Category Archives: Business

Paris-based MK2 buys Spanish exhibitor Cinesur

MK2 40 ans

Paris-based exhibitor and distributor MK2 has bought Spain’s third largest exhibitor Cinesur in a deal valued at around €10.5 million. MK2, which this month celebrates its 40th anniversary, is based only in France’s capital where it controls 11 multiplexes with 65 screens, as well as four high-end theatres.

The deal has surprised industry watchers, as there are few obvious synergies between the two chains. MK2 has already announced that it will be closing two Cinesur cinemas in the province of Malaga with a total of 16 screens going dark

Cinesur was established in 1932 by the Sanchez-Ramade family and is focused on the southern part of Spain around Andalucia in cities such as Seville, Cordoba, Malaga and Toledo. The exhibitor was put up for sale in 2011 when the other parts of the Sanchez-Ramade business empire (primarily construction) took a hit.

It was supposed to be bought by UK’s Cineworld, which instead pulled out at the 11th hour and ended up merging with Israeli/Central European chain Cinema City instead. Cinesur has nine cinemas, with a total of 120 screens and 22,000 seats, part of the deal.

According to the then press release, Cineworld was set to pay €18.6 million for the business. Though no price has been announced this time, it is thought that Mk2 paid around €10.5 million, which would imply a near halving of the price and perhaps the primary driver for the deal. The holding company of Cinesur was also in bankruptcy, making the deal faster and cheaper. As Diario Sur put it, the chain was “going through a serious crisis that forced it to hang the ‘For Sale’ sign on their cinemas. ” With both similarly-sized circuits having limited geographical spread and different languages, it is difficult to see what if any immediate synergies the deal offers.

le Salle MK2

MK2 was founded by the legendary French producer/distributor Marin Karmitz, with his son Nathanael Karmitz taking over the business in 2005. In 2012 the company suffered from four costly box office failures (including “On the Road”, by Walter Salles, and “Like Someone in Love”, by Abbas Kiarostami) and switched focus to its cinema and catalogue of around 500 titles. At this year’s Cannes Film Festival, though, the company was once again ubiquitous, handling distribution of the award-winning “Mommy” by Xavier Dolan.

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Premium VoD Just Killed the Cinema Release Window

100,000 viewings DSK movie

One single tweet was the final nail in the coffin of the cinema exclusivity window, given added poignancy by being in French; “100 000 locations en une semaine, rien ne sera plus comme avant” (’100,000 viewings in a week, nothing will be as it was’).  This was the message from Vincent Maraval, Co-Founder of Wild Bunch, the French production and distribution outfit behind the controversial “Welcome to New York”, which was released on video-on-demand without first screening in French cinemas.

In a country (France) that counts cinema admissions rather than box office takings for a film (something that sets most of Continental Europe apart from Anglo-Saxon markets like the United States and United Kingdom), this tweet added insult to injury for what was truly a milestone for the industry in slaughtering its last sacred cow.

The day-and-date release of films in cinemas and on-line is nothing new, but we have now reached a point where the sacrosanctity of the exclusive theatrical window is well and truly dead for the vast majority of films. The recent Cannes Film Festival and the release of the report “Circulation of European Films in the Digital Era” (funded by the European Parliament and European Commission) has thrown this into sharp focus, yet there are many other factors to consider.

Fighting Day-and-Date for Years

“It’s the biggest threat to the viability of the cinema industry today,” is how John Fithian, president of the National Association of Theatre Owners (NATO), put it in 2006 in response to the day-and-date release of the Steven Soderbergh directed “Bubble”, which was released simultaneously on DVD, pay-per-view and in cinemas. Or rather, in a handful of cinemas. In Landmark Theatres alone, to be precise, the sister company of Magnolia Pictures, which produced and distributed the film, both owned by Mark Cuban.

Commenting on the experiment six years later, Steven Soderbergh opined:

On “Bubble” and “The Girlfriend Experience”, we really weren’t able to find out if the experiment worked because frankly, we were blackballed by all the chains. We couldn’t get any screens outside of Landmark, even though we offered to cut them in on some of the VOD and video revenue. They just blackballed us. Part of the point of going day-and-date is that somebody who lives in a place where that kind of movie wouldn’t typically open could watch it through VOD because they’ve read about it, because this whole thing of having to sell a movie multiple times is really f–king boring. We never got to find out if that worked or not because what does Landmark have, 75 screens or something? The movie was not allowed to be shown outside that group of theaters so I don’t know how day-and-date works.

