Cineplex Inc

TSX:CGX

Earnings Call Transcript 2018-Q3

[Operator]

Good day, and welcome to the Cineplex Inc. Third Quarter 2018 Analyst Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to Melissa Pressacco, Please go ahead, ma'am.

[Melissa Pressacco, Manager of Communications]

Good morning. Before beginning the call, we would like to remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management's beliefs and assumptions regarding the information currently available. Actual results could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, adverse factors generally encountered in the film exhibition industry; risks associated with national and world events; discovery of undisclosed material liabilities and general economic conditions.I will now turn the call over to our President and CEO, Ellis Jacob.

[Ellis Jacob, President, CEO & Director]

Thank you, Melissa. Good morning, and welcome to Cineplex Inc.'s 2018 Third Quarter Conference Call. We are pleased you could join us this morning.I will begin by providing a brief overview of our third quarter results and a summary of our key accomplishments during the period. Then we will take a look at some of the films coming out this holiday season and into 2019. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of our financials, and then we will follow up with the question-and-answer period.The film exhibition business continued to show growth during the third quarter. Strong performances for films like Mission: Impossible - Fallout, Ant-Man and The Wasp, Jurassic World: Fallen Kingdom and Crazy Rich Asians resulted in a 2.6% increase in Cineplex theater attendance, which was our second consecutive quarterly theater attendance increase. This also contributed to a 5.3% increase in box office revenue and third quarter record BPP of $10.07. However, despite growth on box office, adjusted EBITDA was negatively impacted by expenses related to share-based compensation due to the increase in our stock price in the quarter, restructuring costs and declines in Cinema Media. Although this resulted in an adjusted EBITDA decrease of 9.3% to $53.4 million, if we exclude the $9.5 million year-over-year impact of share-based compensation expenses and restructuring costs, it would have resulted in a 7.7% increase.Now I'd like to highlight some of our key accomplishments during the third quarter. During the third quarter, we opened 2 new theaters, Cineplex Cinemas Pickering and VIP in Ontario and Cineplex Cinemas Seton and VIP in Calgary, Alberta. Both theaters include all recliner seating as well as an UltraAVX auditorium, reclining D-BOX Motion Seats and 4 VIP cinema auditoriums. Cineplex Cinemas Pickering and VIP also includes Ontario's first location of the Cineplex Clubhouse, which is an auditorium designed specifically for children and their families. We also opened Edmonton's second VIP cinemas location at Cineplex Cinemas North Edmonton and VIP by converting 5 existing auditoriums to 4 brand-new luxurious VIP auditoriums and a fully licensed lounge. Also during the quarter, we announced plans to expand our 4DX footprint by adding up to 13 additional Cineplex locations across the circuit.Alternative programming included strong performances of international films, including Hindi, Punjabi and Filipino with the film The Hows of Us becoming the highest grossing Filipino title in Cineplex' history. Additional performances include André Rieu's 2018 Maastricht Concert; the stage musical, An American In Paris; and the documentary, Rachel Hollis presents: Made for More.Within theater food service, we reported a third quarter record CPP of $6.25, an increase of 4% over the prior year period. We continue to roll out alcohol beverage service within non-VIP Cinemas to an additional 4 theaters. The service is now available at 20 locations in Ontario and Alberta with plans to expand to additional theaters across the country as provincial laws allow. In addition, Uber Eats continues to be a great success, providing incremental sales revenue of our products to nontheater guests. The Cineplex Store registered a 90% increase in device activations over the prior year period and a 37% increase in registered users.Online and mobile ticketing represented 24.8% of total admissions during the third quarter, up from 20.2% in the prior year period. As we continue to expand the functionality of our digital products, we launched a new Cineplex mobile app during the quarter. With a refreshed look and improved customer experience, the new app allowed guest to easily purchase tickets, skip the line, and scan their digital tickets for paperless entry. We have also added functionality for VIP guests to order food and beverage from the comfort of their seats using the app. This is the first step in the evolution of the guest experience using digital technology, and we will continue to add new services and features on an ongoing basis.Our Cineplex Media group faced a tough third quarter with the shifting of some key campaigns and less budget allocation from specific advertisers versus the prior year. While we were disappointed with the Cinema Media results this quarter, we believe this to be an anomaly. Cineplex Digital Media on the other hand had a strong quarter with revenue increasing 6%, due to an expanded client base and growth with existing clients, which contributed to higher project installations and other digital service revenue compared to the prior year period.Additionally, CDM was selected to deploy, maintain and operate a complex merchandising network of digital menu boards for Subway Europe. CDM will work with Subway to provide ongoing strategic content, consulting and marketing services to over 5,400 locations across Europe.Looking at amusement, gaming and leisure. During the quarter, we announced plans to further expand and