Category: Business

Nintendo’s billion-dollar future may lie in cardboard

Nintendo Co. got its start in 1889 as a successful manufacturer of “hanafuda” — Japanese playing cards made out of stiff paper. Now the game-maker is embracing the same materials for its next trick.

The Kyoto-based company started selling on Friday an unusual collection of attachments for its hybrid Switch tablet-console: cardboard add-ons called Nintendo Labo. Priced at $89 and $99, the build-it-yourself cardboard kits, with accompanying software, will let users transform the Switch into a miniature piano, motorcycle handlebars, robot exoskeleton and other objects.

The goal: broadening the Switch’s appeal beyond the core gamers who fuelled an estimated 17 million in first-year unit sales. Players younger than 16 accounted for just 10 per cent of Switch users last year, according to Nintendo. Tatsumi Kimishima, Nintendo’s president, likes to hint that the Switch is on track to meet or surpass the top-selling Wii, a device that also embraced physical gameplay. Labo underscores Nintendo’s desire for the Switch to evolve into a more versatile entertainment device, and will most likely be just the first of many such initiatives.

“Switch was loved by Nintendo’s core users because the company brought out all of its strongest characters in the first year,” said Kazunori Ito, an analyst at Morningstar Investment Services in Tokyo. “But the second year will be getting more people to try it out. That’s the second act for Switch.”

So far, there’s a lot of optimism surrounding Nintendo Labo’s debut. The shares of cardboard-maker Ohmura Shigyo Co. jumped more than fourfold in January after several blogs speculated it was the manufacturer behind Labo.

Bloomberg reported last week that Osaka-based Rengo Co. is a key supplier for the cardboard gadget, fuelling a brief rally in the company’s shares. Still, that optimism hasn’t been reflected in Nintendo’s shares, which have underperformed the Nikkei 225 Index by 10 per cent in the past month.

“Nintendo shares aren’t currently pricing in that Labo will be a huge hit,” said Makoto Kikuchi, chief executive officer of Myojo Asset Management Co. in Tokyo. “If we start to see indications that it’s selling well, we could see the stock move up a level.”

Also at stake: the $30-billion (U.S.) rise in Nintendo since the Switch debuted a year ago. First-year Labo sales are projected to be 3.4 million to 10 million units, according to four estimates compiled by Bloomberg, with adoption rates per console seen at 8 per cent to 30 per cent. David Gibson, a Tokyo-based analyst for Macquarie Securities, estimates gross profit from Labo at about $37 million (U.S.) for the period.

To achieve its goals, Nintendo is going to have to win over parents like Junko Suzuki, who say that Labo doesn’t seem to offer enough, given the price for what is essentially a collection of highly customized cardboard boxes.

“There’s just a feeling that something’s lacking for the gamers,” said Suzuki, mother of two boys aged 10 and 14. She says her kids regularly play the Switch they own, but haven’t shown any interest in Labo. “Visually there’s just not enough to draw them in.”

Adoption of the Switch among those under 16 has been slow, partly because of its price. At around $400, the hybrid device costs almost double Nintendo’s 3DS console. Some analysts have also pointed out the Switch is too big to be comfortably used by children, an issue that Labo may help address. And the software lineup to date has focused more on games such as Super Mario Odyssey, The Legend of Zelda: Breath of the Wild and Splatoon 2 — titles that are more popular with diehard gamers.

Atul Goyal, an analyst at Jefferies, says that Labo should be considered the start of a new sales phase for Nintendo. “This is the beginning of targeting the youth market,” he said. “It’s a turn from the core gamers to the kids. I think it will be a lot like Lego bricks. Kids will enjoy building it.”

Anticipating users who might damage their cardboard, Nintendo said on Friday that it will sell replacement parts.

Should Labo prove popular or durable enough, it could open the way for more cardboard products. Nintendo is already developing additional Labo accessories, according to a company spokesperson. A product video in January showed iterations that weren’t mentioned on the official website or press releases, including a steering wheel, a gas pedal, a camera and a gun-like controller.

“It’s something the kids will love,” said Myojo’s Kikuchi. “My impression is positive.”

