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    Cineplex: Case Study Essay (1011 words)

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    Company BackgroundIn 1979 Garth Drabinsky and Nathan Taylor formed Cineplex.

    From early on Cineplex saw itself as a niche player. They used small screens to show specialty movies and they employed this strategy not to challenge major chains, but to compliment them. Cineplex did well primarily because of their concept for carefully planned use of shared facilities. With this success they began to expand across Canada with a very rapid rate of expansion. During this expansion however they amassed a 21 million-dollar debt.

    Also, distributors became reluctant to supply Cineplex for fear of alienating the two largest Canadian chains. In 1983 to avoid bankruptcy, Cineplex reduced its debt by selling off some of its recently purchased assets. Darbinsky also took legal action to win back access to major releases. Son after this time he also purchased the Odeon chain so that he would be able to bid for early runs of movies. This gave Cineplex a major position in the industry.

    Through Darthbinsky’s relentless tactics Cineplex Odeon was the second largest motion picture chain with 1,800 screens in over 500 locations. Now that Darthinsky owned one of North America’s major theater chains he sought to change the movie going experience by changing the layout and atmosphere of the theaters to attract even more moviegoers. Drabinsky endeavored to use the size of his chain to obtain added clout with film studious and distributors. Drabinsky had no plans to slow his companies’ rapid pace of expansion and he extended Cineplex Odeon’s production activities through other branches of the entertainment industry. His unrelenting drive for growth placed tremendous pressure on the company’s finances. As doubt grew about the financial health of Cineplex Odeon, Drabinsky reputation as a brilliant strategist was gradually subject to increased scrutiny.

    He realized his weaning support and ho sought to gain control by buying a large stake in the company. MCA, one of the controlling stockholders, blocked this successfully and forced Darbinsky from his leadership position with the company. When Darbinsky left he left a company carrying a massive $655 million dollar debt. Alan Karp assumed the leadership role and immediately began to cut costs and divest some of Cineplex Odeon’s assets. He also took steps to increased concession revenues. In a short amount of time Karp was successful in cutting the debt by ? and was able to switch back to more of a strategic focus.

    He began to show interest in further growth. As of 1995 Cineplex Odeon reported a loss of $30 million for the 1st 6 months of the year. These numbers started to raise concerns about Karp’s ability to turn things around. His attempt to merge with a major chain failed a few months earlier.

    Although the merger was called off Karp remained enthusiastic about the potential of the company. AnalysisFinancialI would rate their current financial condition as fair to poor. Return on Total Assets ? not significantCurrent Ratio ? . 22891 (very poor)Long-term debt to equity ratio ? 81. 85Many of their financial ratios are significantly insignificant with profits being negative.

    SWOTPotential Resource Strengths 1. 85% percent of the company’s U. S screens were in the top 15 U. S.

    markets, while 75% of its Canadian screens were in the top 10 Canadian Markets. 2. Cineplex recently spent $57. 5 million in refurbishment and construction of new theaters. This included introducing DTS sound systems in many of its locations. 3.

    Now embraced a strategy of cautious growth and more sound financial management. 4. With its relatively large size Cineplex could use some muscle to get first run movies and demand bigger revenue splitting. 5.

    Had very strong concession sales. Potential Resource Weaknesses1. Seemed to have no clear strategy or business plan ? at one point Karp stated ?that he had not even begun to consider what strategic benefits Seagram might bring to Cineplex?, something he should have been looking at. 2.

    Fair to poor financial condition with in the company. Weak balance sheet and excess debt. 3. History of overaggressive expansion ? weary shareholders and stakeholders may prevent or slow future mergers or acquisitions.

    Potential Company Opportunities1. Alliances or mergers to expand coverage. Karp believed Cineplex was capable of running a theater chain twice as big. 2. The international exhibition business. 3.

    Vertical integration into the production industry as regulations had been relaxed. 4. Expanding to new geographic areas. Potential External Threats1. Loss of sales to substitutes ? Video/DVD’s, pay per view, network television, Internet. 2.

    Loss of market share due to increase in competition and the increasing number of screens in markets. 3. Splitting of revenues between distributors and exhibitors. Distributors had more options and could demand higher revenues from the exhibitors. Alternatives1. The status quo.

    Continue to enact cost cutting measures and to increase revenues. Employ a no growth strategy and focus on current markets. Analysts believe however that with the current state of affairs Karp could not turn the company around. It was said the Cineplex was losing up to $4 million a month in operating revenues. 2.

    Alliances or mergers to expand coverage. Karp believed Cineplex was capable of running a theater chain twice as big. This could reduce overhead cost and go right to the bottom line. Probably one of the best alternatives for Karp and Cineplex to remain competitive and to increase the value of the company. 3. Enter joint ventures or alliances to expand coverage in international markets.

    Untapped markets could be very profitable however; additional funding would be difficult to impossible. 4. Vertical integration to reduce threat of increased distributor power. Again additional funding would be difficult, also may face regulatory scrutiny. Recommendations As I reviewed the case my recommendation would be to look for a merger.

    This could enhance there standing both financially and competitively. By seeking a merger they could stabilize themselves financially by further reducing their debts and overhead costs. They could also fight more aggressively for market share and look for international opportunities. The potential would also be there for more bargaining power with the distributors.

    ConclusionBy seeking a merger this would benefit all the stakeholders in the organization, the management, the stockholders, and the customers through the benefits that would come about. Karp should continue to pay down as much debt as possible and aggressively seek merger opportunities immediately. Music

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    Cineplex: Case Study Essay (1011 words). (2018, Dec 29). Retrieved from https://artscolumbia.org/cineplex-case-study-62517/

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