Fithian was skilled in rallying his members to boycott the film, even though he knew that releasing a small independent film with no stars on DVD the same day as it plays in a few art-house screens was not the same existential threat as, say, releasing “Oceans 12″ (also directed by Soderbergh) on all platforms on the same day. But what it did represent was the thin end of the wedge, which is why Fithian was willing to risk coming up with a Jack Valenti-VCR-Boston-Strangler-type of quote.

Soderbergh Bubble

Bubble: “the biggest threat to the viability of the cinema industry today”

The key word in the Fithian quote is ‘today’ and where his greatest success lies was in killing off the discussion and experimentation for another half decade. Fithian is neither a technophobe nor is NATO blind to the direction in which the industry is heading. In response to Soderbergh’s interview, Fithian wrote, “Over the past two years NATO and our members have stated publicly that distributors should sit down privately with their exhibitor partners and their creative partners in dialogue about how the industry moves forward together.” But everything changed in early 2014.

The most serious threat wasn’t “Bubble” in 2006 but the MPAA-FCC exchange in 2009, known by the exhibitor-baiting headline, “MPAA Seeks FCC Okay For Transmission of First Run Movies Directly To Consumers”. While seemingly about day-and-date, we wrote at the time that “the MPAA may simply be hiding behind the concept of protecting content during shortened release windows as camouflage for their true motive; securing high definition digital content as it is distributed into the electronic ether of the home by controlling which devices can playback and display the content.”

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Is It Time To Go Short on AMC’s Shares?

AMC logo

It has been close to six months since the initial public offering (IPO) of AMC Entertainment, meaning that senior management will soon be allowed to start selling shares that they hold in the company. Seeking Alpha therefor asks if the time is right to go short on AMC.

The question of whether AMC managers and officers will start selling shares from 15th of June onwards is an interesting one, because it partly points towards the belief in the company and its future value by those closes to it that know it best, as well as to a larger extent about the prospects for the industry as a whole.

The article ‘AMC: June 15th Lockup Expiration From IPO Could Be A Preview To A Larger Short Play In December‘ summarizes the situation as follows:

  • AMC’s 180-day lockup period will come to an end on June 15th, freeing up 361,348 shares, held by the firm’s directors and officers.
  • An additional 77.8 million shares of AMC stock held by Wanda America will remain bound by lockup agreements until December 17, 2014.
  • While the larger short opportunity for AMC could be in December, the impending June lockup expiration could provide a small window for a short play as well.

While the article says that AMC shares have experienced ‘Unsteady Gains After Disappointing IPO’, the facts are that the shares were priced at USD $18 for the IPO on 17 December 2013. This many have been on the low end of expectations, but the shares have climbed to USD $23 in less than six months, peaking at $25.47 on 7 March.

While this may not be outperforming meteoric shares like Tesla, it is in line with the solid growth of the stock market as a whole this year.

More importantly, it should be remembered that the exhibition sector’s stock market performance was significantly better than the box office itself, as we noted in our February article ‘2013 – Bad Year for Film; Great Year for Exhibitor Share Price.’

Last year was also the first year that cinemas could not count on 3D films’ ticket price hike to boost admissions takings, but had to rely more on advertising, concessions, premium large format (notably Imax) and luxury dining and seating to improve the bottom line.

Seeking Alpha acknowledges that AMC has done a particularly good job of extracting more spending from cinema goers.

Solid First Quarter Results

AMC’s report for the quarter ended March 31 indicated a number of hopeful metrics for the venerable firm. Total revenues grew 7.8% on a year-over-year basis, and admissions revenues-considered amongst the most important metrics for movie theater chains-were up 6.8%. Food and beverage revenues also grew and impressive 8.2%.

AMC also benefits from the significant degree of consolidation in the US exhibition market that has seen the share of box office revenue taken by the four largest exhibitors increase from 35% in 2000 to 62% in 2012. This consolidation process is still underway and we are likely to see the Big Four cinema chains collect two out of every three dollars spent at the box office within the next two years.

