Cineplex CEO Ellis Jacob on the movie theatre business: “We set the table. We don’t serve the steak.”
The president and CEO of Cineplex Entertainment has been in the film business for more than 25 years. He held a string of executive roles at Alliance Atlantis before co-founding Galaxy Entertainment in 1999. Four years later, Galaxy merged with Cineplex Odeon, with Ellis taking over as president and CEO. In 2005, he oversaw the purchase of Famous Players from Viacom, which nearly doubled the company’s size from 86 to 166 theatres. Since then, Jacob has continued to grow and diversify Cineplex. In 2013, he led two significant acquisitions: the $78-million purchase of digital signage company EK3 and the $194-million deal for 24 Empire locations in Atlantic Canada. Today, Cineplex controls 79% of the theatre market in this country, seeing a 7.2% boost in revenue in the last quarter compared with 2013, and a 9.3% jump in its concession sales.
For a theatre operator, Cineplex is becoming a very diverse company. You bought a digital sign company last year, and have a 50% stake in a self-serve frozen yogurt chain. How do you decide what is a natural extension for the business?
It’s about using the expertise we have and expanding in areas where we already have skill. When you look at the yogurt business, we already run food courts in our theatres. There’s no reason we shouldn’t be able to take that knowledge and move it beyond the theatre. Same thing with media. We are already in the signage business. And we’ve got a phenomenal team of people. My COO and CFO can finish my sentences for me because we’ve worked together for 27 and 26 years respectively.
What’s the secret to keeping a relationship going that long? It’s rare these days.
It’s about creating a family environment for people but also an entrepreneurial environment. My philosophy is that I like people to experiment. I can’t stand people who procrastinate: I’d rather you make a bad decision and learn from it than not make the decision. You’re going to make mistakes. You may as well make them and learn from them. That’s what we did as we grew the organization.
Is there an example of a mistake that taught you something?
When we were operating Galaxy cinemas, we made lots of mistakes. I opened this gorgeous 12-screen theatre in Sault Ste. Marie, and it was way too big for the market. The minute I realized that, we downsized in Waterloo and Peterborough. In a bigger organization it might have been tough to switch plans, but our entrepreneurial culture can make it happen and happen quickly.
You mentioned digital signs. How does the digital sign company you bought—EK3, in London, Ont.—complement your existing business?
We are just planting the seeds. You’re going to see the growth and the trajectory in three to five years. And you may say, “Hey, your U.S. compatriots have all stayed focused just on movies and drinks and popcorn.” Short term, you can see good results doing that. But you gotta look at it and say, “What’s the runway look like five years from now?”
Right. And one challenge of being a theatre owner is that you’re often at the mercy of movie studios’ decisions.
I always say: “We set the table. We don’t serve the steak.” I have a natural paranoia about what the future’s going to be like. You need to be ready for change. There’s nothing wrong with making a change sooner than you need to. This year, we’re having a tough year with some of the movies. Three years from now, our other businesses will be more mature, and that will offset any negative impact from Hollywood.
How do you make these acquisitions part of the Cineplex family?
When we did our biggest deal, the combination of Cineplex and Famous Players in 2005, it was a huge challenge. But we spent an inordinate amount of time communicating. And today, nobody feels like they came from different companies. We got rid of the Famous Players offices about three months after the acquisition. That was critical; if we kept them in different buildings, it would have been much harder to integrate them. Most deals don’t fail because of the financial part—they fail because of the culture part.
So it’s really just about communicating?
Yeah. We’re going through it again now. We took over some Empire Theatres last year. The first thing we did was visit the theatres. I personally went out with a group of our executives and met with the managers. I remember one said, “God, you came out to see us in the first month. We haven’t seen our previous owners for years!” So it’s all about being part of that group and team. When I ran Galaxy, I used to speak to just about every manager every weekend.
How do you make sure you’re getting an acquisition right?
