Tech behemoths Netflix, Amazon and Apple may have given TV networks something of a headache over the past few years, but the cinema industry lives on relatively unaffected – a quick Google search confirms that movie theatres remain in good health despite the age of the internet.
People go to cinemas for the experience, says Eddy Duquenne, CEO of the Belgium headquartered Kinepolis Group cinema chain, which has grown to about 100 movie theatres worldwide since it was founded in 1997 following the merger of two cinema groups, Bert and Claeys.
The business went public in 1998 and Eddy took over in 2008 as Kinepolis struggled with financial difficulties. The two families that owned it, the Berts and the Claeys, were represented on the board before Eddy came along and there were two co-CEOs – one from each family – who didn’t share the same vision for the future of the company, recalls Eddy.
In 2006, the Claeys family withdrew from the venture, selling most of its 25% stake of shares in the company.
When Eddy took the helm on 1 January 2008, he immediately started trying to get the listed firm into shape. “The company had missed an internal consolidation and streamlining, which every company needs to go through after an important period of growth,” he says.
Facts and figures were the things that Eddy chose to obsess over and he installed a uniform organisational structure in every movie theatre, as well as individual country structures.
“We believe that proximity of management is important, in our business even more than other businesses, because the understanding of the local culture is crucial,” says Eddy.
He and his team also introduced management reporting that was heavily based on simple KPIs around revenues, costs, customer satisfaction, employee satisfaction and a bonus scheme – this incentivised theatre operators to have an impact that could benefit the overall company, Eddy says.
He also started inviting all his cinema managers in for annual operating reviews where he would ask them to come up with clever ways to save money and maximise profits.
“We would say, ‘Imagine that we sell 5% less tickets. What can be done to come out with the same EBITDA earnings before interest, taxes, depreciation and amortisation) and net profit?’ There’s always one who does better, and we ask them to talk to one another to get inspired.”
While global cinema sales remain strong, in the countries where Kinepolis is active there are fewer people going to cinemas than there used to be, so it’s easy to see why Eddy is rethinking how to maximise profits and reduce costs.
“Compared with 11 years ago, we sell about 20% less tickets but we make 25% more revenue,” says Eddy. “The EBITDA is about three times more now.”
At the beginning of his CEO tenure, Eddy says he went for the “low-hanging fruit” within the company instead of chasing external growth. This started with a fairly aggressive “capital optimisation” program.
At the time, Kinepolis had revenues of roughly US$250 million (€222 million). But from 2011 to 2013, after cleaning up the company internally, Eddy began looking for external growth, which largely involved seeking new acquisitions.
Following a tough period in Spain between 2008 and 2013 where Kinepolis saw its revenues fall by about 40%, Eddy decided to pay more attention to where it made the most sense geographically to open more cinemas.
“We said: ‘If we want to grow the company, it would be better to be interested in macro-economics and more stable markets.’ Everywhere in the world, when you go north, it becomes more stable from a macro-economic perspective and when you go south, it becomes less stable.”
Eddy’s acquisition strategy was relatively straightforward; it involved finding businesses where Kinepolis could detect what he calls “improvement potential”.
That is to say, if Kinepolis were to integrate them and apply the same streamlining practices that made Kinepolis successful, they too would become successful. It seems to be working.
“We’ve almost doubled the EBITDA of all the acquisitions we’ve made, just by copying and pasting the approaches we developed in the efficiency-driven and sales-enhancing exercises at Kinepolis,” says Eddy. “So, the know-how that came out of that approach is very important.”
While Eddy has grown the company from 23 theatres to about 100 today, he says he wants to expand the Kinepolis empire further but he’s being cautious about it.
“We will stick to a conservative risk profile so we don’t gamble the company and we will only be interested in mid-sized acquisitions that we can manage.”
“For an acquisition, you not only need financial capital, you need human capital as well and many companies forget about the human capital when they acquire something.”
“You not only need financial capital, you need human capital as well.”
Kinepolis has focused on setting up movie theatres around Europe, specifically in Belgium, the Netherlands, France, Spain, Luxembourg, Switzerland and Poland.