enhance our virtual reality offerings across our network. In July, we announced an expansion agreement with The VOID that provides Cineplex with certain exclusivity rights in Canada to operate this hyper-reality VR experience. Our second location opened at The Rec Room West Edmonton mall featuring Star Wars: Secrets of the Empire, which is also now available at The Rec Room in Toronto. The plan is for Cineplex to open at least 5 VOID experience centers over the coming years.Then in September, we announced the strategic agreement with VRstudios, which is one of the largest global providers of turnkey, location-based virtual reality solutions. The agreement includes a commercial partnership and equity investment. In addition to installation opportunities across the Cineplex ecosystem, the agreement also provides broader expansion opportunities in North America and around the globe. We are proud to be leading the way in the growing location-based VR market, a product set that will contribute across the Cineplex ecosystem in our location-based entertainment centers, in our theaters and through the distribution network of Player One Amusement Group clients.Looking at The Rec Room, with 5 locations now open, The Rec Room continued to perform well, reporting third quarter revenues of $16.8 million and an adjusted store level EBITDA margin of 20.9%. This was a result of the strong summer months and continued optimization of operations. As we continue to scale this business, we look forward to opening 4 new locations of The Rec Room and 2 Playdium locations in 2019.In eSports, WorldGaming held its Rocket League Canadian championship finals with the top 8 teams from the regional finals competing at the Scotiabank Theatre Toronto in August. As mentioned last quarter, WorldGaming was named the official tournament operator and host for the U.S. and Canadian qualifiers of the 2018 World Electronic Sports Games in partnership with Alisports. These tournaments occur during the fourth quarter.Our SCENE loyalty program continues to grow as we reach 9.4 million members as of September 30. During the quarter, as we continue to expand offerings and benefits to our members, SCENE and Maple Leaf Sports & Entertainment launched the first campaign to bring MLSE Toronto Maple Leafs and Toronto Raptors teams to its members through exclusive access to "money can't buy" experiences and tickets. Subsequent to the quarter-end, SCENE announced the pilot of a new premium SCENE Gold loyalty card that offers guests exclusive perks and more points. Only available in Edmonton right now for $6.99 a month, SCENE Gold provides guests with the ability to earn SCENE points faster, free upgrades from general admission to an enhanced movie experience, dedicated concession lineups, popcorn and drink upgrades and more. This program was designed to deepen engagement with our most loyal and active SCENE members. We will monitor the results of the pilot and determine next steps based on our learning.Finally, we continued the execution of our cost-reduction program during the quarter. As we close out 2019, we remain diligent and focused on controlling costs and expect to reach the $25 million in annualized savings target by the end of the year.Now let's look at some of the films coming out for the balance of the year and what's in store for 2019. The fourth quarter is already shaping up nicely with the Canadian box office up 36% in October, making it the strongest October box office ever for Cineplex with top-performing films, including A Star Is Born, Venom and Halloween. Opening strong last weekend, we had the animated, Dr. Seuss' The Grinch, starring Benedict Cumberbatch. Then opening next weekend, the popular Harry Potter franchise returns to theaters with Fantastic Beasts: The Crimes of Grindelwald. On November 21, we have 4 films opening, including Disney's Ralph Breaks the Internet; Creed II, starring Sylvester Stallone; a remake of the classic Robin Hood with Taron Egerton and Jamie Foxx; and the comedy drama, Green Book, which won the People's Choice Award at TIFF this year. Looking at December, there's something for everyone over the holiday season. On December 14, we have both the animated Spider-Man: Into the Spider-Verse and the postapocalyptic adventure film, Mortal Engines. Next up is the highly anticipated Mary Poppins Returns with an all-star cast including Emily Blunt, Meryl Streep, Colin Firth and Dick Van Dyke opening December 21. Also opening December 21, we have the next film in the DC Comics Universe, Aquaman; and the new Transformers film, Bumblebee. Finally, on December 28, the action comedy, Holmes and Watson, starring Will Ferrell and John Reilly opens in theaters right before the New Year.As you can see, we have what appears to be a promising film slate for the remainder of the year and encouraged by what's coming out in 2019. Films, such as Captain Marvel, Avengers 4, Toy Story 4, Spider-Man: Far From Home, The Lion King, It: Chapter Two, Frozen 2, a Jumanji sequel and Star Wars: Episode IX to name just a few.Overall, Cineplex experienced a good third quarter and accomplished a great deal. A year ago, there was great concern about the Theatre Exhibition business. However, the 2018 box office has performed very well, surpassing many expectations and confirming our ongoing confidence in the industry.Cineplex year-to-date box office revenue is up 2.1%, BPP is up 3.3%, CPP is up 6.9%., our adjusted EBITDA is up 11.8% and our EPS is up 19.7%. We are encouraged by the outlook of film products for the remainder of the year and the ongoing growth in The Rec Room and our other businesses. Adding to this with our focus on cost control and strategic spending to grow, we are confident that we are positioning the company for success in the future.With that, I'll turn the call over to Gord.