You look at the opportunities. When we bought Famous Players’ theatres, there were four called Paramount. And the old studio owner said they didn’t want us using the name. I said, “Why? I’m giving you free advertising.” So we sold the naming rights to Scotiabank, which turned the cost of rebranding into a revenue opportunity.
Why did you approach Scotiabank?
I was visiting Istanbul with my wife. When I travel, I always go to the movie theatres. I went to one where the guy had named his auditoriums after corporate sponsors. I thought it was a really good idea. So when this opportunity came up, I took it to [retired Scotiabank CEO] Rick Waugh, who was CEO at the time. It was a tough sell, but I said, “You want to embrace the younger demographic, because once somebody opens a bank account, they very rarely change.” It’s a great partnership: the naming rights and the Scotiabank Scene loyalty program.
How is the Scene card working?
I don’t know if I’m allowed to say this, but we crossed six million members in our Scene program, which now makes us one of the larger programs in Canada. People say to me, “You’ve got such a large market share, what do you need a loyalty program for?” It wasn’t about the program—it was about the data, and understanding the guests and being able to communicate with them. So the program is very, very important to us.
What did you learn that you didn’t know?
We’re learning things all the time, like what people eat at the movies in certain locations? And we’ve got one of the best databases, because it captures the younger demographic. These are the hardest-to-reach people.
You also recently bought into an arcade supplier and have talked about growth potential in that area. Don’t arcades have the same challenges as movie theatres? I can play my Xbox at home.
It’s a social experience. When my kids were younger, I’d ask them, “Hey, what are you doing tonight?” And they’d say, “Nothing.” Their definition of nothing was staying at home watching a movie. Their definition of going out was going to the theatre with their friends. So it’s the social part of it. And you’ve got to keep improving the box where you show the movies. You need to keep that experience beyond what you could do at home.
You guys have tried operating bowling lanes in the past. Why do you think bowling didn’t work but arcades might?
Bowling tends to attract people at a specific time. It became a weekend business, and that’s hard to justify when you’ve got all that square footage. Another thing we tried—and I was disappointed it didn’t work—was child-minding services. I thought it would be awesome: Drop your kid off, get a pager and go watch a movie. But I don’t think parents felt comfortable. The beauty of our business is we can test something in one location. If it works, we can spread it out. If it doesn’t work, we can say, “OK, I learned from that,” and move on.
Can you tell me about something you’ve tested that worked?
Opera has been massively successful. The first year we started, we had 24 locations. We did a million bucks’ worth of business that year. Now we’ve got over 100 locations, and we sell a million dollars’ worth of tickets in one day for the opera.
Does it bring in a different customer?
What’s great about that clientele is they come to the theatre and then say, “Hey, this is a pretty good experience.” They start coming back to see movies. We’ve also done sporting events; we’ve done stuff from the U.K.; we’ve done all kinds of national theatre, Broadway plays and dance. Now we’re doing art exhibitions. We’re taking some of the best art collections from around the world and putting them on film for people to see.
People complain that ticket prices go up, up and up. I gather some prices have actually gone down, but you’re charging a premium for the experience of seeing films in Imax or something similar.
Over the past nine years, our base ticket price has actually lowered. We decided to focus on improving the experience, and for that we will charge you the price. Guests now have so many different choices—UltraAVX, 3D, VIP, Imax, D-Box—if you don’t want to see it one way, you can see it another way.
How do you balance giving customers a better experience against driving the bottom line for shareholders?
It’s important to me that we use efficiency and effectiveness, not pricing, to drive the bottom line. We created a method called “zoning” in our food business, where we made sure customers were served quickly. Nine times out of 10, if I walk into a theatre and see people lined up, I think, I’m not standing in this line. Our concession per person used to be in the $3.80 range—it’s now over $5. When I met up with an analyst recently, she said to me, “Things must really be bad. I went to the theatre and there was nobody lined up at the concessions.” I said, “That’s music to my ears.”
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