2 October 2022
The headline from Reuters was as stark as it was misleading: “Struggling Cineworld paints bleak picture for cinemas” It is true that the world’s second largest cinema chain is facing major challenges as it navigates the choppy Chapter 11 waters, while waiting for the return of the Hollywood blockbusters this month. Far from cartoon vultures circling it, reports are that Canadian Cineplex is circling, or rather having discussions with Cineworld’s creditors about acquiring the Regal chain in the US.
So why it is that a chain whose operating profit rose to $57.3 million in the first six months of the year is called “struggling,” while a cinema chain that recorded a loss before tax of USD $890,000 is described as “loved by every man?” Not least by the financial markets, which values the much-smaller Everyman Media Group at twice the market cap of Cineworld. It cannot purely be down to the debt of Cineworld and comfy sofas of Everyman.
The metrics of success have been re-written by the pandemic and the current cost of living crisis. “EDITDA is vanity, but profit is sanity,” a chief financial officer I once worked with used to repeat even when times were good. With interest rates going up all around the world, debt-financed growth is out of fashion. Debt in itself is not out, but you need to have a convincing growth trajectory and story to justify it. This is what makes Everyman and some other global mid-size cinema circuits (we are looking at you Kinepolis and Marcus Theatres) a stronger prospect for a market revival (NB: This is NOT investment advice). While their shares have declined between 20% and 40% in the past year, this is often in line with the overall direction of the stock market and far better than the largest global cinema circuits.
At some point the cinema market will bounce back, even as the prospect of a return to 2019 levels recedes from 2024 to 2025. We cannot be sure if or when audience levels will return, or if premiumisation will have to make up for a shortfall in admissions. The numbers for the “Avatar” re-release (USD $58 million global cume as of its second weekend) are cause for cautious optimism that cinema audiences have not forgotten or tired of the world of Pandora, ahead of the release “Avatar: The Way of Water.” Meanwhile small titles such as “The Woman King” and “Smile” are doing better than expected.
There will be a time soon when cinemas will reap the rewards of the bigger titles during the fourth quarter of this year, 2023 and beyond. Far from a “bleak picture for cinemas,” the cinemas that expanded prudently will soon be operating in a much more optimistic cinematic landscape. Even as the northern hemisphere moves into dark winter months, it looks like the projector light will be burning even more brightly than it did this summer.
Last but very much not least, a big congratulations to the new board of the European Digital Cinema Forum (EDCF), including Cathy Huis in ‘t Veld-Esser, CTO of Gofilex, who will serve as the EDCF’s new President. A thank you also to David Hancock for seven years of hard work, much of it behind the scenes and without fanfare in getting the EDCF into its current good shape.
Finally, don’t forget to sign up for the CJ Cinema Summit being held on Thursday, 6 October. We will welcome Lucy Jones and Paul Degarabedian of Comscore. They will present never before seen data and analysis pertinent to the future of the cinema industry. We’ll also be joined by Natalia Baydan, CEO of Planeta Kino in Kyiv who will give us an update on the situation with cinemas in Ukraine and more, seven months on from Russia’s February invasion.
Patrick von Sychowski
, Editor, Celluloid Junkie
The interim results for Cineworld points to a challenging path ahead for the world’s second largest cinema chain. The company is negotiating with its creditors how to manage its massive debt burden at a time when admissions continue to reflect the lack of Hollywood tentpole titles. While results are up on the same time last year, the company faces an immediate cash-flow issue.
For the first six month of 2022 Cineworld recorded a revenue of USD $1.51 billion, compared to USD $293 during the same time in the COVID-imapacted previous year. The company recorded an operating profit of USD $57.3 million, compared to a loss of USD $209 million in the first half of 2021. Losses before tax were reduced from USD $576 million during the same time period in 2021 to USD $365 million in the first half of this year. Yet this was matched by a shrinking of cash at hand from USD $354 million to USD $131 million from the first half of last year to this year.
“Q3 admissions have been below expectations… cinema admissions in both FY23 and FY24 are expected to remain below pre-pandemic levels… While monthly admission levels progressively recovered in the first half of 2022, they remained below both pre-pandemic levels and the group’s original forecast for 2022. This led to a general tightening of the group’s overall liquidity position. The group has reviewed and revised down its short and medium-term cinema admission forecasts. The review was prompted by the slower-than-expected recovery being experienced in 2022 combined with external forecasts indicating a lower volume of theatrical releases in 2023 and 2024.”Cineworld
The January-June period of this year was the strongest period of recovery for Cineworld since the start of the pandemic, with blockbusters such as “Top Gun Maverick” and “Jurassic World: Dominion.” Yet Cineworld is still feeling the after-effects of the pandemic and also the fall-out from the ruling against it for terminating the acquisition of Canada’s Cineplex.