[Gord Nelson, Chief Financial Officer]

Thanks, Ellis. I'm pleased to present the third quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD&A have been filed on SEDAR this morning and are also available on our Investor Relations website at cineplex.com.We continue to execute our diversification strategy and for the third quarter, total revenue increased 4.4% to $386.7 million, a third quarter record, with increases in Theatre Exhibition and amusement and leisure contributing to the growth.Despite this top line growth, adjusted EBITDA comparisons were impacted by a number of items. The increase in share price as compared to the decline in the prior year resulted in a $8.4 million increase in share-based compensation expense. Headcount reductions, as a result of the ongoing cost-reduction program, resulted in an additional $1 million in restructuring cost during the quarter and there was a nonrecurring charge of $2.1 million in the P1AG business. In addition, the flow-through of the media revenue decline negatively impacted Q3 adjusted EBITDA, as did the ongoing impact of the minimum wage increases.The film exhibition and content business performed strong with increases in both total revenue and segment EBITDA. The Rec Room business achieved its highest EBITDA margin to date of 20.9% and showed significant top line and bottom line growth compared to the prior year. Although there are a few items negatively impacting Q3, on a year-to-date basis, we are pleased to be reporting 5.1% top line revenue growth and an 11.8% increase in adjusted EBITDA.Turning to specific items. Cineplex's third quarter box office revenue increased 5.3% to $173.3 million compared to $164.5 million in the prior year. This was a result of the impact of the 2.6% increase in attendance, coupled with a BPP increase of 2.7%, which established a third quarter record of $10.07, up from $9.81 in 2017.Food service revenue increased 8% to $115.6 million. Included in food service revenue is $8 million from The Rec Room. Excluding revenue from The Rec Room, theater food service revenue increased by 6.7% from the prior year, due to the previously mentioned increase in attendance, combined with the 4% increase in concession revenue per patron to a third quarter record of $6.25. The CPP growth was attributed in part to increased basket size and expanded food offerings, including those available at Cineplex's VIP Cinemas, Outtakes and additional licensed locations.Total media revenue decreased $6.4 million or 16% to $33.5 million for the quarter. Cinema media revenue, which is primarily theater-based, decreased 26%, due to lower cinema advertising, as a result of the decreases in automotive, government, beverage and electronic and technology sectors. Digital place-based media revenue increased 6% compared to the prior year, primarily due to higher project installation revenue related to A&W and Citizens Bank in addition to increases in other digital services revenue.Year-to-date, we have increased our location camp by 3.9% to 498 new locations to a total of 13,424 locations. Amusement revenue increased $4.9 million or 10%, due to strong revenue growth from The Rec Room, which contributed $8.1 million of amusement, gaming and other revenue. With respect to The Rec Room, total revenue grew $6.2 million over the prior year with 5 locations opened for the full quarter. Margins were up 13.7% to a quarterly record of 20.9% on the strength of the summer months and continued improvement and optimization of operations.P1AG revenues increased by $0.8 million due in part to an increase in revenue in the U.S. as a result of this Cinemark agreement, partially offset by nonrecurring items impacted both revenue and OpEx in the current period, negatively impacting P1AG's results by approximately $2.1 million.Turning briefly to our key expense line items. Film costs for the quarter came in at 52.1% of box office revenue as compared to a historically low 50.6% reported in the prior year, which reflects the impact of the strong titles in the third quarter of this year.Cost of food service for Q3 2018, excluding $2.3 million to credit The Rec Room, was 20.5% as compared to 20 -- 21.5% in the prior year period. Cost of food service at The Rec Room was 28.2%, in line with expectations. Other costs of $218.9 million increased $14.1 million or 6.9%. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses.Theater occupancy expenses were $53.2 million for the quarter versus a prior year actual of $52.3 million. Other operating expenses were $147.8 million for the quarter versus a prior year actual of $143.4 million, an increase of $4.4 million. Increases included $3.2 million related to the additional Rec Room locations, a $2.4 million increase for P1AG due to increased business volumes and the nonrecurring item, and $3.9 million in same-store theater payroll, mainly due to the impact of minimum wage changes, which more than offset the labor efficiencies realized in the quarter.These increases were offset by a decrease in media cost of $2.4 million, due to a decrease in business and improved cost management, and a $1.2 million reduction at SCENE cost due to the timing of expenses. Preopening costs for The Rec Room were also reduced due to the timing of openings in the current year as compared to the prior year.G&A expenses were $18 million for the quarter, which was $9 million higher than the prior year due to an $8.4 million increase in share-based compensation expenses, mainly due to Cineplex's higher share price, which increased $5.82 during the current quarter as compared to a decrease of $13.82 in the prior year period, and restructuring costs in the amount of $1 million related to our cost-reduction program.As we have said earlier, we expect the annualized impact of the business unit and G&A cost-reduction program to be approximately $25 million, and this will ramp up over the remainder of the year. Business unit level cost reductions will be reflected in the other operating expenses as detailed in our MD&A. Net CapEx for the third quarter was $27.1 million as compared to $45.3 million in the prior year. As a result of some timing adjustments, we are reducing our net CapEx estimate to approximately $115 million, a $10 million reduction and increasing our 2019 net CapEx amount estimate by that same amount to $160 million from $150 million. In anticipation of an uncertain credit environment ahead and subsequent to the quarter-end, we entered into an amended and restated credit agreement extending our debt a further 5 years with a $150 million component expanding 7 years. We also increased our borrowing capacity to $800 million to provide availability to settle the maturing convertible debenture liability and cash and to provide additional resources for growth opportunities.As Ellis mentioned earlier, we have steadfastly focused on creating a diversified entertainment and media company for the future. We are prepared to prudently use both our operating cash flow and our credit facilities to invest in these new businesses. We continue to remain comfortable with where Cineplex Inc. is positioned today. We are in the early execution phase of a number of our diversification initiatives, and our balance sheet allows us to continue to invest in these growth initiatives to deliver future value for our shareholders.That concludes our remarks for this morning. And we'd now like to turn the call over to the conference operator for questions.

[Operator]

[Operator Instructions] We'll take our first question from Jeff Fan of Scotiabank.