The cardboard approach may also make sense for experimenting with virtual or augmented reality accessories. In 2016, Nintendo filed a patent application for a VR headset that featured a design similar to Google’s own cardboard-based headset, where a Switch-like display screen is slid into a paper visor. Nintendo’s close partner The Pokemon Company sees AR playing a big role in future games, its CEO told Bloomberg in August.

Apart from Labo, it’s clear that Nintendo sees the Switch as the foundation for a variety of gaming experiences.

Last week, the company also introduced a program to nurture outside developers who can find new ways to play or use the Switch. In a recent patent application, Nintendo outlined a system that would link the screens of several consoles together to form a single, large playing area, a plan first reported by several gaming websites.

“Nintendo Labo is a product intended to broaden the possibilities of Nintendo Switch,” Kimishima said at a briefing in February. “We hope to develop Nintendo Labo into a product that is not bound by the conventional boundaries of video games, and that endears itself to an even broader range of consumers.”

If he gets it right, the Switch could become Nintendo’s most successful device. In terms of longevity though, it will be hard to beat hanafuda playing cards, which the company still makes to this day.

Swiss Chalet Now Owns The Keg

The owner of Swiss Chalet, Harvey’s and Kelseys is buying The Keg — as in the entire restaurant chain — for an estimated $200 million in cash and stocks.

Surprised? You shouldn’t be.

Cara Operations Ltd. has been on an aggressive tear of acquisitions in recent years, scooping up The Bier Markt chain, Casey’s and East Side Mario’s in 2013, followed by New York Fries a few years later, and then Montreal’s St. Hubert chicken chain in 2016.

The company announced on Tuesday that it had signed an agreement to acquire the popular, B.C.-headquartered steakhouse chain Keg Restaurants Ltd., 51 per cent of which was already owned by Toronto’s Fairfax Financial holding company.

This purchase will bring the conglomerate’s portfolio of major Canadian restaurant brands up to 13 (in addition to its airport services division at Pearson and Vancouver International Airports.)

Keg CEO David Aisenstat will reportedly join Cara’s executive team and assume oversight of its “higher end brands,” such as the Landing Group, Bier Markt and Milestones restaurants.

Cara, which is headquartered in Vaughan, said that it intends to change its corporate name once the deal closes.

Demolished Arena Debt Nearly Clear

Pittsburgh institutions and taxpayers have almost made good on the tens of millions they have owed on the now five-years demolished Civic Arena.

The arena, the longtime home of the NHL’s Pittsburgh Penguins, had bonds issued for various renovations in 1991 ($6.24 million), 1994 ($13.6 million), and 1997 ($10.5 million), according to the Pittsburgh Post-Gazette. Those three bonds were then refinanced in 1999 and 2005, with expenses falling in various arrangements to the Allegheny Regional Asset District, the City of Pittsburgh, and Allegheny County taxpayers.

RAD, which funds regional assets from one-half of the proceeds of the county’s Sales and Use Tax, has taken the lion’s share of the burden, having put in $43 million since 1997, according the Post-Gazette. Its next payment will be worth $685,000 in July 2018. The city and county will pony up $244,000 this year and owes $254,000 on Dec. 15, 2018.

Rich Hudic told the Post-Gazette once the debt is finally clear, the organization might be able to look into “opportunities for enhancement to new projects or current projects.”

The Penguins moved into what is now PPG Paints Arena in the 2010-11 season and won back-to-back championships in the NHL’s last two seasons. Civic Arena, which was also called The Igloo and The House That Lemieux Built, was originally constructed in 1961 and was completely demolished by March 2012.

While Pittsburgh is ready to finish paying for a building that no longer exists, other cities like St. Louis and Oakland are still stuck funding stadiums for the NFL’s Rams and Raiders, who are leaving town before the bill is paid.

The Rams already jumped ship to Los Angeles in 2016 with St. Louis still having $85 million to pay for The Dome at America’s Center, constructed in 1995.

The Raiders are set to move to Las Vegas in 2020 and Oakland owes approximately $90 million for improvements to the Oakland-Alameda County Coliseum, which began in 1995.

Netflix Prices Are Going Up in Canada

Every month, Netflix drops an overwhelming load of new original content alongside its various licensed properties. Of course, the company is not just making it for free. As such, Netflix has announced that it’s jacking up prices in Canada.