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BREAKING NEWS: Wanda Breaks Embargo on Deal For 780 New RealD 3D Installations

Wanda breaks RealD embargo

CELLULOID JUNKIE EXCLUSIVE: It seems that China’s Wanda – the world’s biggest cinema operator and owner of American multiplex chain AMC – has broken its own embargo on an announcement for an expanded deal with 3D vendor RealD.

It looks like this deal was set to be announced on Monday next week (24th of March), which is the international day of CinemaCon and the day these type of deals typically get announced.

The statement (translated by Google) reads:

March 24, Wanda Cinema 3D images with the world-renowned technology provider RealD jointly announced that the two sides will continue cooperation agreement, Wanda Cinema will install 780 sets of RealD 3D equipment in the next three years, placed in Wanda Cinema The 3D movie hall. Plus 800 sets of equipment currently installed Wanda Cinema, RealD equipment Wanda total installed throughout China will be more than 1500 sets.

RealD is currently the world’s most widely used 3D cinema projection technology. As of March 4, 2014, there are 74 countries worldwide, more than 25,049 screens in 1,000 theaters install RealD 3D projection equipment. Brightness RealD 3D theater system is twice that of other 3D technologies, and have screened the film features a high frame rate.

The fact that the story (press release?) is dated March 24th means that it was most likely to be on hold until that date, but somehow the Chinese version was posted on Wanda’s website too early.

If this is the case, this is a serious slip-up as RealD is a publicly listed company and a big deal like this could give its share price a bounce. Wanda had a previous deal in place with RealD from 2010 for 500 screens.

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Taking A Closer Look At Cine Grand’s 500 Screen Deal With Time Antaeus In China

Screenshot 2014-03-11 14.45.48

“Cine Grand BV, Netherlands based Cinema Exhibition company announced their collaboration with the Beijing based Time Antaeus Group,” said the press release as did all the articles regurgitating it. The release went on to say that there is a joint plan to open over 500 screens in China over the next three years. So what is a Dutch cinema chain doing partnering a Chinese exhibitor? The answer is that it isn’t.

Do a search for Cine Grand BV online and you primarily find the press release/news articles related to the Time Antaeus announcement. Grand Cinema BV does not operate a single screen in The Netherlands, but the company is registered there (Herikerbergweg 238, Luna ArenA, 1101 CM NL-23393 Amsterdam – around the corner from Dolby International AB). A detailed search reveals that Cine Grand BV used to be registered as Inspire Multiplex B.V. (Company Number 53220188 - Strawinskylaan 3105, Atrium Amsterdam NL 1077 ZX – the business district of Amsterdam Zuid) and owns couple of trademarks in the country, including Cine Grand Class (above) and My Cinema (below), both of which have “Filing Language” stated as ‘Romanian’.

This is explained by a third trademark filing for TSAR Luxury Lounge and Cinema. This filing was done by Biris Goran, a Romanian lawyer heading an eponymous lawfirm that defended RoGroup in a 15 million euro tax case against the Romanian Customs Office and the Ministry of Finance. His/their firm is also listed as:

Biris Goran SCPA has significant IP expertise. Highlights included acting for Inspire Multiplex Private on the registration of its trade mark portfolio, and advising Red Bull Romania on IP matters and sponsorship agreements relating to advertising and promotional campaigns. Ana Maria Andronic heads the team.

Screenshot 2014-03-11 14.45.59

Eastern Europe and Middle East

Cine Grand currently operates one five-screen cinema in Romania and two cinemas in Bulgaria in Burgas and Sofia with a total of 14 screens. Having established a toehold in Eastern Europe, Variety writes, “Nirmal Anand, chairman of Cine Grand, said that they plan to open 500 screens in China over the next three years… Cine Grand currently has four screens in Ahmedabad, India. A complex with a further four is under construction in Gurgaon.” The press release also calls Mr. Anand a “pioneer in exhibition business in the Middle East & Eastern Europe.”

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Deluxe To Close Hollywood Film Lab

Deluxe Laboratories in Hollywood
Well, we all knew it was coming. With the motion picture industry’s transition away from 35mm film to digital production and distribution it was only a matter of time before the need for film laboratories would disappear entirely. The industry took a step closer toward that end when on Tuesday when Deluxe Laboratories announced the company would close its Hollywood film lab on May 9th.

