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So CinemaxX Was the Cheapest Exhibition Stock in Europe

Readers of Black Dove may have been reminded of our headline last November (Is CinemaxX the Cheapest Exhibition Stock in Europe?) this week as Vue paid €6.45 a share for the company, subject to the usual regulatory approvals. In fact the offer by Vue was not particularly generous, equating to an enterprise value of almost exactly six times historic EBITDA, at the lower end of current stock market valuations for exhibition stocks. Nevertheless it compares favourably with the €3.30 at which CinemaxX shares were languishing when we wrote about them.

Having reviewed the rather complicated way we have been doing things, I am sorry to say that, at least for now, this is the end of the road for Black Dove. Instead of maintaining a separate blog we will be publishing an occasional newsletter directly from the Dodona Research web site; you can subscribe to it here. The first issue has more on the Vue acquisition. We are also bringing a more methodical approach to bear on our monitoring of publicly-quoted exhibition companies, with the first step being a spreadsheet comparing valuations, also available on our web site. Both are free.

AMC Goes for $2.6 billion; What Price the Others?

The recent sale of AMC Entertainment to China’s Dalian Wanda Group, coming in the closing stages of our research for the latest edition of Moviegoing, caused us some slight inconvenience and inspired modest admiration at the price obtained, widely reported as $2.6 billion. If correct, this works out at 8.4 times the circuit’s historic EBITDA.

This figure is somewhat higher than the current stock market valuations of the other large American circuits. Cinemark, at its recent share price of $23.25 is valued at an enterprise value of 8.1 times its 2011 EBITDA. This higher valuation than either Regal or Carmike is supported by the fact that its Latin American circuit is still growing. The company also pays a quarterly dividend of $0.21 per share.

Coincidentally, Regal also pays a $0.21 quarterly dividend, though its lower share price, $13.93 at the time of writing, means its shares yield an impressive 6.0% compared to the 3.6% offered by Cinemark. With its operations confined to the lacklustre domestic exhibition sector, however, Regal shares are rated lower than Cinemark. Its enterprise value of $3.9 billion equates to 7.7 times its $505.5 million of EBITDA in 2011.

Carmike is valued lowest of all. Quite highly geared – debt accounts for nearly two-thirds of its enterprise value – at the current share price of $14.00 the company sells for 6.6 times EBITDA.

Our share tip? We don’t really have one, relative to each other, at least, these valuations look about right. And with the ongoing crisis in the Eurozone, there are cheaper stocks in Europe, notably CinemaxX in Germany and Kinepolis in Belgium – though to invest in the latter you  probably need to be confident that Spain, where Kinepolis has invested heavily, will stay in the Eurozone.

Alternative Content in Cinemas: A Sprat to Catch a Mackerel?

Recently we’ve been building on our work in “alternative content” to develop a newsletter-cum-release schedule, which we’ve called Cinema Events. You may have noticed the ad to the right of your screen. It’s got off to a good start, though like local newspapers, the people who like it most seem to be those that are in it – in this case distributors of opera, ballet, concerts and sports to cinemas. We predict an upsurge in the quantity of events available as these distributors become more aware of each other’s content and start to licence more of it.

Equally interesting, it seems alternative content does not always subscribe to the model which saw multiplex cinemas sweep through the international market, in which, basically, all films played all theatres.

In some territories at least exhibitors aim for exclusive access to some streams of content. In France Pathé Live and Côté Diffusion appear to serve their parent theatre circuits with separate streams of product. Les Cinémas Gaumont Pathé and CGR do not show content from the other’s alternative content arm. In the United States NCM Fathom has formal exclusivity arrangements in place with both distributors of alternative content and with exhibitors. Thus BY Experience, distributor for the Metropolitan Opera, only distributes through NCM Fathom in the United States; only members of NCM’s network can book Fathom events – and they cannot book anyone else’s.

Everybody loves to offer exclusive products. But we wonder if there isn’t a danger that this approach could result in much alternative content being sidelined as essentially a promotional tool, rather than develop into a market in its own right. One of the reasons we started Cinema Events is because so many of these events are still under nearly everyone’s radar. Without big promotional budgets like the movie industry, it is sometimes hard even for cinema professionals to know what is going on. Imagine being a consumer.

3D Ticket Prices Outpaced by 2D, IMAX

For our recently published report, 3D Cinema 2011, we looked at changes in ticket prices in a number of key world cities since our previous report 18 months ago. The table below shows Saturday night ticket prices to a recently released Hollywood movie in a selected cinema in five major cities.

From it we can conclude a number of points.

Tickets in Mexico City were the cheapest, falling between $5 and $8 for standard 2D and 3D performances. The most consistently expensive city was Tokyo where ticket prices were between $23 and $29, although the most expensive tickets of all were found in Moscow where young thrill-seeking audiences are paying almost $30 for an IMAX 3D ticket.

With the exception of Tokyo, 2D ticket prices rose by more than the cost of 3D ticket between May 2010 and August 2011. It looks as though the widespread prediction that 2D ticket prices will catch up with 3D is coming true. In this scenario 3D was an experiment to test how much customers would pay for a ticket.

There are signs that the new point of differentiation is going to be IMAX. In Moscow and London IMAX ticket costs have soared – in Moscow IMAX ticket prices rose by 70% in local currency terms. This also goes some way to explaining the rash of exhibitors currently developing their own giant screen formats.

Price data below is shown in US$ for ease of comparison; however, percentage increases between the two dates are also shown based on local currency to eliminate the distorting effect of US$ weakness over the period.

Cinema Ticket Prices 2010-2011

Source: Dodona Research

Alternative Content: Four Facts and an Advertisement

Earlier this year we agreed with the alternative content consultant  Melissa Keeping to work together on a report, Alternative Content, about the emerging business of showing opera, sport and other non-film material in cinemas. Melissa did numerous interviews, in person and on the telephone, with industry participants, while we trawled through financial reports and a variety of other sources. As everyone who reads the trade press (including the numerous blogs devoted to aspects of digital cinema) knows, there is a lot of activity in this area.

What was surprising is how small this market still is. In 2010 North American revenues were $88 million; in the UK, regarded as the second-largest market, they were $12 million. In both cases these revenues represent between 0.8% and 0.9% of box office. Another sign that this is a budding rather than fully-flowering market is the dominance of two big players. A single content provider, The Metropolitan Opera of New York,  accounted for between 30% and 40% of alternative content box office worldwide between 2008 and 2010, while the biggest distributor, NCM Fathom captured the equivalent of 30% of worldwide box office in 2010 despite its operations being confined to North America.

Something else I wondered about was where the widely quoted view that  alternative content could reach 5% of box office had come from. Then I remembered being on a panel at a Screen International conference (around 2006 I think because Christine Costello was there and she had just started More2Screen), and a questioner asking exactly that question: what share of box office might alternative content reach?

And I think that after a moment’s thought I answered 5% in that rabbit-in-the-headlights moment, but these type of events tend to blur into one another so I may be mistaken. In any case a 5% ceiling still seems to me about right. Think of it like this: to reach 5% of box office, an alternative content event is going to have to make it into the top 20 of the year’s box office, another into the top 40 and so on.

That’s all a long way off. In the immediate future growth will come from the spread of satellite dishes on cinema roofs; after that there are a host of insights generated from experience so far, in this surprisingly complicated market, waiting to be implemented. They will drive further growth. Everything is still to play for in what turned out to be a fascinating area.