[Jeffrey Fan]

Let's start with the cinema media line. Ellis, I think you mentioned that some of the volume decline may be an anomaly. Wondering if you can just elaborate a little bit on that. And what kind of volume or pacing, I guess, are we seeing in the fourth quarter? Do you expect that to bounce back? And then my second question is related to the box office per patron, revenue per patron, and specifically the premium mix. I guess from quarter-to-quarter, there can be some volatility in that number because of the type of format. But I guess, what we're seeing in the last few quarters now is a decline in that percentage mix. Wondering, what you're seeing with respect to patrons and then whether we could see that percentage start to return?

[Ellis Jacob, President, CEO & Director]

So on the media, Jeff, as I said, basically, it was a tough quarter. It was, to us, an anomaly because we ended up with larger contracts in some of the automotive areas, which got pushed out or reduced. And then we also have the government, where we had a change in the government and there's been less spending as compared to the prior year. And for the fourth quarter, we expect things to be at a strong level and the fourth quarter is usually our best quarter of the year. And advertisers want to be there for the holiday season. But we'll have to see how it plays out with the product that we have available in the fourth quarter from a movie perspective.

[Gord Nelson, Chief Financial Officer]

And on the premium percentage question, I guess, Jeff, one of the -- roughly half of the premium mix comes from 3D products. So to the extent that the quantity and the quality of the 3D product finds favor with the audience, that's probably the primary driver of why the mix is kind of going up and down in any given quarter. We're still continuing to see strength in the VIP program and UltraAVX, but it's primarily that shift in the quantity and quality of the 3D product.

[Jeffrey Fan]

If I can just follow up to the media question. I mean, are we going to expect a positive fourth quarter on the cinema media line, or -- I was wondering if you can give some better outlook, because I think investors are asking a lot of questions about that, whether this is really timing or whether there's some more significant shift in advertisers' behavior towards other formats? And then just to follow up with Gord, that premium percentage number, I mean, yes, I mean, we do have quarter-to-quarter fluctuations, but it's been down I guess for the last 5 quarters year-on-year. I'm wondering if that's a change in consumer behavior or is that just the format coming out or no longer as many 3D films to support the box office revenue?

[Ellis Jacob, President, CEO & Director]

So on the media area, Jeff, we're hoping that the fourth quarter will be in line with our prior year fourth quarter. But again, we are well into the quarter, and we should be able to get a firmer number closer in the next couple of weeks. But I don't expect to see a decline like you saw in the third quarter. And on an annual basis, I think, when you look at the decline year-to-date, it's closer to 6% overall. So this is not a business where the floor is falling out from under it. And we look at it as continuing to strengthen going into 2019.

[Gord Nelson, Chief Financial Officer]

And on the mix question again. So yes, that impact that you're seeing is primarily related to quantity and quality of a 3D product.

[Operator]

Our next question is from Adam Shine of National Bank Financial.

[Adam Shine]

Ellis, maybe just to start on the box office, vis-à-vis the underperformance versus the industry. Can you speak to any -- do you see particular qualifiers? Often it's a Quebec sort of dynamics. Anything else to speak to?

[Ellis Jacob, President, CEO & Director]

Well, couple of things. In the quarter, we continue to work on the reseating in our lounger program, which resulted in a number of locations where the screens were off in -- for a period of the quarter, which resulted in a lower box office percentage for Cineplex. We've also had institutional IMAXs, which did extremely well with the movie Panda (sic) [ Pandas ] and that's in the total, which we've basically played, but we play usually, the Hollywood films, so those institutional IMAXs are accounted as part of box office. And then finally, there's been a couple of new theaters built across the country and those also impact the total because of a significant market share if the new theater opens, these are mainly smaller markets, but they still do have an impact on the overall percentage.

[Adam Shine]

If I look at concession, maybe more for Gord, we've seen over the last 4 quarters the growth rate in concession given some of the push among the initiatives you've been doing driving something like, I don't know, 450 bps of outperformance in growth versus the box office trend, we saw a much more subdued sort of delta in the Q3. Is that more function of a lapping amidst some of the efforts or it certainly looks as though there is further dynamics afoot, whether it's alcohol in a few more theaters and other initiatives underway, maybe you can just elaborate on that.

