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Summary of and Excerpts from: Feasibility Study and Business Plan for the Sudbury Downtown Independent Cinema Co-operative (SDICC) PREPARED FOR SUBMITTED BY Sudbury Downtown Independent Cinema Co-operative (SDICC) Communications MDR 503 Victoria Ave Westmount, Quebec H3Y 2R3 The Company The Sudbury Downtown Independent Cinema Co-operative (SDICC) is a not-for-profit social enterprise created to operate a movie theatre with multi-use arts capability. The SDICC will be located at 162 Mackenzie Street in downtown Sudbury where many of the city’s jobs are located and which is poised to become a destination for both locals and visitors due to a large capital expansion slated to be completed by 2020. The mission of the SDICC is to provide an independent co-operative venue that exhibits alternative films and acts as an arts hub in downtown Sudbury. The SDICC intends to play a role in supporting Sudbury’s local film industry; provide a much needed venue for Sudbury’s culturally diverse communities, the arts and performing sector, and be strong a partner to other downtown business and arts organizations to draw more travellers to Sudbury. Industry Overview As a small independent theatre, the SDICC is positioned within the 21.5% of the exhibition market in Canada that is composed of small players. Consolidation in the exhibition industry, has reduced competition in individual markets, diminishing the diversity of films being shown for all but the most successful box office films. Market share in this industry is highly concentrated, with the three largest theatre chains attracting over three-quarters of revenues. A community-based response to the changing make-up of the exhibition sector has been the creation of smaller independent cinemas focused on providing citizens with access to a greater variety of programming in community-friendly environments at affordable costs. Based on available data, mean box office for single screen independent theatres in 2013 was $216,388, while mean concession sales for theatres selling alcohol and meals was $5.59 per patron. Audiences consist primarily of adults, with patrons aged 55 or more representing 45% of the audience, while those under 25 make up 5% of the audience. Most offer some type of educational program. Business Model The SDICC will rely on multiple revenue streams to be financially viable. These include box office revenues, concession sales, sales from rental of facilities, grants, memberships, donations and sponsorships. As a not-for-profit co-operative corporation, any surpluses generated by the SDICC will be reinvested in the co-operative to meet community objectives. The SDICC has established relationships with a number of suppliers including major, independent, and niche film distributors. The theatre also has relationships with festival circuits, smaller media arts organizations and independent filmmakers who act as distributors. The SDICC will exhibit a mix of art films that appeal to niche audiences, including first-run films that would otherwise bypass Sudbury. The cinema will also screen second-run Hollywood movies to maintain a core clientele and offer a unique entertainment function downtown. The SDICC hopes to create a small festival atmosphere where those in attendance are part of creating a one-of-kind interface between the film’s subject and content, the audience and the film creators. The SDICC intends to proactively partner with community organizations to help them host films of interest to their constituents. The SDICC will actively promote itself and attend to the demand for an affordable (rental) venue to exhibit films by other organizations, for example, for fundraising and education purposes. The SDICC will offer a full service concession stand with a twist—providing healthier, local, and recyclable or compostable offerings, where possible. The SDICC will also be licensed for beer and wine and will adhere to a zero-waste goal in its purchase and dissemination of concession offerings. Target Markets A number of target market segments have been identified for the SDICC. The primary market consists of indie movie patrons (indie film followers) who will travel to or live downtown – they are the core audience. Others segments include: • • • • • • College and university students Local residents Children and youth attending nearby schools Seniors Sudbury’s multicultural population Community groups, filmmakers and film production and post-production companies interested in renting the facility for public exhibition or editing. The target population within the Greater Sudbury area for the SDICC has been conservatively estimated to be between 12,000 and 15,000 people. This estimate is based on the number of early adopters of the SDICC, combined with estimates of the local college and university school population with an interest in the arts and culture, the number of high school students attending neighbouring schools and residents living in the immediate vicinity. In addition, the target market includes a subset of the Francophone, Aboriginal and