Good day, and welcome to the Cineplex Fourth Quarter and Full Year twenty sixteen 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, and welcome to Cineplex Inc. Fourth quarter and year end twenty sixteen 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 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 €1,500,000,000 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 $98,000,000 in box office compared to $73,000,000 in 2016. In addition, in the 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 Birth of a Nation, which collectively grossed $145,000,000 in The U. S. Market and only $1,800,000 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 Star Wars Story, Doctor Strange, Fantastic Beasts and Where to Find Them, Moana and Trolls, all of which were available in premium movie going experiences for our guests to enjoy.
We opened Canada's first 40x auditorium at Cineplex Cinemas Young 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 continue 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.
As a result, 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 three d product and 46.1% on a full year basis. Within our Theater Exhibition business, we achieved record fourth quarter results for BPP of $9.9 an increase of 2% and CPP of $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 Ivanhoe Cambridge to install, maintain and operate a leading edge digital display network at 21 Ivanhoe 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 Morgard Investments LP to create, maintain and operate a network of nearly 175 digital displays at 21 Morgard managed shopping centers in BC, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. With the addition of five and O Cambridge, Oxford Properties, Morgard and other mall developers, Cineplex now impacts approximately 50% of all mall traffic in Canada.
Since its inception, digital place based 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 Tricop Amusements Inc, a leading provider of interactive video redemption and amusement game services in The United States. Then in November, we rebranded Cineplex Starbursting to Player One Amusement Group unifying all of the Cineplex owned and operated amusement companies including CSI, Brady Starburst, Premier Amusement, Strike Up and Soar 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 announced plans for two new locations, one in the iconic West Edmonton Mall in Alberta to open in the 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 World Gaming announced the first tournament of 2017 as part of the Cineplex World Gaming Championship Series presented by PlayStation, which will see teams of four from across Canada competing in Call of Infinite Warfare for over $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 26. Moving to SCENE, we were very pleased to reach our eight millionth member in November, marking another important milestone. We added 800,000 members in 2016, reaching a total of 8,100,000 members as at December 3136. 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 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 2017. Looking ahead to what's in store this quarter, at last Friday, 50 Shades Darker, the sequel to twenty fifteen's 50 Shades of Grey hit theaters generating $46,800,000 in box office revenue. Also opening this past weekend was the Lego Batman movie, which generated $55,600,000 in box office revenue and John Wick Chapter two, which did $30,000,000 in box office revenue in North America, surpassing initial estimates.
On March 3, X Men fans rejoice with the release of Logan. Then on March 10, have the action adventure film 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 17. Moving on to the second quarter, we look forward to the eighth installment from the Fast and the Furious franchise with the Faith of the Furious opening April 3. The Marvel sequel Guardians of the Galaxy Vol.
Two hits theaters on May 5. In Quebec, the highly anticipated sequel to BoCoppBackCopp, which is the all time highest grossing Canadian movie to play in Canada opens May 12. And Johnny Depp returns as Captain Jack Sparrow in Pirates of the Dead Men Tell No Tales, which opens on May 26. Then 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. Over the course of her career, Pat has made significant contributions to the Investor Relations industry, and I would like to thank her for the great work that she does.
Now I will turn the call over to Gord. Thanks, Alex, 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 and
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 CAD385.4 million and adjusted EBITDA decreased by 21.5% to CAD66.8 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 $177,500,000 compared to $196,300,000 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 $9.9 from $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 $1.34 for this quarter as compared to $1.22 in the prior year. This was primarily due to the success of three d product with all of the top five films in 2016 being released in three d as compared to three films in the prior year. Foodservice revenue decreased 7.3% to CAD105.5 million as a result of the lower attendance, partially offset by a 3% increase in concession revenue per patron to $5.75 an all time quarterly record. Included in foodservice revenue is $2,400,000 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 CAD2.6 million or 4.6% to CAD52.7 million for the quarter. Cinema media revenue, which is primarily theatre based, decreased 12%. Digital place based media revenue increased 19.1% due to increased project revenue for recently announced new clients, including A and W and American Dairy Queen and growth in existing and new business opportunities, including advertising revenue from the Tims TV network deployment and the Oxford Properties Group digital installations. Other revenue includes an increase in revenue from our amusement solutions business of CAD7.9 million or 37.2% due primarily to two key acquisitions in The United States made during the quarter. In addition, other revenue includes $2,200,000 of amusement gaming and other revenue earned at The Rec Room.