[Gord Nelson, Chief Financial Officer]

Yes, really -- I mean, obviously, it total relates to film mix, in particular September. So we were -- throughout July and August, we were up just around 6% in terms of CPP. In the month of September, given that this year top performing film included Crazy Rich Asians. Last year, it was It. So last year, our CPP for September was up roughly 12% year-over-year on the strength of It. This year, we are up but just marginally up. So 6% up in the 2 strong summer months, but the September being up, just up nominally is what ended up with the 4% increase. So it's all related to kind of the film mix that played during the month of September.

[Operator]

Our next question comes from Derek Lessard from TD Securities.

[Derek J. Lessard, Research Analyst]

Maybe if you can just talk about the $2.1 million in nonrecurring charge in P1AG. Maybe just what that was? And was that excluded from your adjusted EBITDA number?

[Gord Nelson, Chief Financial Officer]

No, Derek, it was in there. So the $2.1 million again related to some of the number of acquisitions that we've done in the U.S. from an operations perspective is, initially, early on, we had a number of integration costs, which we characterize as kind of onetime. This is something that came up during the third quarter, which again, related to the previous kind of operations of the business that we need to take care. And so I characterize this as more of an integration onetime cost.

[Derek J. Lessard, Research Analyst]

Okay. Sorry, that was -- it was excluded or included in the adjusted EBITDA?

[Gord Nelson, Chief Financial Officer]

No, it's included as a charge in our adjusted EBITDA.

[Derek J. Lessard, Research Analyst]

Okay. And you mentioned Uber Eats in your prepared remarks. Just wondering if you're able to talk about the materiality of that revenue stream?

[Ellis Jacob, President, CEO & Director]

So in total, it's not that material, but the bottom line is, it's incremental money that we are getting and it's also the awareness and what it's doing for us in the Cineplex store. So overall, it does provide us with additional dollars. But again, it's more about the guest and what we are offering them, both in our bricks in our flicks and this is another additional item that they are able to access.

[Derek J. Lessard, Research Analyst]

Okay. And in your digital, I'm just wondering if you can maybe just talk a little bit about your digital media pipeline and maybe frame the Subway Europe announcement around it? How long this rollout should take and maybe your progress on Arcos Dorados as well?

[Gord Nelson, Chief Financial Officer]

Yes, so Derek, I mean, as we always have kind of mentioned, the QSRs, we have the kind of the franchisee structure that we need to navigate through now. Arcos Dorados was a little bit different, given that they're the largest -- they are the franchisee. But as we look at the rollouts, we typically have slow deployment in the first year, as we work with the brands and navigate through some of the technical issues and show and demonstrate the continued ROI. And then it's beefed up over the remainder in 2 years. So we're early on, we're in our first year, so it's kind of those initial deployments, which we expect to speed up over the next 2 years.

[Derek J. Lessard, Research Analyst]

And Europe, you haven't started the process yet? Sorry, Subway hasn't...

[Gord Nelson, Chief Financial Officer]

Oh, sorry. We have started the process, but it's not a significant number of deployments that we've done to date, and that's included in the third quarter results.

[Operator]

[Operator Instructions] Our next question comes from Rob Goff from Echelon.

[Robert Goff, MD & Head of Research]

Since we saw the negative upfront impact of the reclining chairs on box office attendance versus downtime. Can you talk about upside in terms of some of the theater economics that you're realizing where you have deployed those recliners? And as a second question, where you do have alcohol available, would that be something like 5% to 10% of the CPP, or just -- I'm trying to get some parameters on that.

[Ellis Jacob, President, CEO & Director]

So on the first question with the recliners, as you know, when the screens are out of commission, we take a bit of a hit. And then once we basically get them back on, we see a lift in the overall attendance and growth, and also it helped us on the CPP side interestingly because there is less capacity, so we're able to flow a lot more people through the theaters. But again, it varies by location. So I don't want to tell you that every location we see a significant increase because in some cases, we have got 2 theaters very close proximity, where we own both of the theaters, so it kind of has some cannibalization impact.

