It’s been the toughest year ever for leisure and hospitality. But, for creative thinkers, the barriers thrown up by lockdown are an excuse to think outside the box. In CFO Richard Barley’s case… literally.
Richard Barley spent more than 15 years in advisory and investment roles – first with PwC and then PE house LDC. But Rooftop Cinema, the company where he’s now CFO, isn’t his first go at financial management in a leisure business. Three-and-a-half years at the New World Trading Company – the upscale casual dining group – got him used to the business of serving punters at chichi venues.
Rooftop Cinema was a little different, though. (We’ll come on to the “was” in a moment.) The concept is so simple, it’s remarkable no-one had thought of it before. Every major city is dotted with huge open spaces that no-one uses – the rooftops of major buildings. Only a few are safe and have good access – but Rooftop Cinema Club has been able to lease the ones with the best views and facilities, equip them with projectors, lay on deckchairs, and welcome cinephiles to a unique outdoor experience – sunsets, skylines and the silver screen. With a number of sites in the US and London, the business was ready to rocket.
Then Covid-19 happened. “At the start of the year we were rolling out a bunch of new rooftops, and re-opening some of the US ones that had been closed for the winter,” says Barley. “We knew the virus was a thing, but just didn’t anticipate how far and fast it would spread.”
When lockdown happened, the impact was sudden. All the sites closed, and the company had to find cash to refund pre-sold tickets. But there were some saving graces. “In terms of the major roll-out, we hadn’t layered in much of the head-office overhead, or signed a lot of the leases,” says Barley. “Now, of course, we can talk to landlords about Covid clauses in the leases, tying rents to turnover, which we would never have got away with before the crisis.”
Small mercies, then? “Our background was actually in drive-in cinema, so that was what we immediately thought about next – it’s the perfect way to create a shared experience of cinema while maintaining social distancing,” the CFO says. “Lots of cinema operators thought about that as a solution, but we understood outdoor already. The big challenge for us was keeping it differentiated.”
Aided by a strong marketing database – lots of punters up for a classic cinema experience in non-conventional settings – the team set about finding plum locations. In the UK, that was Alexandra Palace. “We did see rivals open up around the same time, but they just didn’t have the same experience we did,” says Barley. “So we’ve been able to make it work – and although we’re closed for the winter now and everyone is excited about a vaccine, we fully plan to restart in March or April – it’s really worked as an experience.”
The same pivot has worked with the US – four premises were up and running by the summer, with two more just opening when EquityFD spoke to Barley, and five in the pipeline for next year. Most of the new locations will be in cities where the original Rooftop Cinemas were planned.
“This has been an emergency measure, but we may just have stumbled onto a way to massive expand operations – and de-risk the business plan to boot,” says Barley. “The extra sites mean that we can get the per-unit cost of HQ overheads down even quicker than planned, and we get a whole raft of new insights into location viability.”
There’s another plus. In many areas, such as working from home or changing shopping habits, Covid has driven an acceleration of existing trends. Cinema-going looks like it’s no exception. “The traditional model was starting to look much weaker anyway,” says Barley. “Even the big chains don’t make much money outside food concessions, and people are streaming content at home on big TVs. Creating a more significant experience just makes sense.”
Hence the novelty of drive-ins. And ‘proper’ food and drink also complements the existing rooftop business model, building the sense of a big night out. “Tier 2 allows for outdoor gathering, so as long as there’s heat and shelter it actually plays into our offering,” says Barley. “And provided we offer food as well as drinks on the roof, we can even stay open in tier 3.” (Hence the importance of that “was” at the start of the interview. Barley’s experience of food businesses at New World Trading turns out to be potentially very useful.)
The team are realistic about the need to stay on their toes. Pivoting to drive-in was a smart reaction to dramatic events. But the existing rooftop model – especially with food added in (“unlike most cinemas, we make money on the films,” the CFO stresses) – should come back strongly once people are allowed to congregate in numbers.
And the CFO is looking forward to switching from ‘keep your powder dry’ mode – ensuring that the team have the capital to invest in these new approaches – to being able to oversee a more positive investment in expansion.
Some things already look like they’re going to be permanently different, though. “Turnover-based leases look increasingly common,” he says. “I can see some kind of low base rent with a turnover top-up becoming the norm even after Covid is all over. Landlords need some upside. But with retail and commercial property looking like they’ve been changed forever over the past year, they’re probably going to need to take more of the risk, too.”
And the process of adapting to the strictures of Covid distancing has given the team another brainwave. “In the US, there are thousands of well-located parking structures,” says Barley. “They’re often unused at night, and even during the day, no-one in the Sunshine states wants to park on the roof and risk sun damage to their cars. That’s an open goal for us.”
Think of it as a drive-in cinema-in-a-box. Work with the structures’ owners to fit out key equipment, become experts in getting the right certifications (“the safety codes assume all the customers will be standing on the same spot,” jokes Barley), and offer communities a brilliant re-purposing of existing infrastructure.
There are still plenty of questions to be answered – and the way social and spending habits evolve as we finally knock Covid on the head in the next year or so will be crucial. But it seems obvious than Barley and the team at Rooftop Cinema are happy to move fast and do the perfect pivot – a creative re-purposing of existing skills and experience – whatever 2021 throws at us.