Mergers & Acquisitions
Canadian cinema major Cineplex is reported to have approached the lenders of Cineworld about acquiring Regal, the latter’s United States cinema chain. Any such deal is said to involve Cineplex offering debt and stocks to the lenders of Cineworld, which has entered Chapter 11 bankruptcy protection as it seeks to manage its debt and cashflow problems, with a debt burden of USD $8.9 billion at the end of 2021.
Cineworld had agreed to acquire Cineplex in 2019 for around USD $3 billion but renegaded on its deal when the pandemic struck. United Kingddom-based Cineworld, which also has cinemas in Central and Eastern Europe as well as Israel, was found to have broken the terms of the acquisition deal by a Canadian court and ordered to pay CAD C$1.23 billion (USD $894.81 million).
If the deal is carried through it will mean a much smaller Cineplex taking over the second largest cinema operation in North America after AMC. A merged Cineplex and Regal would be larger than AMC in North America, though AMC would still be the largest global cinema chain thanks to its cinema operations in UK, Europe and Saudi Arabia. Cineplex is said to be advised by investment bank Moelis & Co. in terms of building support for the mooted deal among Cineworld’s lenders. Cineplex and Cineworld have both refused to comment on the report. On 28 September a judge denied a motion by Cineplex for relief of the automatic stay in the Cineworld bankruptcy case. This means the appeal over the USD $955 million judgement Cineplex won against Cineworld will not be heard in October as previously scheduled.
Wall Street Journal
Quarterly results from UK boutique operator Everyman Media Group point to a strong recovery for premium cinema operations. The UK’s fourth-largest cinema chain saw revenue climb to GBP £40.7 million in the first half of 2022, with losses narrowing to GBP £798,000, down from GBP £9.19 million in the same period the previous year. Everyman claims to be seeing “progress on all fronts,” including admissions, concessions retail and expansions. CEO Alex Scrimgeour is quoted as saying that, “Despite reduced film output due to the effect of low production during the pandemic, we’ve enjoyed three of the ten highest-ever box office releases in the past twelve months.”
Everyman is benefitting from a focus on the premium market, with table service of high-end drinks and hot food offerings. Even as it is expanding in new locations – Edinburgh late last year and most recently Egham, outside London, to be followed by Plymouth and Marlowand – it is sticking to its formula of no more than five screens and a strong focus on staff, service and premium food and beverage. The success stands in contrast to the challenges faced by larger cinema chains, even as the summer of 2022 saw the return of blockbusters and audiences.
Edison Group analyst Neil Shah told City A.M. that Everyman’s optimism was well-placed as it “can capitalise on gaining market share whilst competitors such as Cineworld are focussed on survival.”
Analysts at investment bank Canaccord Genuity backed Everyman with a buy rating and said “enhanced food and beverage offering and curated film offering of major and independent releases offer a real point of differentiation for customers”.City A.M.
At the time of writing Everyman Media Group had a market cap of GBP £88.23 million, more than double that of Cineworld at GBP £37.78 million. Everyman is entering a busy Q4 with a number of blockbusters and For Your Consideration releases; together with Curzon it is the largest cinema chain in the UK to screen films from Netflix, Amazon, Apple and Sky, while larger chains such as Odeon, Vue and Cineworld/Picturehouse and not playing films that have a release window measured in days or a few weeks. Even with a lack of major tentpole Hollywood titles in September and early October, Everyman is thus looking at an overall strong 2022.
The European Digital Cinema Forum (EDCF), the home of professionals and technologists working for and in the digital cinema industry in Europe, has appointed a new board: Cathy Huis in ‘t Veld-Esser, CTO of Gofilex will serve as the EDCF’s new President. She will take over from David Hancock, Chief Analyst, Media and Entertainment at OMDIA who held the position from 2015 and had been a board member since 2010. Julian Pinn, founder of Julian Pinn Ltd. and an active board member for many years, has been appointed Vice President. Tammo Buhren, CEO of zweiB GmbH and Vandors GmbH, will continue to serve as the organisation’s treasurer.
“Knowledge is key and that is where organisations like the EDCF step in,” said Cathy Huis in ‘t Veld-Esser in a statement. “With guidelines, recommendations and best practices we empower cinemas in Europe so that they can take full advantage of their digital cinema installations. In my new role as EDCF president I will make sure and that our European voice is heard throughout the industry.”
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