Along with Technicolor, Deluxe grew into one of the largest processors and handlers of 35mm film in the world, with offices in Asia, Australia, Europe and North America. The company’s Hollywood facilities date back to the founding of Deluxe in 1919, when they opened their doors adjacent to Fox Film Corporation. Both companies were founded by William Fox, one of the industry’s first movie moguls.

News of the closure came from Warren L. Stein, Deluxe’s Chief Operating Office for North America. An excerpt of the memo Stein sent out with the announcement read as follows:

The capture and exhibition of motion pictures has transitioned from film to digital in recent years. Our processing volumes have declined sharply and as a result, the laboratory has incurred significant financial losses. This has forced us to make this very difficult decision.

Following the recently-announced closure of the Deluxe laboratory in London, our only remaining film processing facility will be the small front end facility in New York.

I would like to thank all of our employees for their incredible contribution to the success of Deluxe, their dedication to meeting the needs of our many customers and their loyalty in recent years as the business declined. Our employees have been the key to all of our successes as a film processing business.

While emotionally attached to our 100 year legacy with film, we are firmly focused on the future of Deluxe. In this historic time in our industry, we wanted to thank our customers for their business and for their trust. We look forward to servicing their needs in the entertainment media marketplace for the next hundred years and beyond!

Earlier this year Paramount Pictures made public their intention to stop supporting film and only release films digitally starting with their holiday release “The Wolf of Wall Street”. Given the number of studios that Deluxe counts as clients, this is clear indicator that, as we predicted, other Hollywood distributors will soon be following Paramount’s lead.

Deluxe provided no information on whether closing its Hollywood operations will result in layoffs and if so, how many employees would be affected. Nor did the company make clear what it intends to do with the facilities in the long run; whether they intend to sell the plant or utilize it for their ongoing service offerings.

Ironically, if that’s even the correct word, it was just this past Sunday during the Oscars telecast that most of us saw a clip of director Christopher Nolan at February’s Academy of Motion Picture Arts and Sciences annual Scientific and Technical Awards accepting an Academy Award of Merit bestowed upon “all those who built and operated film laboratories, for over a century of service to the motion picture industry”.

William Fox Studios & Deluxe Hollywood

MoviePass Adjusts Pricing For Beta Subscribers

MoviePass Banner

Just last week we wrote about how the unlimited moviegoing subscription service MoviePass benefited from being agile and developing their business in an iterative fashion. This week the company is proving just how willing they are to roll out changes to their service in an effort to build a lasting business.

This morning some MoviePass subscribers awoke to find an email from the company informing them that the price of the service was going up to USD $35 per month. To date MoviePass has charged subscribers based on where they lived and the average price of tickets at nearby theatres. Pricing levels ranged from USD $19 to USD $35. In the interest of full disclosure, I am a MoviePass subscriber living 30 miles from the center of Los Angeles (a.k.a. the suburbs) and currently pay USD $25.

However, that won’t be what I pay come April. I was one of those who received today’s email, thanking me for “continued loyalty and support”, reminding me that I was part of a select group “invited into MoviePass’s beta service” and then going on advise me of the following:

Since joining, you have been enjoying the service at a discounted rate which was set to expire at the end of your annual contract. On your next billing cycle, we will need to adjust your monthly rate to the retail price in your area of $35.

Initially I was taken aback by this 40% increase in the cost of MoviePass’ subscription price. That was until I did a quick survey of ticket prices at theatres within 10 miles of my home. The cost of tickets to a matinee, when I usually go to the cinema, ranges between USD $7 and USD $9. However, tickets for evening showings went as high as USD $15 and averaged roughly USD $13. That would mean a subscriber would have to see roughly five matinees or three evening screenings before breaking even on their monthly MoviePass subscription fee.

By noon today I had received more than half a dozen emails from our readers inquiring about the fee hike. Thus, I quickly composed an email to Stacy Spikes, founder and CEO of MoviePass with a few questions about the announcement. I was confident that he would respond fairly quickly, as is characteristic of Spikes who is a hands on manager if ever I’ve seen one.