As the CBC reports, new Netflix users will pay the higher price immediately, with a charge of $10.99 for a standard plan and $13.99 for a premium plan.

The difference, if you’ve never checked, is that the standard plan allows for single-screen viewing at standard definition, while premium users can view up to four screens simultaneously in crystal clear high-definition 4K. It’s the best way to catch up on Ozark, Terrace House, Girlboss and Friends from College all at once.

If you’ve already got a Netflix account, the price hike is still coming. Keep an eye out for an email notification warning you about the extra dollars you’re about to spend in the coming weeks.

“From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience, to help members find something great to watch even faster,” the company said in a statement.

This is the first Canadian Netflix price hike in two years, and it couldn’t come at a better time. Recent reports suggest that the company is $20 billion USD in debt.

Sunrise Records to move into 70 closing HMV locations across Canada

Sunrise Records is placing a major bet on Canadian music sales with plans to move into 70 retail spaces being vacated by HMV Canada.

The Ontario-based music retail chain has negotiated new leases with mall landlords across the country.

Sunrise’s expansion gives the company a quick foothold in the Canadian music scene just as the industry’s largest retailer closes shop. Stores will begin to open this spring after HMV liquidates and removes its signs.

“It’s a good opportunity for us to get a lot more stores open,” Sunrise Records president Doug Putman told The Canadian Press in an interview.

“We think there needs to be a great outlet across Canada to buy music.”

The 32-year-old executive’s investment comes at a time when many are dismissing physical music sales as more listeners shift to streaming options.

Compact disc sales fell 19 per cent to 12.3 million units last year, according to data compiled by Nielsen Music Canada. Meanwhile, on-demand audio streams experienced dramatic growth, rising 203 per cent to 22 billion streams, helped by services like Apple Music and Spotify.

Putman isn’t convinced the data signals the end of physical media.

“A lot of the younger consumers still love having something tangible,” he argued.

Putman has long believed in buying merchandise you can hold in your hands. He grew up working at the family business, Everest Toys, a manufacturer and distributor based in Ancaster, Ont.

He bought the Sunrise chain from Malcolm Perlman in October 2014 just as streaming was going mainstream. Perlman had spent the previous few years shutting down most of the Sunrise stores in the Toronto area, often blaming higher rent.

When Putman gained control of the company, there were five Sunrise Records stores left. He’s since doubled the number by opening in Ontario cities like Ottawa and North Bay. He said all of those stores are profitable.

His approach is a departure from the financials at HMV Canada.

In court documents filed last month, HMV painted the image of a hemorrhaging business where sales were projected to slide to $190 million in 2016, after gradually weakening over the previous couple of years.

Overall, HMV said it was losing $100,000 a day.

“It’s an absolutely huge number,” Putman said.

“But we’ve been able to find a way, working with landlords and our suppliers very closely, to mitigate that.”

Putman said his company won’t lose $100,000 a day when the mall locations open, and he has set a goal of making all stores profitable in 2018.

Former HMV locations factored into the deal represent roughly $100 million in sales, Putman said.

Locations included among the new lease agreements are the two-level store in West Edmonton Mall, as well as other malls in Burnaby, B.C., Winnipeg, Hamilton, Mississauga, Ont., and Saint Bruno, Que.

The company will outline a more extensive list of stores as the full leases are signed, Putman added.

Sunrise Records will invite 1,340 former HMV employees to apply for 700 positions as it prepares to move into the new locations.

The company was unable to reach new terms for about 30 of the closing HMV stores, Putman said, including the company’s flagship location at Yonge and Dundas streets in Toronto. Some landlords weren’t interested in a “pop culture” chain, he said.

Staying ahead of trends will be one of the biggest challenges Sunrise faces as it defines itself as a hybrid music retailer and cultural merchandiser.

Aside from CDs and DVDs, Sunrise will hedge its bets with board games, themed toys and a wide selection of music, film and TV apparel.

HMV tried that strategy too, but Putman believes he can do it better with a broader selection. He’s also putting a major focus on growing interest in vinyl records, which will be placed at the front of stores.