multicultural and visible minority communities, which together comprise 38.5% of the total Greater Sudbury population.1 As a point of reference, the Rainbow Cinema welcomed 14,452 patrons per screen in 2012 and 11,382 patrons per screen in 2011. The 2014 edition of the Cinefest Sudbury International Film Festival had a local audience attendance of 23,815. These comparisons indicate that the estimated size of the market is well founded and reasonable.2 The SDICC will benefit from a number of competitive advantages: with patrons seeking a cultural experience, the location of SDICC in a planned arts hub provides a competitive advantage over the mega-plex, which is located in a mall. Business Plan The overall goal of the marketing strategy is to promote the SDICC to the target market such that patrons and clients become recurring customers. 1 2 Statistics Canada, 2011 Census of Canada. Attendance numbers provided by the Regional Business Centre of the City of Greater Sudbury. Financial objectives were developed for the marketing plan based on realistic and attainable estimates. Two scenarios were modelled, one more conservative and another more optimistic. For each financial scenario, the financial objectives of this marketing strategy are to achieve the following targets as shown: Financial targets (conservative scenario): Year 1 Year 2 Year 3 Year 4 Year 5 Box office sales $225,000 $236,250 $248,063 $260,466 $273,489 Concession sales $120,000 $126,000 $132,300 $138,915 $145,861 Theatre Rentals $9,600 $9,600 $12,000 $14,000 $14,000 Corporate Sponsorships Memberships $10,000 $10,000 $20,000 $20,000 $20,000 $600 $1,200 $1,200 $1,200 $1,200 Total Revenue $365,200 $383,050 $413,563 $434,581 $454,550 Year 1 Year 2 Year 3 Year 4 Year 5 Box office sales $281,250 $295,313 $310,078 $325,582 $341,861 Concession sales $150,000 $157,500 $165,375 $173,644 $182,326 Theatre Rentals $9,600 $9,600 $12,000 $14,000 $14,000 Corporate Sponsorships Memberships $10,000 $10,000 $20,000 $20,000 $20,000 $600 $1,200 $1,200 $1,200 $1,200 Total Revenue $451,450 $473,613 $508,653 $534,426 $559,387 Revenue Financial targets (optimistic scenario): Revenue The objectives developed for the plan will ensure a successful community-owned movie theatre in Sudbury that provides a first-class experience for customers, is viable over the long-term, and contributes to the community. A strong advantage for SDICC is that it already has a strong foundation of support from the community including downtown supporters and residents, cinephiles who enjoy art films, community organizations that require a venue for issue-oriented films; and independent filmmakers. SDICC has 2800 Facebook followers and 375 charter members, which are strong supporters and influencers in the community who will attract new consumers to the SDICC. Having already attained 375 charter members, the SDICC has bound the community to the theatre in a way that creates a more invested audience willing to trust the programming and return to the cinema more readily. Niche marketing tactics have been developed for each target market. A first year marketing budget has been established at $30,000. This amount will be revised to $17,000 in the second year of operation, as many initial costs associated with the development of the cinema’s website and social media presence will not be recurring. Funding approvals from FedNor and NOHFC are at a phase 2 and under consideration, in part conditional upon a favourable reply from Greater Sudbury regarding a Community Economic Development (CED) grant and each level of government’s contribution. A corporate sponsorship campaign is planned that will seek major sponsors interested in naming rights. A Project Manager has been retained to lead the pre-launch phase to January 15, 2016. The cinema will be staffed with a Managing Director, a Marketing and Outreach Coordinator, a Technical Director and cinema staff responsible for box office, concession and ushering. Grants have been identified that will support the salaries of staff in the first three years of operation. Management and Oversight Founded on the principle of participatory governance, co-operatives are governed by their members. The independent cinema operates in an inclusive manner. All members possess decision-making authority at the annual general meeting. This allows the Board of Directors to steer the co-operative in the direction that best suits the membership. In consultation with the members, the Board of Directors sets policy and the overall objectives of the co-operative, and approves the five-year strategic plan and annual budget. The Board is also responsible to hire the Project Manager to oversee the pre-launch phase and the Managing Director to oversee all operations beyond the pre-launch phase. The Board hires other professionals and consultants as needed. Financial Analysis Two financial scenarios were modelled, one more conservative, the other more optimistic, based on industry benchmarks. The report provides pro forma income statements, detailed statements of projected income and expenses and statements of projected cash flows, based