Talk About Digital Cinema

Pat Marshall
Vice President Communications And Investor Relations
Cineplex Entertainment

Pat Marshall

On some differences in the business in Canada.

The cinema business in Canada is similar in many ways to the business in the US, but there are some unique elements to it that are specifically Canadian. For example, films that are ethnically targeted that play very well in the United States generally are less successful in Canada because of the different ethnic diversity that exists here versus the US.

We also find that films that originated as a book often do better here than they do in the United States. I'm not sure why, but very popular movies like the 'Lord of the Rings' trilogy did comparatively better in Canada than they did in the United States.

Canada generally accounts for about 10-percent of the North American box office, so if we are down from that - or up from that - in any meaningful way, it's generally for one of those two reasons.

On the importance of concessions.

We look at concessions as being a very important part of our overall guest services and so we have a very broad variety of offerings. We have the traditional movie fare of popcorn and soft drinks and bottled water, but we also have a selection of other bottled beverages, juices, energy drinks and a broad spectrum of food including pizza, soup and sandwiches, french-fries, chicken tenders, nachos, donuts, muffins, and also coffee.

The exact variety is up to the location, but we are starting to make our offerings more brand specific as well, so we are the franchisee for many different brands including New York Fries, Pizza-Pizza, TCBY, Wetzel's Pretzels, Burger King, and recently, Tim Horton's. It's quite an extensive list.

In our larger multiplexes, it almost looks like a food court, so each mini-branded outlet looks like a storefront if you were to see them individually. But we are the franchisee and our staff operates them.

In our overall review of the business, we look at every specific theatre location individually to see how the branded outlets work within them. We are closing the ones that don't work and adding new ones that perform well in other locations.

On the Cineplex Entertainment business philosophy.

Our whole philosophy is to be very entrepreneurial. We like to test new products on a continual basis - and we can turn things around very quickly, so if something is working, we can implement it in a number of locations and, conversely, if we find that something is not up to our expectations, we'll stop it and move on to something else.

We are constantly looking at new things; what we've done in our acquisition of Cineplex Media and adding the Kodak digital pre-show system is a good example of that. We had a number of different platforms in place before and the process was cumbersome, it was not flexible, it was not the caliber of product we wanted on the screen. And it certainly didn't give us the kind of capability we wanted and knew existed, so our change to the Kodak system was a huge upgrade for us.

We really wanted a pre-show that provided entertainment as well as an advertising component. In our pre-show today, we have entertainment, sponsored entertainment and we have advertising. And we're always trying to find the right 'balance' in terms of maximizing the profitability and also ensuring that our guests are getting an entertainment experience that's valuable to them.

It's so substantially different from what we had before, but the way we look at our pre-show and every part of our business is - it is, and always will be, a work in progress.

On cinema advertising.

We want to help our advertisers deliver a message that's being received by the audience in the most positive manner possible. So, we try to get the agencies to develop creative that is specific to the cinema. That works in some instances, but not all because of the cost to create advertising. But if it is an advertising campaign that will also play elsewhere, we like it to launch first with us and then play elsewhere, such as television. We don't want people to say: 'I'm seeing the same ad on television as I'm seeing on the screen.'

We're also customizing the ad messages based on the film ratings, so we're very careful that an ad campaign that is targeted to an adult audience doesn't play in front of a family-friendly film. The Kodak system enables us to do that, which is a great thing.

Between our on-screen advertising, our newly enhanced website and our in-theatre magazine, we can offer a full package. Advertisers like it because it's comprehensive -- and consumers like it because it's part of the overall entertainment experience.

On what Cineplex looks for in a partner.

We look for a very strong brand, a company with integrity and a consistent product because we've invested a tremendous amount of money in creating our brand and have tremendous brand equity in it, so we want the same caliber of brand partners. Most importantly, we are looking for a brand - and a product - that we can trust and count on so our guests are never disappointed because it's our name on the outside of the building.

On how digital cinema will change the business.

With our launch of the Metropolitan Opera 'Live in High Definition' during the past year, we've had tremendous success - from a consumer perspective and from an investor perspective. Worldwide Wrestling is also very successful for us. We are known primarily as a film business; but the reality is -- we operate entertainment complexes, entertainment destinations.

People will always come to us for movies, but what we envision, in the not-too-distant future, is that they will also realize that they can show up at our box office and have all kinds of programming available to them. Digital projection systems will help make all of that possible.

On the need to eliminate piracy.

In 2005, between 20 and 25-percent of worldwide camcorded movie piracy originated out of Canada and it's primarily because Canadian laws have not kept pace with the advances in technology. It's always been considered a copyright infringement -- and one had to prove the intent to distribute and to profit from the material in order for the individual to be charged with the copyright infringement -- and that's very difficult to prove.

Piracy is an industry issue and it's extraordinarily important for us as an industry to get a handle on it. This is not just a 17-year-old copying and sharing something with friends, although that is also wrong; this is organized criminal activity that generates millions and millions of dollars and feeds a worldwide marketplace.

At Cineplex, we've led the effort to create awareness among consumers how serious the situation is -- and to change the laws to make it a criminal offense that would result in significant jail time and significant financial penalties -- to illegally copy a movie or a soundtrack of a movie in a theatre.

As a result of our efforts - and those of others -- the laws now have been changed and it is a criminal offence to camcord a movie in a Canadian theatre without the permission of the theatre manager. Penalties can include a two-year prison term for the act of illegal copying and individuals can receive up to five years in prison if there is proof of intent to profit from the activity.

On how the Cineplex Entertainment business is changing.

It's changing in terms of what we're offering as a product mix. It's still movies, but it's also alternative content. It's still movie concessions, but it's more branded product to really maximize the opportunity. It's ensuring that our guests have a tremendous experience while they're in our theatres so it encourages them to leave their homes and enjoy movies the way they were meant to be seen.

No filmmaker ever says, 'I can't wait for people to see my movie on their 18-inch TV.' The whole focus of filmmakers is they want everyone to see their work on a giant screen, in a theatre, with a tremendous sound system and an audience that also provides an important component to the experience. What we offer, is an exceptional entertainment experience and that's what the Cineplex Entertainment brand means.