Rotman Strategy Case Competition

Team CinergyAlaina Boyer, Jay Burke, Brendan Cochrane, Pramod Jindal & Beam Ukarapong

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Recommendation

ProblemShould Cineplex focus on building its download business or reinvest in its theatre business?

RecommendationCineplex should reinvest in its core competencies within the theatre experience, while expanding the complementary entertainment services it offers

Major Insights• Exhibition theatres have problems – we CAN fix them• Cineplex is REALLY good at its core competencies• We can PLAY in the Digital sandbox, but…

Fixing Problems Core Competencies Digital Sandbox

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Exhibition Theatres have problems – we CAN fix them

Convenience4-hour outing for a 2-hour movie is inconvenient

Why does this happen?Need to get there early for good seats and line-up for food

ProposalCinExpress – a service to reserve your seat, pre-order food & beverage and pick-up your order from designated line

Costs• Initial confusion amongst non-reserved seating patrons• Dedicated staff for express line• Enhance current website/app/interface to incorporate CinExpress

Benefits• Higher revenue from increased ticket price (+$2.00/seat)• Pre-ordered food = guaranteed sale


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LoyaltyScene Membership card and Loyalty Program: very successful

How to use Loyalty to our advantage?• Incentivize new members - free upgrades • Retain members with Milestone Rewards • Birthday and anniversary promotions• Expand point-redemption partners

Costs• Additional free movies• Loss of 10% concession revenue (Scene discount)

Benefits• Increased membership: more theatre footfalls and concession spending• Free word-of-mouth advertising

Exhibition Theatres have potential – maximize it


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Exhibition Theatres have scope for improvement

Social Media PenetrationA Facebook page isn’t enough

Why should this change?Transition from offline to online social experience

How will we correct this?Ability to post updates after ticket sales and reviews post-show

Costs• Programming/development costs

Benefits• Brand recognition (each auto-generated posting has Cineplex brand

embedded)• Free social media advertising will reach broader audience & tech-savvy

users


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Leverage our Core Competency: Theatre Experience

Broad ExperienceExperience beyond our best movies: complete entertainment experience

Our ProposalContinue to invest in alternative programming, games, liquor-licensed VIP as well as non-peak theatre usage

Actions• Theme nights • UFC events• Customized events

Costs• Licensing, capital expenditures and labour

Benefits• Increased ticket revenue• Additional reasons to visit a multiplex• Increased share of wallet from customized-event clients


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Leverage our Core Competency: State of the art technology

TechnologyWe have the best technology. Home theatre solutions cannot simulate a real theatre experience

ProposalContinue to invest in:• UltraAVX• Complete digital screen and 3D projection upgrade by 2012 as planned• Canadian Digital Cinema Partnership

Costs• No change from current reporting

Benefits• Provide enhanced customer experience• Maintain competitive advantage over digital


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Leverage our Core Competency: Studio Relationships

Studio RelationshipsWe have the best new movies you can’t find online

Proposal• Leverage leading market share position to acquire best titles• Extend relationship to re-release patron favourites

Costs• No change from current reporting

Benefits• Maintain competitive advantage over digital• Preferential treatment and flexibility


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We can PLAY in the digital sandbox

But…• Non-core business• High switching costs for legitimate users• Low switching costs for illegitimate users• Fierce competition• In pipeline “UltraViolet”- new technology, same players

Cost• Advertising costs for brand promotion• Increased redemption of Scene points (affecting core margins)

Benefits• Additional revenue stream • Allows entry into new market• Leveraging Scene loyalty


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Risks associated with our Recommendations

Overall Risks to the Industry• Busier life style – not enough free time for movies• Recessionary fears – reduced leisure budget

Convenience, Loyalty and Social Media• Customers not receptive to reserved seating lost revenue• Potential breach of privacy in Loyalty program• Maintaining higher service delivery levels

Event Experience• Additional improvements not aligned with customer values• Changing customer tastes• Year without blockbuster movies

Digital Sandbox• Ongoing piracy concerns• Competing against new innovations by established digital competitors• Digital players enter theatre business


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Summary

RecommendationCineplex should reinvest in its core competencies within the theatre experience, while expanding the complementary entertainment services it offers

Major Insights• Exhibition theatres have problems – we CAN fix them• Cineplex is REALLY good at its core competencies• We can PLAY in the Digital sandbox, but…


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Thank youQ&A

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Reserved Seating Cost/Benefit Structure

