenue streams and the projections for the digital signage business. The one thing that creates a little bit of lumpiness in the overall quarterly allocations is the amount of project and installation revenue that occurs in a quarter. Last Q4 was particularly heavy, that's why we've been running at about a 30% rate for the first three quarters, it was down to an overall increase of about 19% in the fourth quarter.
As I look forward, given that we've mentioned previously that a number of the customers that we've recently announced tend to deploy over a number, a couple years, is that the growth rates that you've seen in 2016, I would expect would kind of continue on into 2017 as they continue those planned rollouts and expansions, we have similar levels of mix of increasing recurring revenue streams and project revenues.
Okay.
On The Rec Room, Jeff, as we mentioned earlier, we are very happy with the performance in the quarter. We saw significant revenue both in the food and gaming area. In total, they were close to CAD 5 million of total revenue. That was even without some of our features like virtual reality weren't open for the whole quarter. Guests seem to be loving all the options that we offer them, that results in repeat businesses. As far as seasonality, I think part of the problem is on the weekends, we have lineups to get in, with the cold weather in Edmonton, it kind of makes it a little bit more difficult. We'll see once the patio opens for the first time later towards the summer, what the impact is going to be and how this location continues to grow.
We are very excited with the one in Toronto, which is at the Roundhouse, which should open towards the middle of the year.
Okay. Thanks, guys.
Thank you.
We have no further questions in the queue. I'd like to turn the conference back over to today's presenters for any additional closing remarks.
Thank you so much for joining us this morning. We look forward to seeing you at our annual general meeting on May 17th. Please mark your calendars. Thank you.