But on 8 December 2017, it made its first serious foray into the North American market, with the CA$123 million (€82 million) purchase of Landmark Cinemas in Canada.
With 45 locations, 319 screens and 46,000 seats, Landmark is no small cinema group. In fact, it’s the second biggest cinema company in Canada.
It employs some 1,370 people and is being managed through a local executive management board made up of the existing Landmark Cinemas management, supported by an integration team who are adapting the Kinepolis’s strategy for the Canadian market.
“We have a top management team there,” says Eddy. “After all, whatever you do, it’s the quality of your management team that it’s all about.”
Eddy is still excited about the acquisition, he says. It’s the first time Kinepolis has demonstrated that it can implement its business model outside Europe, where there are completely different cultures.
This acquisition essentially doubled the number of cinemas that Kinepolis had on its books and had a major impact on the company’s headcount: it now employs about 3,800 people in total.
Things seem to be going well at Kinepolis these days but that’s not to say the path ahead is without challenges. Eddy points out that running a movie theatre company isn’t easy and there are multiple factors outside your control.
Footfall can also depend on something as simple as the weather: if it’s sunny outside then people likely won’t want to sit in a dark room for two or three hours. On the other hand, if it’s raining, they’re probably going to be more open to the idea.
“From the content side, in my opinion, Hollywood sticks to long sequels. The model of Hollywood was based on a world market with big countries growing very fast,” says Eddy.
“Today, suddenly, there is fatigue around those American sequels.” Generally speaking, the first movie in a sequel tends to be the best and they get gradually worse.
Eddy thinks Hollywood movie makers need to give themselves a makeover to keep ticket sales in cinemas high.
“The challenge will be for Hollywood to reinvent itself and to come again with, symbolically speaking, Forrest Gump-like movies,” he says. “And those guys can make that happen. They are very talented.”
Fortunately, there are other big companies lining up to get their movies into cinemas: it’s the tech firms mentioned earlier. “Amazon and Netflix will one day be important suppliers,” says Eddy.
While the US has a well-established history of creating the biggest blockbusters, there are other countries keen to get in on the action when it comes to cinema production.
There’s also scope for bringing different types of content to cinemas that would usually be watched at home or in a bar. Sports events, for example, are one thing that Eddy is interested in showing at Kinepolis cinemas.
“Sports fixtures are absolutely something that can be seen on the big screen,” he says, adding that sitting with a crowd in a cinema is a much more social experience than sitting at home with a beer on the sofa.
Data is the difference
As The Economist famously wrote in 2017: “Data is the new oil.” Thankfully, Eddy has been putting data at the core of Kinepolis’s business strategy ever since he arrived, both from a sharing and a collecting perspective.
“It’s about knowing your customer better, as well as customer groups and clusters,” he says. “You can then try to offer the right content and the right experience.”
Eddy believes the car industry has done a good job of identifying customer groups and tailoring their products accordingly.
In order to get a better idea of who lives near its cinemas, Kinepolis data analysts carefully study population demographics so the company can tailor its programming schedule accordingly.
“We do movie programming based on insights on which customer clusters live in the catchment area around each theatre,” says Eddy. “That’s different zone by zone; theatres 60 kilometres apart may serve completely different audiences.”
“There are lots of students in city centres, for example, and there are lots of people around Brussels of Turkish or Moroccan origin. So, we follow the local blockbusters in their countries and show those on our screens. That way, we make more revenue because, after all, we are a profit-driven company.”
Entrepreneurship and innovation
Eddy believes that coming up with new products and services isn’t the responsibility of the CEO alone. Nor is it the responsibility of just the executive team.
Everyone in a company is capable of contributing new ideas that can be deployed and implemented. As a result, Kinepolis has set up an entrepreneur program as part of an effort to let staff experiment with new ideas in a safe environment.
“If you fail, we pay you an entrepreneur’s bonus, because being entrepreneurial is daring to push your limits and going to new frontiers,” he says. “And, of course, we will try to test it. We are not going to gamble the company, so we try to test concepts and find out what happens.”
