National CineMedia – Movie Theatre Advertising Recovery Expectations – 28 September 2021

1.

What are your expectations for attendance recovery, and how quickly will we get back to a sense of normalcy? A lot of the broader industries that are related to movie theatres, whether it’s receipts or advertising, are driven by the attendance recovery that’s playing out, given that so many theatres were closed. We’re tracking attendances to be right around 70-75% of 2019 US box office levels. Will that ever reach peak 2019 attendance again? Is there a permanent rationalisation to what a per year attendance level might be at movie theatres these days?

2.

Who is the average customer who desires to be at movie theatres, relative to historically when it was a great low-cost option for families and date nights?

3.

Who gets hurt more between movie theatre circuits and NCM because of the theatre exclusivity window shortening? It seems with Disney and Warner Bros it might be a 45-day window. I don’t think AMC and Universal have reverted away from that, maybe a 70-day hybrid type of window, but 45 days seems like a good norm.

4.

Shortening windows probably have a direct or indirect negative effect on attendance, the amount of ads and then thus media demand because there are lower impressions. It seems circuits have the ability to make up the revenue shortfall from that by going back to studios and negotiating lower film rents. Are there things that National CineMedia can also do to offset things similarly, or is that a tool that the circuits have that NCM doesn’t?

5.

Is there a point at which attendance falls below the kind of leeway that exists from not 100% utilisation that it becomes a bigger issue for NCM structurally?

6.

It seems one thing that would drive attendance to be that low is the complete cutting off of the exclusive window where it goes back to day and date releases. Do you expect that to occur? There was backlash even from AAA actors regarding their compensation. This has been evident in Scarlett Johansson’s public dispute with Disney over her Black Widow compensation and how actors’ compensations are tied to box office revenue. Do you expect studios to give up on the exclusive window altogether over the medium term, next 3-5 or even 5-10 years out? Is that something that NCM needs to consider more seriously?

7.

Could you discuss the movie theatre advertising competitive landscape? It seems the only pure-play comp NCM has is Screenvision. How much of a competitor is Screenvision, given that it’s more over-indexed towards mom-and-pop shop theatre circuits, compared to large chains NCM focuses on such as Cinemark, Cineworld and AMC?

8.

Is there more advertising market share to be taken within the cinematic space or is it not worth pursuing? There were approximately 1.2 billion movie tickets sold in USA in 2019. Is it worth trying to get everywhere and continue taking market share from Screenvision, or will that not be the focus as it aims where marketers are focusing on average?

9.

Do you expect theatre operators ever being incentivised to try and do what NCM and others do for them? Would they even be able to do that properly? It seems a completely foreign land for them to move into. Is that even the slightest bit of risk NCM would be considering?

10.

As Q2 2021 came to a close, NCM’s revenue still remained 87% below 2019, and yet management is discussing returning to a run rate of 50% of 2019 revenue in Q3 2021. NCM made those projections as late as August. Do you think that was too early to think recovery would be that positive or do you anticipate those revenue targets to be attainable? As you discussed earlier, the box office performances of movies such as F9 and Black Widow were very positive signs, but then the Delta variant kicked in.

11.

Do you expect revenue recovery is more likely to resonate with Q2 2021 being 87% below 2019 through the course of the year, or will there be continual slighter upticks where maybe NCM exits closer to 75%?

12.

Is there a correlation between theatre attendance and advertising recovery lines? Is there a lag where marketers are waiting for the sustainability of the attendance levels before advertising revenue really picks back up and dollars start getting allocated again? Or is it a catch-up period where, once those attendance levels have sustained for a certain period of time, the attendance trend line will catch up for advertising and fall in line with theatre attendance?

13.

What do you think advertisers need from box offices to begin committing upfront for the 2022 market to be back and into more of a normalised period?

14.

How do you expect CPM to trend? It seems there’s a trough period over the past 12-18 months given theatres were closed, but management is having early discussions on normalised upfront CPMs, yet scatter is rather competitive. Do you think we’re in a discount CPM period for a bit? What do you think of the magnitude of leverage advertisers have around that CPM given the environment?

15.

As you mentioned, streaming and broadcasting are engaging in upfronts already, so perhaps those are early indicators for what’s to come for National CineMedia since it’s lagging a bit. It seems there are unprecedented upfronts given commentary from players such as NBCU. Do you think that is an early indication that National CineMedia is also up for an unprecedentedly strong upfront, and if not, is there anything that drives a disparity there?

16.

