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A man is silhouetted in front of Cineplex signs at a theatre in Toronto.Nathan Denette/The Canadian Press

Times like this help to show why Cineplex Inc. is trying to make the transition from being just a movie theatre company, to a broader entertainment company.

While the company reported $364.1-million in revenue for the quarter ended June 30 – a 7.7-per-cent increase from a year earlier – that growth missed analyst estimates, partly because of disappointing box office returns.

Cineplex shares dropped more than 8 per cent Wednesday in response.

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While analysts noted that this was an unusual quarter, it underscores the need for a larger strategic shift at Cineplex.

CEO Ellis Jacob has emphasized that box-office trends are largely at the mercy of the slate of films that distributors such as Cineplex get from Hollywood. He expects the coming two quarters to be stronger, based on the strong opening for Dunkirk, as well as upcoming releases including Blade Runner 2049, Thor: Ragnarok, Justice League, The Dark Tower, Logan Lucky and the latest in the Star Wars franchise.

The company is fighting to draw audiences out to movies and away from the increasingly comprehensive viewing options they have at home and online.

To draw people to theatres, Cineplex has been investing in more "premium" add-ons to its theatres, such as building auditoriums (and retrofitting old ones) with cushy reclining seats; 3-D screens; "4DX" auditoriums with sensory effects; VIP theatres with in-seat service; and UltraAVX auditoriums with bigger screens and new sound systems. Such add-ons typically mean premium prices, too, resulting in relatively steady increases in box-office revenue per patron.

The company has also been investing heavily in other ventures, such as competitive gaming or "eSports"; and separate entertainment venues.

In June, Cineplex opened its new gaming complex, the Rec Room, in Toronto. In the first five weeks, the venue drew $2.5-million in revenue, according to the company, although pre-opening costs for that location were a drag on the company's earnings. Cineplex already had one Rec Room open in Edmonton, and is planning two more this year in Edmonton and Calgary. Last week, Cineplex announced an exclusive partnership to build Topgolf entertainment complexes in Canada. The three-storey venues include indoor driving ranges that let players track their swings, other games, and food and drink options. New venues also give Cineplex more space for its digital signage network to sell advertising, and to promise greater reach to advertisers.

"We were looking at the whole industry and all of the disruptions taking place, and it was important to us to continue looking at diversification," Mr. Jacob said in an interview. "… These are all seeds that we've been planting for the future."

All of these investments are designed to expand the percentage of Cineplex's revenue that is not dependent on movies: "other" revenue rose to 11.5 per cent of the total last year from 6.4 per cent of overall revenue in 2015.

By comparison, box office accounted for 48.2 per cent of revenue last year, down from 51.9 per cent in 2015 and part of a steady longer-term shift in the revenue mix. (Box office represented 57.9 per cent of revenue five years earlier, in 2011.)

In that time, Cineplex has continued to see audience growth for the most part. But 2016 was the first time in five years that full-year movie theatre attendance took a dip compared with the year before.

In the second quarter, the Toronto-based company reported net income of $1.4-million, down from $7.2-million a year earlier. Earnings were impacted by lower attendance, costs of venue installations, and other costs related to its investment in diversification, it reported.

Box office revenue rose to $170.7-million, from $166.7-million, even as attendance dropped 2.4 per cent. Food service revenue increased to $101.4-million compared with $96.8-million a year earlier. Media revenue fell to $36.6-million from $40.2-million, a drop that Mr. Jacob attributed to the National Hockey League playoffs. The audience draw of having five Canadian teams in the postseason drew advertising spending away from cinema to TV, he said.

Amusement revenue grew to $45.7-million, up 85.8 per cent compared to the second quarter last year. That growth included the acquisitions of gaming equipment distributors and operators: Tricorp Amusements Inc. and SAW LLC, which were acquired late last year, and Dandy Amusements International Inc. in the most recent quarter.

"We continue to focus on things that we feel we can grow, and continue to change from a cinema company to an entertainment destination," Mr. Jacob said.

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