Brand new chairs 300.00$ Chair covers 35.00$ Total Seats to Change 60 Total Seats to Change 60TOTAL NEW SEAT COST 18,000.00$ TOTAL NEW SEAT COST 2,100.00$ Replacement Labour Cost 100.00$ Replacement Labour Cost 100.00$ Hours to replace 60 seats 15 Hours to replace 60 seats 15TOTAL LABOUR COSTS 1,500.00$ TOTAL LABOUR COSTS 1,500.00$ GRAND TOTAL COST 19,500.00$ GRAND TOTAL COST 3,600.00$

Premium for Reserved Seating 2.00$ Premium for Reserved Seating 2.00$ Average Show Rate 4 Average Show Rate 450% occupancy 30 50% occupancy 3075% occupancy 45 75% occupancy 4580% occupancy 48 80% occupancy 4885% occupancy 51 85% occupancy 51TOTAL REVENUE at 50% sales 240.00$ TOTAL REVENUE at 50% sales 240.00$ TOTAL REVENUE at 75% sales 360.00$ TOTAL REVENUE at 75% sales 360.00$ TOTAL REVENUE at 80% sales 384.00$ TOTAL REVENUE at 80% sales 384.00$ TOTAL REVENUE at 85% sales 408.00$ TOTAL REVENUE at 85% sales 408.00$

Cost/Revenue @ 50% 81 days Cost/Revenue @ 50% 15 daysCost/Revenue @ 75% 54 days Cost/Revenue @ 75% 10 daysCost/Revenue @ 80% 51 days Cost/Revenue @ 80% 9 daysCost/Revenue @ 85% 48 days Cost/Revenue @ 85% 9 days

Reserved Seating Reserved Seating

Increased Revenue Increased Revenue

Payback Period Payback Period

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Scene Membership Growth

Q3 '07 Q3 '08 Q3 '09 Q3 '10 Q3 '110.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.4

1.2

2.0

2.6

3.2

Scene Membership(in millions)

No. of Members

Y/Y Growth 23%(2010-2011)

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Internal Activities and Capabilities

Source:

Plane Beakers Boat

Valuable Rare In-imitable

Movies (Exhibition) - showtimes, convenience 3 2 2

Movies (Digital) 1 1 1

Loyalty (Scene) 3 2 3

Merchandise (zoning) 30% 3 1 1

Alternative 3 1 1

Media (ads) 3 2 1

Media (magazine) 2 1 1

Social media 3 1 1

Premium (seats, sounds, VIP) 3 1 2

Interactive (App) 3 1 1

Vendor relationship (food/aeroplan) 3 1 1

Technology (3D/IMAX) 3 3 3

Popcorn 3 1 1

Previews 2 1 1

Partnership (Scotia) 3 3 3

CDCP (Empre) 3 3 3

Night-out package 2 1 1

In-house brand (OutTakes) 2 2 1

Locations 3 3 3

Studio Relationship (having the best movies) 3 2 3

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Blue Ocean Analysis of Cineplex (Current), Cineplex (Proposed), Cineplex Anywhere and Digital Download

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5 forces: Exhibition Entertainment

Source:

Substitute – high, and getting worse• More activities

Buyer – moderate• Switching costs low, consumer influence mod

Supplier – moderate• Avatar high, others low

Barriers – High• Huge Capex

Rivalry – Low• Cineplex 66%

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5 forces: Anyway to Watch a Movie at Home

Source:

Substitute – High• Tons of other options

Buyer – Moderate, and getting worse• Can influence the price (Netflix)• But there are potential switching costs (Rogers On Demand, buying an Xbox)• Getting worse because of increasing piracy

Supplier – Moderate• For legal activities, high• For illegal, low

Barriers – Moderate• For legal activities, high• For illegal, low

Rivalry – High• Tons of ways to get a movie at home

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Industry Analysis

Out of home- Movie- Plays/operas- Sports events- Recreational activities- Dining- F&F

- Coffee- Community

- Arcades- Nightlife- Culture- Shopping

At home (Electronic)- TV- Movies- Computer- Video games- Music- Internet- Social media

At home (Non-electronic)- Board games- Card games- Reading- Quiet time- Exercise- F&F- Cooking

Anyway to get movies at home

Exhibition Entertainment in

Canada

Rotman Strategy Case Competition

Entertainment & Humor

Transcript of Rotman Strategy Case Competition