on the two scenarios developed for this report. The potential for sales by the SDICC compares favourably to comparable cinemas in similar sized markets. Projections are based on information gathered from similar theatres operating within comparable markets. Assumptions were further tested against aggregate data compiled on similar theatres in the US market. Both scenarios modelled for this report provide evidence that the SDICC will be viable. In the first three years of operation, grants will allow the theatre to accumulate a surplus. In the more optimistic scenario, this surplus will be more substantial and could be used to grow the enterprise. Section II: Overview of the Exhibition Industry 1. The Overall Exhibition Industry 1.1 Rise of the Boutique Cinema As a small independent theatre, the SDICC is positioned within the 21.5% of the exhibition market in Canada that is composed of small players. While the composition of this segment is diverse and is said to number about 433 in 2013, there is presently a gap of information on the size, scale and financial viability of these operations. It can be confirmed, however, that in the last few years, there has been a trend in the establishment of publicly funded year round cinemas to exhibit festival quality films. In some municipalities, historic movie houses have been acquired through a combination of public investment and grants, at times under a cooperative social enterprise structure. Small cinemas with one or two screens owned by committed and socially aware entrepreneurs are part of what has been described as a movement of the boutique cinema that is taking place in North America. 1.2. There is Room for More Cinema Screens in Sudbury Consolidation in the industry has reduced competition in individual markets, diminishing the diversity of films being shown and the length of theatrical runs for all but the most successful box office films. Consolidation has also resulted in a reduction in the number of screens serving many communities.3 A commonly used calculation to determine the maximum number of screens that a population can support puts the number of screens for all of Greater Sudbury at 20 screens. 4 There are currently twelve screens, located at the Silver City Cineplex on Barrydowne Road. With the closure of the Rainbow Cinema, there is no cinema currently serving the downtown core. Market share in this industry is highly concentrated, with the three largest theatre chains attracting over three-quarters of revenues. The market shares of Cineplex Inc., Empire Theatres and Landmark Cinemas together accounted for 78.5% of revenues in 2013. Cineplex is the largest theatre chain in Canada, and accounted for approximately 67.4% of the market share in 2013. Empire Theatres in Atlantic Canada, which has since been bought by Cineplex, had a 7% share of the market, while Landmark Cinemas in the west had a 4.1% share. The remaining 21.5% share of revenue is divided between a large number of small companies, estimated at 433 in 2013. 1.3 Multiple Revenue Streams A key success factor is identified in maximizing secondary revenue streams, such as concession sales, which typically have higher margins than box office sales (proceeds are not shared with film distributors). The major theatre chains have developed expanded food service options, including restaurant quality food and in some locations, licensed theatres serving alcohol. In Canada, admissions made up the majority of revenues in 2013 (57.8%). Concessions sales accounted for 29.2% of revenues, and ancillary sales (on-screen advertising, rentals of theatres and parking lot space) contributed 13%.5 3 Matthew MacFarland, Op. Cit. According to the Motion Picture of America (MPAA), the number of screens supported by an urban and rural population is .13 screens per 1000 people. Theatrical Market Statistics 2013, MPAA. 5 Matthew MacFarland, Movie Theatres in Canada, IBISWorld Industry Report 51213CA, March 2013. 4 2. Creation of Small Independent Theatres A community-based response to the changing composition of the exhibition sector has been the creation of smaller independent cinemas focused on providing citizens with access to a greater variety of programming in community-friendly environments at affordable costs. Examples of independent cinemas include: the Bloor Hot Docs Cinema and TIFF Bell Lightbox (Toronto), VIFF Vancity Theatre (Vancouver), Winnipeg Film Group Cinematheque (Winnipeg), le Cinema Du Parc (Montreal), Cinecenta (Victoria), The Bookshelf (Guelph), The Mayfair (Ottawa), The Princess (Waterloo), The Revue Cinema (Toronto), The Royal (Toronto), The Acadia (Wolfville, Nova Scotia), the Aron Theatre (Campbellford, Ontario) and the Carbon Arc Cinema (Halifax). These cinemas show an eclectic variety of films: independent, classics, local, foreign and second run Hollywood films. Research on trends in this burgeoning market in Canada is virtually non-existent. A good source of information in the US is the two annual surveys of art house cinemas conducted by Art house Convergence with the participation of the Sundance Institute. 