Do utilisations rates for NCM within its screens and theatres resonate close to where its revenues are? You mentioned attendance and revenue don’t go hand-in-hand. If the company is down 87% down from 2019 revenue, does that mean whatever the industry healthy utilisation rates, it’s also close to 90% down on those utilisation rates for sell-through, at least at the moment? I’ve heard maybe 80-90% national, 30% regional.

17.

Would you expect, given the utilisation rates are low, a higher mix of ads being sold to advertisers right now is lights down or platinum slots?

18.

When NCM first rolled out platinum towards the end of 2019, management said the company was selling those at more than 50% higher CPMs. Do you think high demand was a big function of the new product? Has that normalised in order of magnitude vs pre-show inventory now that we’re two years down the road from when it was launched?

19.

Would you expect the reductions in CPM for a platinum slot to be less in magnitude than the pre-show ads? I would presume platinum saw the least impact of selling out, given inventory is so short.

20.

Could you give a nuanced overview of advertiser types by national and regional markets? Are peak-to trough slope lines different where national or regional pull back much more quickly, and what might that mean for which dollars come back more quickly? Do you expect one vs the other to drive a lot of the recovery, given we’re still meaningfully below 2019 revenue?

21.

How big of a headwind is the global chip shortage for automotives to cause regional to come back much more slowly? Typically, current-day automotives would at this point be having conversations with players such as NCM to put marketing dollars back on, but given they’re dealing with chip shortages, that’s not the case. So NCM or national advertisers are then driving the crux of regional recovery.

22.

Could you break up advertising trends by vertical type? There are positive budget trends from the likes of streaming players, insurance companies and CPG companies. Now we’re also heading into the time of the year where political advertising is usually a good source of demand. Are the likes of those first few sustainable positive budget trends taking advantage of the market dynamic? Do you think political advertising will have a softer year relative to historical trends?

23.

How much leverage would theatre circuits actually have should their relationships with studios degrade? Is that an autonomous thing where NCM can’t be dictated towards advertisements it places? Or is that something exihibitors could become more anti-competitive about and make streaming a harder vertical for growth for NCM over time?

24.

Would you expect Disney+ to pay a higher CPM if it was promoting a streaming-only film release? Instead of just putting an ad on the circuit during the pre-show window which is more just promoting the brand.

25.

NCM is discussing spending 40% lower in operating costs than pre-pandemic spending, and a large portion of that has to do with furloughs and salary reductions. Obviously, we’re still in a trough period for revenue. Do you think those savings will be permanent or temporary? Is that where headcount trickles back towards pre pandemic numbers as it gets back to peak historical performance and those 40% savings are transitory in nature?

26.

Do you think the AA management system with the Unique X partnership is enough to reduce the need for physical labour without having disruptions to streamline the business?

27.

Is NCM’s AA management system through the Unique X partnership a good system? I get the idea of automation creating efficiencies, but is it making things more difficult than before when you had people doing back-office functions?

28.

How much of that 40% operating cost savings is the reduction in physical labour vs needing a smaller sales team given that utilisation is so low? What might more permanent savings be vs 2019?

29.

How worried would you be even today around voluntary churn, given your point how NCM’s sales team holds the relationships that are key drivers to the sole driver of revenue? Is that a risk NCM faces where, when the recovery hits full force, the sales team is differently profiled? Will that have an impact on the recovery pace as well?

30.

You mentioned earlier NCM is aiming to do things more digitally. Do you consider out-of-theatre advertising opportunities as noise or an actual material revenue diversifier for NCM? If it’s the latter, what are some of the more exciting opportunities you think have potential?

31.

How do you anticipate NCM monetising out-of-theatre traffic? Will it sell data analytics where it gleaned insights via geofencing and not actual ad placement? If it is the latter, is that something that’s reliant on the circuit apps? How do you find the ability to place ads to consumers that came into theatres and then you can track for a period of time afterwards?

32.

How do you think NCM’s moves during the pandemic, as well as the broader advertising landscape, are likely to shake out over the medium term? Any drivers or trends to be thinking about over the next 2-3 years?

33.

The peak of the TV market was USD 60bn-65bn of advertising spend placed, and as you said, GRPs [gross rating points] continue to degrade and viewership is shifting into streaming. Of that, anywhere near half of viewership might be in this ad-free zone with Disney+ or Netflix. Ad loads are also smaller and the CPMs might even be smaller than a typical TV buy. Does that mean a company such as NCM is gaining a good share of those advertising dollars that are chasing new areas?

34.

Will the trend of advertising growing 3-4 years from now be enough to push industry standard utilisation rates for NCM even higher than what they once had? How impactful might upticks in spend the company is gaining from linear TV end up being compared to the more secular challenges its facing for the core business?