Vinyl sales grew 29 per cent last year to over 650,000 units, and Nielsen figures show growth this year remains steady.

Sunrise will also tap into other popular slices of nostalgia, like audio cassettes. Sales of tapes jumped 79 per cent to about 7,000 copies last year.

Putman said the company won’t invest much in tapes, which he considers as a “niche market,” but said Sunrise already stocks a number of cassettes and tape players.

Yet not every factor will be within the new owner’s control.

Record labels are making seismic shifts in their priorities with a stronger focus on how digital sales drive music charts.

Some of last year’s biggest hits, including Beyonce’s “Lemonade” and Drake’s “Views,” were released under a digital-first strategy. Streaming and download services had the album weeks before record stores.

Other albums, like Grammy winner Chance the Rapper’s “Coloring Book” and Kanye West’s “Life of Pablo,” went without a physical release at all.

Putman hopes those examples remain anomalies, though he said those hurdles are just part of navigating an evolving industry.

“Is the business the same today as it was five years ago? Of course not,” he said.

“And it’s going to be very different in three years. It’s up to us to adapt and change.”

Cineplex revenue down due to poor attendance

Canada’s largest movie theatre chain is open to the idea of producing original content like Netflix and Amazon do, the head of Cineplex said Wednesday.

CEO Ellis Jacob said the Toronto-based company isn’t signing up to produce Hollywood blockbusters but he would consider smaller productions.

“It’s a matter of being opportunistic in certain circumstances,” Jacob said Wednesday following the company’s latest earnings release.

“For example, if there is a particular movie that a distributor has that we feel comfortable with, we may join venture with them. But as far as getting into large productions of movies, that’s not a business that we’re going to head down.”

Producing content can be financially risky. Companies generally need a large amount of capital up front in the hopes that a film would take off with audiences in order to generate a healthy return.

“To say, OK, by making our own movies, (we’re) diversifying in that degree, the risk of how they do is still there,” Jacob said.

“I’m not saying it’s a bad business. I’m saying it’s not a business that we’re focused on to look at from a big numbers perspective.”

Cineplex said the idea came up earlier this month during a panel in Ottawa featuring Michael Kennedy, its executive vice-president.

Adam Shine, a media and telecom analyst at National Bank Financial, said he doesn’t see moviemaking becoming a core focus for Cineplex, especially as it has already dipped into other businesses such as gaming.

Earlier in the day, Cineplex reported a 12 per cent decline in attendance in its fourth quarter compared to the same period last year. It attributed that to a stronger movie lineup in the fourth quarter of 2015 that included some of the highest-grossing films of all time, such as Star Wars: The Force Awakens and The Hunger Games: Mockingjay Part 2.

The drop in attendance to 17.9 million visits from 20.4 million was partly offset by higher per-patron spending on tickets and concessions.

Cineplex’s net income was down 69.6 per cent, falling to $23.3 million or 37 cents per diluted share in the quarter ended Dec. 31 from $76.8 million or $1.20 per diluted share a year before.

Its 2015 fourth quarter profit included an unusual gain related to the acquisition of CSI and a favourable change in the value of a financial instrument linked to a 2013 acquisition.

HMV in receivership, stores to close by April 30

Friday marked the beginning of the end for heavily-indebted music retailer HMV.

An Ontario Superior Court of Justice approved an application filed by HUK 10 Ltd., a subsidiary of the British restructuring firm Hilco UK that bought HMV in 2011, to place HMV Canada Inc. into receivership.

HMV stores are to cease operations by Apr. 30, according to sale guidelines issued by the court.

Senior Justice Geoffrey Morawetz appointed Gordon Brothers Canada ULC and Merchant Retail Solutions ULC as the agents to sell HMV’s remaining merchandise.

According to the application, HMV owes close to $39 million to HUK 10 as of Jan. 24 and has not made any payments toward its debt since November 2014.

A sworn affidavit submitted by HUK 10 director Christopher Emmott said HMV was profitable from 2011 to 2013, but has had negative earnings since. In 2012, HMV’s revenue was about $266 million, but, by 2016, this had fallen to $193 million, a trend that’s “expected to continue as more customers move to online consumptions of media.”