6 The theatres participating in this survey share many characteristics with the planned SDICC: 73% are notfor-profits located in metropolitan areas. Three-quarters characterize their theatres as art house cinemas. Half operate a single screen theatre and one third have fewer than 250 seats per theatre. 83% of single screen theatres showed a profit in 2013. As can be seen in Figure 1, revenues in this market are spread across a variety of sources. 50% of revenues are derived from box office sales, 15% from concessions and 12% from development and donations (about a third in grants, half from individuals and the rest from corporate donors). Space rentals account for 7% of revenues. Membership dues among theatres that offer memberships account for 8% of revenues. Fundraising events and advertising account for 3% of revenues, respectively. Another 2% comes from “other” sources. Figure 1: Breakdown of Revenues of Art house Cinemas 6 Art house Convergence, Art house Convergence National Theater Operations Survey 2015, Conceived and Presented in Consultation with Bryn Mawr Film Institute, Avenue ISR in participation with Sundance Institute, 2015; and Art house Convergence National Audience Study 2014, Conceived and Presented in Consultation with Bryn Mawr Film Institute, Avenue ISR, in participation with the Sundance Institute, January 20, 2015. It should be noted that this breakdown reflects a majority of cinemas where alcohol was not sold. Mean concession sales for theatres selling alcohol and food were almost double (90% higher), at $5.59 in 2013, as compared to $2.94 where no alcohol was sold. Mean box office for single screen theatres in 2013 was $216,388. Adult evening admissions varied between as little as $1 to as much as $13. The mean for senior admissions was $7.73, and for non-seniors it was $9.54. Audiences consist primarily of adults, with patrons aged 55 or more representing 45% of the audience, while those under 25 make up 5% of the audience. Most are located near a college or university and offer some type of educational program, which can be as simple as live introductions or commentaries before a film screening, Q&A’s after a screening, or as structured as panel discussions and classes or seminars. Many offer K-12 educational programs aimed at local students. These can include special screenings for area schools such as documentaries, curriculum-related films or foreign films for children. Educational, community co-productions, and Q&A’s with filmmakers are effective at growing the audience in this market.7 (Please see Appendix 2 for more detailed information.) 2. A Repertory Movie House The SDICC will exhibit a mix of first-run films that by-pass Sudbury, art films and narrative and documentary movies that appeal to niche audiences. It will favour festival favourites, Canadian independent films, documentaries, French-language, foreign language, and locallyproduced films. It will be seen as a repertory movie house exhibiting a unique blend of independent films (domestic, American and international.) 7 Art house Convergence National Audience Study 2014, Op. Cit. The SDICC will also screen second-run Hollywood movies weekdays to maintain a core clientele and offer a unique entertainment function downtown. By continuing to screen second-run Hollywood, the SDICC will retain the existing clientele of former Rainbow Cinemas Sudbury while at the same time providing a service to their core clientele many of whom lack the funds, means or ability to travel to New Sudbury for first run Hollywood releases. However, the selection of movies will veer away from action-driven Hollywood blockbusters to more plot- or character-driven stories. The SDICC wishes to provide fellow Sudburians and visitors to Sudbury with a compelling and engaging reason to join a communal event. The SDICC will foster a “VIP Club Feel” communicating the message to patrons that they are special members of a comfortable, licensed club with a friendly atmosphere. The SDICC aims to create a small personable arts experience, one in which folks attending solo are made to feel comfortable and automatically part of a communal experience. The SDICC hopes to create a small festival atmosphere where those in attendance are part of creating a one-of-kind interface between the film’s subject and content, the audience and the film creators. The SDICC will encourage connection and dialogue prior to and after screenings in the lobby where patrons can share in this experience with others. Each screening in the arts section will be introduced by knowledgeable staff or by a VIP (key creative or talent) from the production itself. This is a best practice that we have observed in other independent cinemas.8 (Best practices are discussed in Appendix 2.) 