Blockbuster blues at Ster-kinekor
Despite industry-wide concern, cinema group’s chief executive insists the show will go on as load-shedding abates
Just over a year after Ster-kinekor exited business rescue, Africa’s biggest cinema group appears to have run into more financial trouble. Details of this most recent setback are laid bare in a section 189 notice that cites loadshedding and last year’s Hollywood strikes as reasons for Ster-kinekor’s decline in revenue.
According to the notice, dated 13 February 2024, the restructuring could result in 207 employees being retrenched.
The Mail & Guardian got wind of Sterkinekor’s financial strife last month, when, in response to a media query, chief executive Mark Sardi revealed that the group has recently engaged with its landlords for temporary financial support.
Ster-kinekor, which has more than 55% of South Africa’s market share, has 43 commercial cinema complexes in South Africa. Sardi would not disclose the details of the group’s requests to its landlords, including the number of cinemas that will be covered by this temporary support.
He did, however, give some insight into what has precipitated the group’s request for financial assistance — noting that Ster-kinekor’s problems appear to be industry-wide.
When Ster-kinekor went into business rescue in January 2021, the business was reeling from the effects of the pandemic. The government-mandated lockdown required that all cinemas close between March and August 2020, when they were allowed to open under strict conditions.
The government imposed a second national lockdown in December 2020.
The pandemic also delayed a number of blockbuster releases. According to a report by the National Film and Video Foundation, only 96 titles were released in South Africa in 2020, down from 190 the year before.
In its business rescue announcement, Sterkinekor suggested content shortages would persist for another four to five months.
While Covid-19 ate at the cinema industry’s finances, streaming platforms such as Netflix recorded fat profits — radically altering moviewatching trends.
According to a 2022 PWC report, during the
height of the pandemic in 2020, cinema box office revenue in South Africa fell by 82.9%. By 2022, South Africa’s box office revenues were showing strong signs of recovery, outstripping the global average, according to PWC. However, at R862 million, earnings were well below the R1.2 billion recorded in 2019.
Ster-kinekor exited business rescue in November 2022 thanks to an investment by UK asset managers Blantyre Capital Limited and South Africa-based Greenpoint Specialised Lending.
At the time, Ster-kinekor business rescue practitioner Stefan Smyth commented that cinema attendance had picked up in the wake of the release of Top Gun: Maverick. The blockbuster’s release date was delayed two years because of the pandemic.
When the Competition Commission approved the transaction, the watchdog noted a view that it would spare Ster-kinekor from inflicting job losses.
While there was good reason to believe that the industry was picking up in November 2022, Ster-kinekor’s retrenchment notice suggests the industry is not out of the woods yet.
“In recent months, the business has suffered a significant decline in attendances,” it reads, noting that this is largely the result of macroeconomic headwinds, load-shedding and the Hollywood strikes.
“As these are forces largely out of the business’s control and the financial impact is likely to endure for some time, Ster-kinekor Theatres has had to review its cost structure to ensure the continued survival and sustainability of its business.”
Sardi gave similar reasons for Ster-kinekor’s financial hit in his response to the M&G’S questions last month.
As South African businesses reeled from the worst year of load-shedding on record, by July 2023 Ster-kinekor reportedly spent between R20 million and R30 million on uninterrupted power supply units for 32 of its cinemas.
According to Sardi, load-shedding’s effect on Ster-kinekor has been significant, particularly since April 2023. From about this time, South Africa’s box office recovery began to diverge negatively from that of the US, he added.
“We were recovering at the same rate relative to 2019 as the United States until that time and the only variables to account for the subsequent divergence were load-shedding and the consequential impact on the macro-economic environment,” Sardi said.
The Eskom-induced electricity crisis has created an especially grim macro-economic picture, as low growth and inflation weigh on consumer confidence.
Pwc’s most recent Africa Entertainment and Media Outlook noted that South African consumers have had to re-evaluate their discretionary spending in the wake of steep cost-ofliving increases.
Consumer confidence has recovered somewhat since the Covid-triggered decline in 2020, according to an index by FNB and the Bureau for Economic Research. But sentiment was hit again by the cost-of-living crisis, causing a dramatic reversal in the post-2020 recovery.
Adding insult to injury, last year’s strikes in Hollywood have put another squeeze on blockbuster releases.
In the wake of the Writers Guild of America strike, ratings agency Fitch noted its expectation that 2023 and 2024 would be pivotal years for the movie industry with respect to theatrical releases and attendance growth.
Fitch previously warned that “growing competitive threats” could prevent the movie industry’s recovery, noting that the preference for at-home streaming will continue to cannibalise traditional theatrical attendance over the long term.
“The breadth and quality of planned nearterm movie releases should temper theatre obsolescence risk concerns and lift attendance,” Fitch wrote in a research note towards the beginning of the strike in May.
“However, sector credit profiles and ratings could remain under pressure if strikes delay or limit medium to long-term releases given a film’s typical lead time and attendance growth fails to reach expected levels,” it said.
“A decline of content in the medium term could undermine the strength and duration of the sector recovery.”
The industrial action lasted until September 2023, by which time the Screen Actors Guild was already two months into its own strike. The second strike only ended in November.
Movies that have had to push their release dates include the Avatar, Avengers, Batman and Spider-man sequels.
In the face of these headwinds, Sardi noted that Ster-kinekor’s market share has remained stable between 55% and 60% during the past 12 months.
He described the current setbacks as temporary, noting that load-shedding is expected to be less severe in 2024 and that a number of delayed titles will be released in 2025.
Ster-kinekor expects to conclude its section 189 process by the end of May.
Given that the consultations are still ongoing, it is still too soon to tell whether any cinemas will be closed as a result of the restructuring, Sardi said.