Canada’s largest cinema chain, Cineplex Inc. (TSX:CGX), recently reported earnings this past week, much to the cheer of investors and the broader market.
On Friday, shares of Cineplex shot more than 6% higher on news that Cineplex was able to achieve records in terms of movie revenue per customer, and concession revenue per customer, two metrics which have often been linked to the ability of companies such as Cineplex to weather short-term reductions in attendance, which has continued to be the nemesis of the cinema industry overall.
Attendance numbers were once again on the decline for Cineplex, with total attendance falling nearly 6% on a year-over-year basis, furthering the short thesis that I, and others, have for the industry.
The thesis is very simple – at some point, cinema chains (whether Canadian, American, or global) will not be able to raise prices further to offset attendance losses. The hoards of folks who continue to favor streaming or in-house movie options over going out to the theatre will continue to grow, and anyone who says otherwise is kidding themselves.
Netflix, Inc. (NASDAQ:NFLX) investors are certainly pricing in a tremendous amount of growth into the stock price of the streaming company, and this growth is expected to come at a cost to the underlying industry Cineplex relies on for revenue.
This past quarter, Cineplex was able to improve its numbers in the short-term by raising prices. At the end of the day, however, rising ticket prices may inadvertently steepen the decline of patrons to Cineplex theatres, furthering a decline which is already underway organically.
Watch out below!
Invest wisely, my friends.