“That self-learning and self-innovating, that’s what I call the mother of value creation. It improves the performance of the existing portfolio of theatres and it’s a source of improvement potential and know-how when you acquire new groups or build new theatres.”
“Self-innovating, that’s what I call the mother of value creation.”
Innovation has been at the heart of Kinepolis since the beginning. The roots of the company goes back to the late 1960s, when its founder was one of the first to introduce multiplex cinemas.
Later, in 1998, Kinepolis Madrid was the largest cinema complex in the world, with 25 screens and a seating capacity of 9,200 seats. Eddy believes Kinepolis is still at the forefront when it comes to rolling out new technologies and approaches.
For example, it pioneered the European rollout of laser projection with Barco (now Cinionic) and has a number of 4DX theatres thanks to its partnership with CJ 4DPLEX, which has its headquarters in Seoul, South Korea.
The 4D cinemas provide moviegoers with an immersive experience that engages the senses, allowing the audience to connect with movies through motion, vibration, water, wind, snow, lighting, scents and other special effects.
A lot of attention has also been devoted to building theatres with wall-to-wall screens that give everyone in the audience an optimal view that doesn’t include the head of the person sitting in front of them.
Unlike some other cinema groups, Kinepolis builds its own theatres. It pays attention to the concrete used in the buildings and closely monitors how much sound can travel from one screening room to another.
After all, nobody wants to hear Mad Max blaring in the room next door when they’re trying to concentrate on a complex thriller.
Cinemas are heavily dependent on a plethora of suppliers, from those that distribute films to those that supply food and drinks. It goes without saying that cinemas wouldn’t be the same without popcorn, ice cream, sweets and enormous cups of soft drinks.
But movie producers are arguably the main supplier in any cinema. Generally speaking, around 50% of each Kinepolis ticket sale goes to the movie studio.
Eddy says he is always keen to meet and liaise with as many movie studios as possible. “I’m just coming back now from an afternoon where we met the local movie producers and distributors,” he says.
“We are considered the guys in the big concrete buildings, and a listed company and very commercial, but at the end of the day, I said, ‘Guys, we need you and we are absolutely open to sharing what we know on customer insights and trends,’ because that’s always a challenge in our industry.”
These insights can be fascinating to suppliers who are keen to get their products in front of the right people. They want to understand who is going to watch movies at Kinepolis cinemas and how much they’re spending on tickets and food.
“A customer who is 18 years old, right now, is a completely different person to someone who was 18 years old 10 years ago,” says Eddy.
For one, people’s attitudes to movies have changed as a result of the internet. “YouTube allows you to have free access to almost whatever you want in content,” says Eddy.
“So, that means youngsters consider content of no value. Twenty years ago, customers were happy to pay for content, but not today. However, they are happy to pay for experience and that is something we can offer.”
It’s fair to say that Eddy has turned Kinepolis around. And he’s drawn on all of his previous experience in the process. But what did Eddy
do before Kinepolis?
If you’re not familiar with Center Parcs then picture a collection of wooden lodge-style buildings in the middle of a forest, throw in a huge leisure complex with a great swimming pool and a bunch of tennis courts, among other things, and you’re halfway there.
Sunparks was on the brink of filing for bankruptcy but Eddy led a highly successful turnaround there which resulted in it being sold for 40 times what it was worth when he came in.
While serving as Co-CEO and Managing Director at Sunparks from 1998 to 2007 he started to empower department heads who served customers directly.
And that philosophy seems to have stayed with him to this day. “I’m a strong believer that a top-down approach can help for a certain amount of time but for that to really be strong, you need to get ideas from the floor,” he says.
“When you get ideas from the floor, you get a level of detail a CEO would never get in a boardroom. Even more importantly, it’s your employee’s idea and they will feel empowered.”
Today the company has a market cap of €1.43 billion. When Eddy came in it was less than €100 million so the business has grown more than 1,000%.
If you had some stock in Kinepolis from pre-2008 that you’ve held onto, chances are you’re looking at a nice return. If you’re looking for someone to thank, take a look at Eddy.
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