3. Programming Partnerships The SDICC will be more than a simple rental venue. The Co-operative intends to proactively create partnerships with educational and community groups to help them advance their interests and ensure they view the SDICC as a resource and partner. The daytime programming will offer age- and community-specific cultural programming for schools, seniors and Sudbury’s growing culturally diverse communities. The SDICC will be a resource to high schools in all four Sudbury school boards to augment their literature and media arts curriculum through daytime film events to meet their custom needs. The SDICC will build partnerships with educational programmes both at the secondary school and post secondary levels for special media arts and language programming, in addition to experiential learning opportunities for students of cinema, film, and theatre production, who will utilize the cinema as a teaching resource. The SDICC will also work closely with community stakeholders and service providers to develop relevant and innovative daytime programming with and for seniors. Sudbury has a rich and growing culturally diverse population. The SDICC plans to reach out to diverse communities and offer the SDICC for unique cinema programming to support cultural heritage interests. The SDICC will partner with community organizations to help them host films of interest to their constituents. The demand for this is great: since the SDICC first gained a public profile in Sudbury with community groups being interested in using the facilities for events. 8 Art house Convergence, National Theatre Operations Survey, Op. Cit. 4. Affordable Rental Venue The SDICC will actively promote itself and attend to the demand for an affordable venue to exhibit films by other organizations, for example for fundraising and education purposes; for test screenings and local openings; and other live performance needs such as music, theatre, comedy, conference, public lectures. With a maximum seating capacity of 180, the SDICC can accommodate the budget of local and traveling solo and ensemble performers, as well as the interests of local presenters and producers. In addition, the SDICC can enhance the strength of the local film industry by allowing postproduction companies access to a large screen and state-of-the-art projection and sound for their studio, performance and production needs. 5. A Full Service Concession The SDICC will offer a full service concession stand to maintain a nostalgic big screen experience, but with a twist—providing healthier, local, and recyclable or compostable offerings, where possible. In addition to the food selections expected at a cinema, the SDICC will also look to serve light snacks such as sandwiches, salads, veggie trays and operate a licensed bar for pre- and post-screening enjoyment of the patrons. Importantly, the cinema will be licensed for beer and wine. Adhering to a zero-waste goal in its purchase and dissemination of concession offerings, the SDICC will create a very positive experience for the socially-conscious patron who will not have to “park their values” at the door just to watch a film Report on Business Models and Best Practices of Independent Theatres in Small Markets 1.The Context The goal of this report is to provide an overview of the business models and best practices that have been adopted by small independent theatres similar to the SDICC. The selection of theatres was dependent on the availability of information and as such includes the following five examples: Aron Theatre in Campbellford Ontario (population 3500), the Nelson Civic Theatre in Nelson, British Columbia (population 10,230), Acadia Cinema Cooperative in Wolfville Nova Scotia (population 4200 – growing to 7000 with the student population), the Merritt Community Cinema Society in Merritt British Columbia (population of 8,000 in a trading area of 15,000) and the City Cinema in Charlottetown, P.E.I. (population 34,562). Beth Mairs, the project manager of the SDICC met with representatives of the Aron and the Acadia Co-operatives to gain a deeper understanding of their business models, operations and programming activities. We have chosen to supplement this information with statistics developed by the Art House Convergence Group which represents art house and community-based exhibitors in North America. 2. Business Model 2.1 Key Characteristics of the Social Enterprise Model Based on a national survey undertaken by the Art House Convergence Group, 75% of theatres have not-for-profit status. These enterprises are defined as earning some, or most, of their revenues from the sale of goods and services and reinvesting the majority of their profits or surpluses into meeting social, environmental or cultural goals.”9 As can be seen in Figure 1 below, social enterprises seek a blended return on investment. Figure 1: Social Enterprises and Return on Investment Social enterprises (which include the co-operative model) are driven by social, environmental, and economic concerns. They respond to their market’s needs, have to be well-managed, environmentally responsible, and financially viable. As can be seen in Figure 2, the social enterprise business model falls between a not-for-profit model and a traditional model. It provides community stakeholders with an opportunity to collectively participate in buying a local business so that needed services and economic benefits are retained in the community for the long term. Social enterprises