According to Spikes the monthly rate is increasing only for those subscribers in the lower tiers for their geographic area. “We tested multiple price levels and some were in lower tier. The cost has always been $35,” he explained referring to the pricing model during their ongoing beta period. “We tested USD $19.99 and USD $24.99. We allowed members to stay at that level for a year. There has not been an overall price increase.”

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Paramount Shows Some Alternative Thinking With Super-Sized “Anchorman 2″ Release

Anchorman 2 Super-Sized

By now you’ve probably heard that Paramount Pictures is rereleasing “Anchorman 2: The Legend Continues” on 1,000 North American screens this weekend. More accurately, the studio is putting an alternate cut of the film into theatres – one with the weighty title of “Anchorman 2: The Legend Continues: Super-Sized R Rated Version”. It’s a movie so big the title needs not one, but count them, two colons.

All joking aside (pun intended), the film’s director, Adam McKay, worked with his editors to cut a whole new version of the film that has 763 new jokes from alternate takes which weren’t in the original release. Apparently, the way McKay and lead actor Will Ferrell work on set is to shoot multiple takes of their comedy bits. Ferrell, who plays the role of a scotch swilling news anchorman, Ron Burgundy, is known for improvising while in character as the camera rolls on.

McKay, Ferrell and Paramount had planned on including the new R-rated version as bonus material for the film’s home video release. The studio is going a step further by booking the movie into cinemas for a limited seven day engagement.

This is a brilliant decision on Paramount’s part; one which takes advantage of the cost structures and distribution flexibility digital cinema provides. Let’s take a look at some of the points that led me to this conclusion:

Ratings Inflation

What surprised me most when I first learned Paramount planned to release an R-rated version of “Anchorman 2” was that the original cut was rated PG-13. I always assumed that with all the beer guzzling, scotch drinking and drug taking depicted in the movie, the Motion Picture Association of America (MPAA) would have slapped an R-rating on it. In hindsight, the PG-13 cut only contains two uses of the F-bomb, buried in a sea of more milder profanity. I’m not sure why filmmakers or the studio felt it necessary to make “Anchorman 2″ PG-13 given that it’s a squeal to a 2004 cult hit “Anchorman: The Legend of Ron Burgundy“. Any 13-year-old going to see the film would have been three when the first movie was released.

In the nine years since “Anchorman” was released it’s gained quite a following thanks to home video, so maybe there are a lot of teenagers out there who watched it on DVD and are big fans. Whatever the reasoning, Paramount now has the best of both worlds. After the PG-13 version played out its run to a broad audience, the studio can serve up a raunchier movie to a narrower group of hardcore “Anchorman” fans.

Here’s a thought; why don’t studios and filmmakers purposefully create two different versions of appropriate titles more regularly? This is done on movies for special use, such as a cut to shown on airplanes. While it may not always be viable due to production and distribution costs (or worthwhile creatively) it would be interesting to see a mature audience version of certain titles that, for business reasons, are released as PG-13.

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If At First They Don’t Succeed, MoviePass Tries, Tries Again

How MoviePass Works

Say what you want about MoviePass, the unlimited moviegoing subscription service, but one can not fault the startup for yielding to overwhelming market obstacles or folding at the first sign of serious industry pushback. Instead, when encountering hurdles to their business, the company, which operates in the United States, has been quick to pivot toward a model that worked better for themselves and their customers. MoviePass proved as much last fall upon announcing one of their most controversial modifications to date.

On October 31st of last year, MoviePass sent an email to subscribers with the subject “New Features”. One of its paragraphs read as follows:

We’re also excited to introduce a new feature: The Countdown Clock. This clock counts down the time until your next available screening. You will still be able to go to a movie each day, but there will be a 24-hour period between screenings. Your MoviePass app has already been updated, and you will notice these changes the next time you see a movie.

Maybe it’s best to rewind a bit here and provide a brief description and history of MoviePass. The company first tried to launch a beta version of its service in the summer of 2012, in which subscribes would be allowed to see an unlimited number of movies for a flat rate of USD $50 per month. There were several caveats though, including the fact that subscribers could only see one movie per day, each title could only be viewed once, 3D and Imax screenings would cost USD $3 extra and all tickets had to be purchased the day of the show via partners such as MovieTickets. Subscribers would receive a redemption code (mostly via a smartphone app) that could then be used at the theatre to obtain the actual ticket.