[Gord Nelson, Chief Financial Officer]

And then on the alcohol, I would characterize the amount as being less than 5% of CPP.

[Robert Goff, MD & Head of Research]

In the theaters, where it is available, correct?

[Gord Nelson, Chief Financial Officer]

Correct.

[Operator]

Our next question comes from Aravinda Galappatthige from Canaccord Genuity.

[Aravinda Suranimala Galappatthige, Managing Director]

So Ellis or Gord, just go back to the delta versus the industry. I mean, obviously since you've started the rollout of the recliner program and also in individual quarters, where Quebec came into play, you've seen sort of this underperformance versus the industry. As we look beyond '18, I mean, for our forecasting purposes, should we sort of look for this delta to kind of taper off and perhaps go back to premium or at least sort of track the industry? Because a lot of the reasoning that you've indicated seems transitionary. It doesn't seem like it's something that's going to last for an extended period of time. Just wondering if you can just help me out in terms of sort of the outlook there beyond '18?

[Ellis Jacob, President, CEO & Director]

Yes, Aravinda, beyond '18, I think, we are going to be more in line with the industry and track. But then have situations for example, the theater in Fort McMurray took a big hit with the fires and things like that. And the owner there, basically, decided to redo the theater. So there will be increased box office from that particular location. Now it's not going to change things out significantly, but those are the kind of things that cause the imbalance sometimes. But I think for 2019, we should be definitely in line with the industry numbers.

[Aravinda Suranimala Galappatthige, Managing Director]

Okay. And just on the strength of the box office. Obviously, Q2 we knew was going to be strong and the Q3 and so far Q4 is done better than I think what most expected. I know that couple of quarters don't make a trend, but when you look at the composition of the films that are doing well, I mean, is there anything that you see in terms of sort of a secular shift? I mean, it looks like it's not so much the bigger blockbusters that's driving the outperformance. It's more the, I don't want to call it mid-tier, but certainly, let's call it, the nonblockbusters. Sort of the $100 million, $250 million North American box office size, that category seems to be where the outperformance is coming from. I was wondering, if there's anything you're noticing, Ellis or Gord, with respect to sort of that outperformance?

[Ellis Jacob, President, CEO & Director]

Yes, when you look at movie like Crazy Rich Asians, which was a movie that actually Netflix was bidding on and Warner Brothers looked at it and their Senior Executive decided to, and the individuals who owned the movie wanted to go over the theatrical release. And when you look at that movie in North America, it's going to do close to $200 million and did extremely well in our circuit in Canada. And then you had A Star Is Born, which has done again extremely well for us overall. So those are the kinds of movies that really are important to the overall mix of the movies that are being offered. And I think that you saw, because when we started 2018, everybody was nervous about the box office, but some of these movies have come out and delivered. And the audiences want to see it on the big screen in a social environment. And I think that's going to continue into 2019 again.

[Aravinda Suranimala Galappatthige, Managing Director]

Okay. Great. Last question from me on eSports. Obviously, the sector seems to be sort of generating a lot of interest, both here and in North America in general. Any sort of thoughts on your initiatives, your plans on that space that you can share?

[Ellis Jacob, President, CEO & Director]

Yes, so a lot of the traction, a lot of the focus is and what I would call, kind of the Pro Series as publishers are establishing pro leagues. And teams are joining these pro leagues for an entry fee. Our focus has always been kind of on that path to the pro and establishing a North American presence for the competitive gamer, looking to transition to a Pro Series. So there's lots of interest, which is great for us, because, as you're all aware, the whole value stream and the monetization of the eSports business is primarily on sponsorship and advertising and as the space grows, then more sponsors become interested in the space that's kind of going to bode well for us.

[Operator]

[Operator Instructions] We will take our next question from Drew McReynolds from RBC.

[Drew McReynolds, Analyst]

First couple of questions for you, Gord. Just in terms of your cost savings realized, I guess, on an annualized basis as of Q3 that's probably buried somewhere in the MD&A. But do you have that number handy?