In total, The Rec Room generated approximately $4,600,000 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 twenty sixteen, excluding the $900,000 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 $198,100,000 increased 5,700,000 or 3%. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses. Theater occupancy expenses were $49,600,000 for the quarter versus a prior year actual of $50,500,000 Other operating expenses were $134,700,000 for the quarter versus a prior year actual of $123,300,000 an increase of $11,400,000 Major reasons for the increase include an increase of $7,700,000 in amusement solutions expenses, primarily due to the two acquisitions completed during the quarter an increase of $1,600,000 due to the impact of new and acquired theaters net of disposed theaters higher media expenses of CAD 2,400,000.0 due to higher digital place based media business volumes CAD 3,000,000 in unit level operating costs related to The Rec Room and costs related to new businesses, excluding the World Gaming Network and The Rec Room. These increases were offset by decreases in other costs, including a decrease in same store theatre payroll of $3,200,000 due to decreased attendance levels. G and A expenses were CAD13.8 million for the quarter, which was CAD4.7 million lower than the prior year, primarily due to lower LTIP expenses.
Interest expense of CAD4.5 million was CAD0.8 million lower than the prior year amount of CAD5.3 million. Contributing to the decrease was a CAD1.6 million decrease in noncash 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 CAD10.9 million during the 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 $26,600,000 as compared to $22,300,000 in the prior year.
Net CapEx for the year was $99,300,000 which was in line with our previous target. We continue to estimate that our net CapEx will be approximately $125,000,000 for 2017, and this includes approximately $25,000,000 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. I would now like to turn the call over to the conference operator for questions.
Thank you. We'll go first to Adam Shine with National Bank Financial.
Thanks a lot. Good morning and I guess congrats to Pat. In terms of some of what we've been hearing Ellis, I might as well ask the question. It will be asked at some point on this call. Talk regarding the windowing probably not much progress of late per se but 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're 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. But again, I think this is more discussions between us as exhibitors and the studios. And the bottom line is the studios or ourselves are not looking to trade dimes for nickels in a business that's a $50,000,000,000 business worldwide.
So 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 fallwinter last year seemed to be a bit more broad based. But I think some of the commentary from last week from the studio 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 that's not what I read from the comments from the studios.
Okay. Fair enough. And 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 and A in the period. Maybe 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.
Yes. Thanks, Adam. So look, absolutely in a portion of the Q1 AG 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 have seen in the fourth quarter is some integration expenses, obviously. There are some expenses related to the rebranding of the business, the P1AG.
So certain unusual items also during that quarter. As you look forward and I know when you look at the margins, tend to exclude our theatre 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. But as we move forward, the mix of route versus distribution, so distribution is the sale of amusement gaming equipment, which impacts the overall margins. So as we add route businesses to the acquisitions of Tricorp and SAW, you will see those margins increase into the next year.
Okay, great. Thanks for that color.
Thank you.
We'll go next to Derek Lessard with TD Securities. Yes, thanks. Maybe this one
is for Alice 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?
Derek, 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 with in Canada or doing some partnerships with other distribution companies, we will look at it. But as far as major productions, that's not something that we are going to be focused in.
Okay. And maybe one for Gord. Can you tell us what the expected revenue contribution is from the Moriguard investment contract? And maybe just an update on the digital media pipeline?
Sure. And 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 10,000,000 in digital media installations, which are either going be hybrid or advertising revenue shared businesses. So and that was typically expected about 30% sorry, returns on those investments and that run rate's sort of 30% EBITDA margin. So 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.
And then maybe just a comment on the pipeline?
Sure. So 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.
And 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, Derek.
And we'll go next to Auravinda Galappanthi Gay with Canaccord Genuity.
Good morning. Thanks for taking my questions and congrats, Pat. I wanted to spend a little time on the digital signage business, the place based media. You had very good growth through the year, every quarter and 30 plus percent 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? And 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.
So I'll let Gord start with the first part and then I'll take the second part.
Look, Aravind, I think when we look at the solution that we provide to our PetCentral customers, we're supplying and we always describe this as sort of kind 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 critical signage installations in locations across North America or globally. We provide a creative services solution for our customers, so we create content, the compelling content that changes customer behavior and improves the brand's presence within their physical location. And then lastly, if a customer wants an advertising solution, we will also provide an advertising solution to them.
So 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. And 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 kind of elements that we provide. So 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 couple the last year.
Arinda, I think Gord has summed it up nicely. And 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. And just a quick second question on the cost side. Obviously, 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 of years ago to its 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?
Arvinda, it's really driven by number of films and how they gross in the marketplace. And what we are seeing recently, and as you've noticed, is most of the box office is coming from a very few films out there. And what we need is more singles and doubles and films like Lion, La La Land, all of those kinds of movies help us. And when you've got the big blockbusters, you end up with the higher film rental because it's very concentrated. So that's the situation where it's hard to predict, and it really depends on the types of movies that are released in each individual quarter.
So that could vary from quarter to quarter.
Great. Thank you. I'll pass the line.
And we'll go next to Kenric Ty with Raymond James.