At the time, most found the cumbersome process to be complicated and confusing, and not at all convenient. It didn’t matter though since the exhibition industry was quick to squash the idea that they’d be working with MoviePass in anyway. This seemed to torpedo the whole concept, since MoviePass needed movie theatres to accept the redemption codes at each cinema.

However MoviePass had no intention of giving up. The company regrouped and by October that same year was back with a much more appealing model; the price had dropped to between USD $25 and $35 depending on where one lived, subscribers could still only see one movie per day, each title could only be viewed once, and no 3D and Imax screenings could be purchased. Subscribers were sent a MoviePass credit card which was to be activated using a mobile app while within 100 yards of a given movie theatre. Once activated, the card worked for 30 minutes at the designated cinema and could be used at the box office just like any other credit card.

By leveraging the existing credit card infrastructure, MoviePass removed the objections of cinema owners as an impediment to entering the market. A brilliant move that also enabled the company to shrug off any dissent from studios and web ticketing vendors like Fandango who had previously viewed the company as a threat.

At the time MoviePass CEO Stacy Spikes was a guest on Showbiz Sandbox, a weekly entertainment news podcast I co-host. We talked about the company’s past and what the future held. Spikes suggested that there would eventually be different subscription levels that would include 3D and Imax films, or reduced rate subscriptions that only allowed for moviegoing on weekdays. One of the goals, he said, was to help fill theatre auditoriums for the majority of showings which are not well attended.

Spikes was also candid about the overall MoviePass business plan:

“In all subscription models there is usage versus cost variable and they all work the same way. If everybody overuses you have a problem. We have certain people, like in a gym membership, who are going to go everyday. They are going to work out at the gym everyday and they are going to have these sculpted bodies that we all hate in the summertime. But, there’s also people who underuse and they don’t use it as much and then in the middle you have seasonality. So you may go a lot during Christmas and then dip. There are different types of users that are in the system so overall there is a behavioral economics to it that balances everything out and makes for a profitable business.”

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Cineworld’s Me-Too Eastern Expansion Comes At A Price

Cineworld Logo

UK’s publicly listed exhibitor Cineworld is expanding into Central Europe through £503 cash and equity deal for Warsaw-listed Cinema City International (CCI), which will make it the second largest chain in Europe after Odeon UCI. The deal signals a strategic shift for Cineworld after a small domestic acquisition and and an abandoned south European deal, indicating that future growth lies in Central and Eastern Europe (CEE), as well emerging markets like Turkey and Russia, while box office declines in Western Europe.

The deal, subject to shareholder approval, will see Cineworld pay CCI £503 in cash and shares, of which £272m will be in cash, with a £110m rights issue launched to help fund the purchase, and giving CCI a 24.9 per cent stake in the merged business. CCI currently operates 99 multiplexes with 966 screens (giving it a 9.75 screen/site ration) in six countries in Central and Eastern Europe (Poland, Hungary, Czech Republic, Bulgaria, Romania and Slovakia) as well as in Israel. The combined entity will have  201 sites and 1,852 fully-digital screens (9.21 s/s ratio), indicating that the two are a good match in terms of mostly being new multiplexes. Shares rose by 10.27 and seven per cent for Cineworld and CCI respectively, meaning the markets largely welcomed the merger. The operator will be the largest or second largest in all territories where it is present. But at what price?

Cinema City Territory Map

Competition and change in strategy

Unlike its UK competitors Odeon UCI and Vue, Cineworld has previously been focused exclusively on UK and Ireland , where it operates five of the ten highest grossing sites (though both BBC and Screen claim that it operates all ten of the most profitable sites). Odeon had inherited sites in Spain, Germany and elsewhere through its merger with Odeon in 2004, following the acquisition of both by Guy Hand’s Terra Firma. Odeon UCI abandoned plans for a £1bn+ floatation, settling for a £475 re-financing plan instead two years ago. Reasons cited for this change included “problems in its Spanish markets, where results were weak in the second quarter after a 30 per cent fall in volumes, and a bumper crop of bigger blockbuster films set for release in 2015.” Vue had meanwhile bought Polands second largest cinema operator Multikino, having already established itself in Germany (through the acquisition of CinemaxX), Portugal, Denmark and Taiwan, before being bought by two of Canada’s largest pension funds last year.

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