[Gord Nelson, Chief Financial Officer]

Yes, so I would say at the end of Q3, we're at about $19 million, just over -- slightly over $19 million. If I were to take you through the components, it's in the MD&A. But if you look at the theater OpEx and sort of adjusted it for some of the volume changes, you see about $0.5 million in the quarter. In the media business, the expense was down about $2.4 million, but part of that was a result of the drop in business volume. So there's about $1.5 million that is related to the cost savings program. P1AG is showing up $2.4 million, but as I mentioned before, there is a $2.1 million charge in that business and then there has been some volume increase, but that's about $0.4 million. So $400,000 related to P1AG business. Between marketing and SCENE, as you'll just see in the bridge, there's just about $1 million number. In the other category, it's down $3 million, but part of that is primarily related to -- the large component that is related to the preopening costs for the one on location from last year. So there's is about $1 million in other savings. And then in G&A, you'll see the $400,000 in savings in the MD&A. So that's about $4.8 million on the quarter. So annualized up is about $19.2 million.

[Drew McReynolds, Analyst]

That's great. Switching gears. Just on The Rec Room with respect to kind of the full quarter from the 5 locations, I know it still kind of seasonal here. But in terms of what you're generating in terms of average food service revenue and amusement revenue per location, do you see that it's kind of more of a steady state now? Are there kind of certain levers for you to pull on the restaurants to increase that, again, obviously, seasonally adjusted? And held the margin, saw at the things, just remind us has your target EBITDA margin on this business changed based on your experience to date?

[Ellis Jacob, President, CEO & Director]

I'd say, our EBITDA margin targets have not changed. We're continuing to ramp up. We're going to make great headwinds in the month of -- sorry, in the third quarter. And when you look at our population of locations, as we always kind of remind people, the first location, the North Edmonton location is a 60,000 square-foot box. We tend the pilot concepts there. So as we go forward, the newer locations are tracking on those margin levels and will bring the overall margin up. In terms of tweaking, we're always tweaking to the concept, whether it's to the menus, whether it's to the allocation of floor space between food and beverage, amusement and gaming. West Edmonton Mall, we added The VOID. That was not a VR concept there, that was added during the third quarter. We've transitioned over the floor concept rent house in Toronto. We've made that announcement with VRstudios that could go on some new concepts going forward. So we're always tweaking and refining.

[Drew McReynolds, Analyst]

Okay. If I could maybe add one last one for you, Ellis. Just back to Cineplex Media here. Just wondering if you can provide some additional kind of context in terms of what you referred to as the allocation of advertising dollars from your advertisers. When you have discussions with them, is there any kind of change in how they're looking at the format and medium. You've talked about expanding the verticals in the past. Is there still some potential to do that to diversify here in the event you get a quarter like you just did? And then also is there some added seasonality now? I know you've commented on that in the past. As the format kind of gains a little bit of a steady state, assuming, presumably that seasonality comes out a little bit more, maybe just drilling down a little bit on those things?

[Ellis Jacob, President, CEO & Director]

So on your question regarding the value of the movie advertising, I still feel, and we know that the clients still like that as a medium because you got a captive audience and it's something that's easily measurable. And we feel that, that will continue to be strong and I think it was, like I said an anomaly and part of it was driven by the fact that in the auto sector, if you are selling more cars than you can produce, you don't need to spend as much money advertising. And in the case of government, if you got a change in focus, you end up with a change in the amount of money you are allocating to the screen. But as we have clients, and we continue to nurture them, I think, you will continue to see the business build up over time and given all of the different media assets we have with the shopping centers and TimsTV and things like that, we have a bigger portfolio to offer our clients and our agencies. So I would not take this as, basically, as I said earlier that this is a major collapse of this business in any way.

[Operator]

It appears there are no further questions at this time. Mr. Ellis Jacob, I'd like to turn the conference back to you for any additional or closing remarks.

[Ellis Jacob, President, CEO & Director]

Thank you all for joining us this morning. We wish you a very happy and healthy holiday season, and look forward to speaking with you in the New Year at our Q4 year-end conference call. Thanks very much.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.