To continue operations, HMV would requite an “immediate cash injection” of $2 million and then $5 million of additional cash injections every year after that, the affidavit added.

“These financial difficulties, combined with the further decrease in (HMV’s) sales expected over the coming years, means the current situation is not sustainable,” the affidavit said.

“HUK 10 is not prepared to provide further financial support to (HMV) under the current circumstances.”

The application noted that HMV’s inventory is “significantly depleted with no viable alternative support arrange to replenish its stock.”

HUK 10 gave HMV from mid-December 2016 until Jan. 20 to try and get its major suppliers to support its business for at least 2017, but HMV failed to “reach terms that were mutually acceptable.”

Remaining HMV stores will maintain regular opening hours until their final vacate dates, court sale guidelines said, and may advertise with “store-closing,” “everything-on-sale” and “everything-must-go” signs.

HMV currently operates 102 stores in Canada and employs about 1,340 people, most of them at its retail locations.

HMV Canada did not return requests for comment Friday, and staff at its flagship store at 333 Yonge St., which opened in 1991, declined to speak to the media.

Jerry Seinfeld Ditches Crackle for Netflix, New ‘Comedians in Cars Getting Coffee’ Coming Late 2017

Jerry Seinfeld is taking “Comedians in Cars Getting Coffee” on the road to Netflix.

The talk series, which had previously debuted new episodes on Sony’s ad-supported streaming service Crackle, will bring 24 new episodes exclusively to Netflix starting in late 2017, with subsequent installments coming in 2018 and further forward in time. The move is part of a multi-faceted production deal Seinfeld has inked with Netflix that will also include two new stand-up specials filmed exclusively for the streaming service.

News of the deal comes mere days after the announcement that Sony Entertainment chief Michael Lynton was leaving the company for Snap, Inc.; itself preceded by Sony TV head Steve Mosko’s departure in June 2016. Seinfeld’s relationship with Sony extends back to the days of his first TV success with “Seinfeld,” produced by Sony Pictures Television.

“When I first started thinking about ‘Comedians in Cars Getting Coffee,’ the entire Netflix business model consisted of mailing out DVDs in envelopes,” Seinfeld said in a statement. “I love that we are now joining together, both at very different points. I am also very excited to be working with Ted Sarandos at Netflix, a guy and a place that not only have the same enthusiasm for the art of stand up comedy as I do, but the most amazing technology platform to deliver it in a way that has never existed before. I am really quite charged up to be moving there.”

Netflix has indeed been heavily investing in original comedy, with new stand-up specials popping up several times a month.

“Comedians in Cars Getting Coffee” has racked up three Emmy nominations; most recently, in the variety talk series category, virtually unheard-of for a streaming service. “This has been such an exciting Lewis-and-Clark, ‘paddle down the river and see what’s down there’ adventure, there was no expectation of anything,” Seinfeld told Variety shortly after his nomination. “I’m flattered and humbled our little show has gotten this far. We didn’t even know if audiences would watch a TV show on the internet every week.”

Hollywood’s record box office belies studios’ falling profits

Hollywood is headed toward another record year at the box office thanks to a lineup of blockbuster films, such as the private lives of pets and foul-mouthed superheroes.

But while projections of $11.3 billion (U.S.) in ticket sales in the U.S. and Canada would seem like a cause for celebration, the rosy numbers mask underlying challenges in a cinema business that is facing rapid changes in a period of digital upheaval.

Higher costs of making and marketing big movies, as well as plummeting home video revenue, have dragged down studio profits. Once-bankable home entertainment sales — including DVDs and video on demand — have dropped more than 30 per cent since 2010, according to Digital Entertainment Group.

The home video fall-off has made theatregoing even more vital to the studios’ bottom line. With expanded streaming and video game options in the home, fewer young consumers are watching movies on the big screen. And the box office has increasingly become a winner-take-all game, with grosses hoarded by a handful of dominant films Finding Dorysuch as Disney’s Finding Dory and The Secret Life of PetsUniversal’s The Secret Life of Pets.

“It’s deceiving,” said Adam Goodman, a film industry veteran who previously led production at Paramount Pictures. “If you look at the box office, it looks healthy. But it’s just a couple of titles that are having this success.”