are a “proven model for meeting community needs unmet by the public and private sectors”, with strong rural roots in Canada.10 9 Cooperative Enterprise Council, Co-ops and Social Enterprises: A Community-Based Approach to Business Succession, New Brunswick 10 J Vink, From Need to Opportunity: Building Vibrant Rural Communities, Social Enterprise Rural Alliance. Figure 2: The Social Enterprise Model While financial viability is important for social enterprises, this aspect is balanced with other benefits to the community and does not represent the sole motivating factor for its operation. This model cannot be sustainable without donations, grants, and members. All of the five Canadian examples being examined in this study have adopted some form of social enterprise status. The Merritt Movie Theatre in British Columbia, for example is owned and operated by a not-for-profit society with membership in the entity open to residents of the Nicola Valley. The Nelson Civic Theatre, the Aron Theatre and the Acadia Cinema are cooperatives similar to SDICC. In the case of the Aron Theatre, community support was instrumental in purchasing the theatre. Within a year and half of its first membership meeting, the theatre raised $125,000 fundraisings and bond purchases. The funds were coupled with a vendor take-back mortgage to purchase the facilities. The Acadia Cinema co-operative which operates the Al Whittle Theatre had 731 shareholders as of 2013 who had purchased 4,543 shares, making an investment of $454,300 into the theatre.11 The use of community bonds was also utilized by the Aron Theatre in purchasing the building that houses the theatre. The City Cinema, which was established in Charlottetown in 1993 with support from subscribers, investors, and a small bank loan, became a not-for-profit organization in 2014 and used crowd funding to raise $10,000 to pay for a digital projector. As they noted, the campaign allowed them to make a “debt-free transition from private company to communityowned not-for-profit.”12 A study conducted on the cooperative model adopted by Aron Theatre found that it “has defied naysayers by successfully turning the business around and competing against Canada’s highly concentrated oligopoly cinema business…and on-line content providers like Netflix.”13 (In only three years, sales have tripled, membership has grown, and operations 11 The Research Shop, Aron Theatre Co-operative Inc. Case Study Report, November 2014. IBID. 13 IBID. 12 have expanded.”14 In 2013, the theatre was running at a modest surplus, in a community of only 3500 people. At the same time. sustainability is one of the most pressing long-term concerns for the organization and they have identified the following as long-term priorities: retaining membership and nurturing members’ connection to, and involvement in the theatre and diversifying revenue streams. 2.2 Multiple and Diversified Sources of Revenues The non-for-profit model relies on multiple revenue streams to be financially viable. These can include box office revenues, concession sales, sales from rental of facilities, grants, memberships, sponsorships, advertising, private donations and crowd-funding. A national survey conducted by Art House Convergence in 2015 on the operations of art houses in North American identified the importance of revenue generation by stream as follows: box office (50%); concessions and merchandize (15%); development and donations (12%); space rentals (6%) membership dues (6%); fundraising events (3%); advertising (3%) and other (4%). In terms of box office revenues, it is important to note that the mean ticket prices were $7.76 for seniors and $9.54 for non-seniors. The mean per capita for concessions sales was $2.86 with 49% of patrons buying concessions items. When alcohol is served, the mean per capita of concession sales is $5.59. These numbers compare with examples in Canada. The Nelson Civic Theatre refers to typical concession sales averaging $3-5 per patron. Even for a large chain such as Cineplex, concessions represent a significant source of revenue having generated 29.2% in 2013 of industry revenue.15 Cineplex reports its per patron concession sale to be $4.82 on average.16 When we examine the five selected Canadian examples, we note that earned revenue also includes sponsorships, and on-screen and website advertising. The membership aspect binds the community to the theatre in a way that creates a more invested audience willing to trust the programming and return to the cinema more readily. An industry report on the commercial exhibition sector notes that secondary revenue streams, such as concessions sales, are essential to succeeding in this industry. This opportunity is also available to be exploited by non-commercial independent cinemas. At the same time, not-for-profit cinemas are also able to access public sources of funding. 14 Indiegogo.com, City Cinema – Gone Digital and Going Not-for-profit, https://www.indiegogo.com/projects/city-cinema-gone-digital-and-going-not-for-profit#/story. 15 IBISWorld, Op. Cit. 16 Pat Marshall, Third Quarter Investors Report, Cineplex, 2014.