Thank you and good morning. Ellis, just a quick one for you. With respect to the attendance numbers, how much of an impact did 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 Rouge one have on TENS numbers in this quarter?
Interesting. The difference actually, yes, this one did not perform to the same level as the previous, Star Wars. But one of the things in the fourth quarter is in 2015, the kids were off school for two weeks in December. And in 2016, one week fell in December and the second week fell in January. And that actually had an impact on our fourth quarter because of the shift with the holidays over the Christmas season.
And in the case of the movie itself, basically, you know, we also had Spectre in 02/2015, which was a Bond film, and we over indexed with those movies in Canada, which helped us in '15, which we didn't have in 02/2016. And that movie was the second highest grossing movie after Star Wars in 2015 for the fourth quarter.
Thank you. And 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 went it was pretty modest, and I think it went into effect early in October. What impact, if any, that had on attendance or the trends in quarter?
And how we should think about the impact that had on the business in this quarter?
Yes. Look, I think the two biggest impacts in terms of the overall kind of BPP were one, kind of the shift in the product that played during the quarter and primarily the percentage of premium box office. So 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 there.
And we'll go next to Tim Casey from BMO.
Thanks. Good morning. Two for 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. So could you just maybe refresh us on how we should think about revenue monetization on in theater? And Cord, 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, let Gord deal with the future in The U. S. So 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 compare it to 2014. So the fourth quarter in 2015 was a massive quarter. And we also had a number of key categories of customers that delayed some of their campaigns, which had an impact on us in 2016.
But we still are quite optimistic about the business. We feel confident about 2017. And as you saw for the full year, we did go up albeit a small amount, but it was an increase from the prior year. And that we feel will be 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. So when we had, you know, Star Wars last year and Spectre and all 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 tent poles. And I think in 02/2017, the fourth quarter looks really, really strong. And even when you look at the summer, you've got, you know, starting with all from starting next week and moving forward, there's a lot of big films. Like, you've got the Logan, which is the triple x, and then 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 Spider Man, there's Transformers, Despicable Me, Pirates.
So I think there's a lot of strong films out there.
And Tim, with respect to the question on kind of the digital sales and the sales infrastructure, look, we've definitely bulked up our business development teams. We've integrated our two existing operations in Canada. So 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. So we've definitely made our sales process and business development process a larger resource for us and a more efficient resource, and that's allowed us to have sort of this continued success in The U.
S. And I will just remind you too is our focus is typically on larger customers where it's mission critical installations. And so 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 place. Thank you.
We'll go next to Dave Hulgo 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 percentage of box office in 4Q 'sixteen versus 'fifteen?
It was higher in 'fifteen than 'sixteen. I don't have the percentages in front of me, but when I had made the comment, said that 98,000,000 of box office was from 2015 and comparatively to 73,000,000 in '16.
Got it. Okay. On the landlord contribution, so a bit of an increase this year 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 that you've got a lower leverage ratio than some of your U. S. Peers.
Ben, I think you want to have the right balance between kind of risk and reward. And with the landlord money, it always comes at a cost, and that cost is your future rent stream. So I think there are some of our other exhibitor peers have similar types of targets to us where you look at a 20% return on kind of new theater investment, but also maintain a 20% EBITDA margin. And I would say that's similar to a strategy that we would look at kind of as we look to landlord financing. Okay.
And then on the on 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, etcetera, 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. And 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. And Pat, congratulations.
Thanks. Thank you.
And 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 you look at quarter to quarter, we've seen a nice sequential increase of a couple of million dollars each year. Q4 was sort of flat versus Q3.
So wondering if you can just help us think about the growth rate going into 2017 considering new contracts, backlog, pipeline, etcetera. And then the second question is regarding The Rec Room. I know it's early and I know it's still only one location. But can you talk about the success you've had in the fourth quarter with the Edmonton location? And 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, it was particularly heavy. And that's why we've been running at about a 30% rate for the first three quarters, and it was down to an overall increase of about 19% in the fourth quarter. So as I look forward and 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 of 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 kind of those planned rollouts and expansions, and we have similar levels of mix of increasing recurring revenue streams and project revenues.
And on The Rec Room, Jeff, as we mentioned earlier, we are very, 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 $5,000,000 of total revenue. And that was even without some of our features like virtual reality weren't open for the whole quarter. And guests seem to be loving all the options that we offer them and that results in repeat businesses.
As far as seasonality, I think part of the problem is on the weekends, have lineups to get in. And with the cold weather in Edmonton, it kind of makes it a little bit more difficult. But 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. And 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.
And we have no further questions in the queue. I'd like to turn the conference back over to today's presenters for any additional or closing remarks.
Thank you so much for joining us this morning. We look forward to seeing you at our Annual General Meeting on May 17. Please mark your calendars. Thank you.