Profits among the seven biggest studios fell 17 per cent during the first nine months of the year to about $3 billion, according to a recent research report by investment firm Cowen & Co. More than half those profits went to just one studio, Disney, the report indicated.

While international growth remains a bright spot for the industry, Hollywood’s largest foreign market — China — experienced a dramatic slowdown in box-office receipts this year.

In the U.S. and Canada, box-office revenue is expected to grow 2 per cent this year, but the increase is deceiving, inflated by ticket prices, not by more people going to the multiplex.

The number of tickets sold is expected to remain flat, at about 1.3 billion, according to industry estimates. That would be down 6 per cent from 1.4 billion tickets sold in 2006, according to the Motion Picture Association of America.

The head winds have pushed studio executives and theatre owners to rethink one of the fundamental pillars of the movie business: so-called theatrical windows.

Warner Bros. Pictures and Universal Pictures have engaged in talks with theatre chains to shorten the gap between a movie’s theatrical release and when people can watch it on home video, an idea that previously has caused revolts in the cinema industry.

One proposal would make new movies available in the home two to four weeks after theatrical release for about $50 each, people familiar with the talks say. That would be a dramatic shift from the current 90-day wait.

Film executives have long looked for ways to shorten the time consumers have to wait to buy or stream movies once they’re mostly out of theatres, a gap known as the “dark zone” when studios lose billions to piracy.

But only recently have they made progress in warming theatre owners to the idea. Cinema owners have long resisted tweaking the window, fearing doing so would discourage many consumers from watching films on the big screen.

In response to the challenges, cinemas have tried to boost sales with better accommodations, such as recliner seating, high-end food and beverages, and premium screening technology.

“You’re seeing a premium experience surface and take hold, with luxury theatres and inflated ticket prices,” said 20th Century Fox domestic distribution chief Chris Aronson.

Some analysts believe raising ticket prices to pay for the improvements may be keeping some consumers away from theatres.

The average ticket price (including matinees) hit $8.51 in the third quarter, up 3 per cent from a year ago, according to the National Association of Theatre Owners. Patrons in major cities often pay twice that amount.

Studios also have been forced to adapt to the rising competition from streaming services and premium television shows. They are focusing more heavily on costly franchise films with lots of spectacle that are more likely to lure people out of their homes. If the movie isn’t a must-see, executives say, audiences opt to stay home and wait until it comes out on iTunes or Netflix.

That means more industry dollars are concentrated among a smaller number of films than before. In the last two years, the top 10 movies have accounted for more than a third of the total box office. In 2011, the 10 biggest movies made up only 24 per cent of the domestic grosses, according to entertainment data firm comScore.

“It’s definitely more concentrated, and it’s higher highs and lower lows,” said Greg Foster, chief executive of Imax Entertainment.

The risk of failure also has increased. This year, the major studios fielded high-profile films that almost nobody went to see. For example, Billy Lynn’s Long Halftime Walk, a $40-million movie with an Oscar-winning director in Ang Lee, multiple stars and a wide release from Sony Pictures, grossed less than $2 million in the U.S. Twentieth Century Fox’s Keeping Up With the Joneses, starring Jon Hamm and Zach Galifianakis, wiped out with $15 million. Even Disney fielded a big turkey with AliceThrough the Looking Glass.

The swift and hard landing for such titles is partly because of social media. Audiences now know very quickly whether a movie is worthy of their time and money.

Goodman, now president of Le Vision Entertainment, said studios need to rethink how they pick movies. But that’s a difficult task given the lack of sophisticated data about what audiences want to see.

“The historical data setup until recently was pretty reliable,” Goodman said. “Now you may as well throw a dart against the board and pick something.”

Netflix makes movies, TV shows available offline

Netflix subscribers can now download shows and movies to watch during a flight, when travelling by car or at any other time their access to the internet is limited.

The download option was announced Wednesday, and a number of shows and movies were made instantly available, including Breaking Bad, Narcos and Spotlight.

Netflix Inc., based in Los Gatos, Calif., says more downloadable content is coming at no additional charge for users.

There has been a push by subscribers to get access to Netflix shows offline.

Amazon.com Inc., which runs a rival video streaming service, has allowed users to download select shows and movies for about a year.