Pan­demic takes lead role in Cineworld’s tra­vails

A string of de­layed block­busters, health fears and a failed takeover deal are all weigh­ing heav­ily on the cin­ema chain, writes Han­nah Ut­t­ley

The Daily Telegraph - Business - - Business -

Com­ing from a family with a 90-year his­tory in cin­ema, it is prob­a­bly no sur­prise that Mooky Grei­dinger re­fused to lis­ten when told the big screen was dead. De­spite the naysay­ers, the chief ex­ec­u­tive of Cineworld ploughed ahead with an am­bi­tious ex­pan­sion plan which trans­formed his firm into the world’s sec­ond-largest movie the­atre group through a $3.4bn (£2.7bn) re­verse takeover of US chain Re­gal in 2018.

Re­fus­ing to stop there, Grei­dinger opened a new front in his bat­tle for North Amer­ica in De­cem­ber with a swoop on Cana­dian ri­val Cine­plex for $2.1bn. Then coro­n­avirus struck, the plans were dashed and he can­celled the deal – spark­ing what is likely to be a long, ex­pen­sive and ugly le­gal bat­tle.

Cine­plex has said it will sue Cineworld for $1.1bn, claim­ing the bid­der has been gripped by buyer’s re­morse. Cineworld has said it will vig­or­ously de­fend it­self and also plans to launch le­gal pro­ceed­ings. “The Cine­plex trans­ac­tion at the time seemed a sen­si­ble thing to do,” says Natasha Bril­liant, an an­a­lyst at Citi.

“The goal­posts have changed and cer­tainly the near-term out­look for the in­dus­try is very dif­fer­ent so in­vestors’ ap­petite for lever­age and debt has prob­a­bly re­duced even more.”

Cineworld’s mount­ing debt pile was al­ready a grow­ing source of frus­tra­tion for in­vestors. The takeover of Re­gal left it with debts of £2.3bn and £2.8bn of lease com­mit­ments, with plans to bor­row £1.7bn more as it sought a foothold in the Cana­dian mar­ket.

Share­hold­ers were un­der­stand­ably re­lieved when Grei­dinger pulled the plug on the Cine­plex deal in June, but they were not ex­pect­ing the le­gal spat.

The firm’s shares have fallen around 80pc since the start of the year, as un­cer­tainty con­tin­ues over the in­dus­try’s fu­ture and the likely costs of the dis­pute. It is now one of the most shorted stocks on the London mar­ket.

Some an­a­lysts reckon Cineworld could is­sue new shares to raise cash as it seeks to sur­vive the fall­out from the cri­sis over the com­ing months, while oth­ers think more dras­tic ac­tion could be needed. The vast ma­jor­ity of the chain’s 787 sites in 10 coun­tries were forced to shut for months as the pan­demic struck, and its woes deep­ened af­ter a string of ma­jor stu­dios de­layed new re­leases.

A resur­gence of coro­n­avirus in Amer­ica – which houses more than two thirds of its the­atres – is al­ready rais­ing eye­brows. “If there is a sec­ond wave or third wave in the fu­ture, Cineworld needs to be sure that it can weather the storm,” says San­chit Jain, me­dia an­a­lyst at En­ders Anal­y­sis.

“If stu­dios still con­tinue to hold back their films and the fi­nan­cial re­al­ity for Cineworld and some of the other cin­ema chains re­mains this bleak then they are go­ing to have to lay off a lot of staff and they are go­ing to have to con­sider clos­ing and liq­ui­dat­ing some of their as­sets.”

Cineworld has re­peat­edly pushed back its re­open­ing date since the UK Gov­ern­ment gave per­mis­sion for screen­ings to restart from July 4. Last week Cineworld de­layed its re­open­ing a third time, say­ing it will now re­open on Aug 7 or 14 in­stead of July 31.

Cin­ema chains had been bank­ing on a grand re­open­ing in July, but the de­ci­sion by film stu­dios to de­lay their sum­mer block­busters has de­liv­ered a fresh blow. Christo­pher Nolan’s Tenet has been pushed back from Au­gust while Dis­ney has de­layed the re­leases of new Avatar and Star Wars films by a year, while re­mov­ing a live-ac­tion re­make of an­i­mated hit Mu­lan from sched­ules com­pletely.

Film stu­dios’ re­liance on the Amer­i­can mar­ket is plagu­ing the in­dus­try, says Jain. “Cin­e­mas were hop­ing that once the lock­down eased, au­di­ences would flock back,” he says.

“But for film stu­dios, the equa­tion is very dif­fer­ent. They can’t just re­lease their films into the UK and Europe be­cause those mar­kets aren’t sig­nif­i­cant enough for them to re­coup their pro­duc­tion costs. They’re re­ally re­ly­ing on coun­tries like the US and China, where bil­lions of peo­ple are watch­ing their films in the cin­ema. And cur­rently the equa­tion in those mar­kets is bleak.”

Bril­liant adds: “There’s been some in­dus­try chat­ter about things be­ing re­leased out­side of the US first, but tra­di­tion­ally that’s been quite chal­leng­ing be­cause of piracy and it’s also viewed as bet­ter do­ing a big global re­lease all on the same day.”

Ad­mis­sions and box of­fice rev­enues this year are now on course to be the low­est in more than three decades, ac­cord­ing to En­ders Anal­y­sis.

The con­tin­ued de­lay of film re­leases is bad news for Cineworld which is burn­ing through an es­ti­mated $50m per month while its cin­e­mas re­main

‘If there is a sec­ond wave or third wave in the fu­ture, Cineworld needs to be sure that it can weather the storm’

shut, ac­cord­ing to an­a­lysts at JP Mor­gan. Mean­while, the chain has warned that the cri­sis could leave it un­able to pay its debts.

Rat­ings agency Fitch says that af­ter aban­don­ing the Cine­plex deal and se­cur­ing a $250m over­draft in June, the com­pany could with­stand another nine to 10 months of cash burn.

Grei­dinger has re­fused to let his spir­its be damp­ened by the lat­est de­lay, at least pub­licly.

“It might take a lit­tle more time, we might start a lit­tle slower, but at the end of the day I be­lieve the world will be­come a nor­mal place again,” the Is­raeli busi­ness­man told the Fi­nan­cial

Times last week. “If it’s go­ing to take another two weeks or another three weeks, this is re­ally not so much the point. We have to be op­ti­mistic.”

Re­gard­less of when this year’s block­busters fi­nally ap­pear on the big screen, the big­gest ques­tion is whether con­sumers will feel com­fort­able re­turn­ing to cin­e­mas.

Many movie fans could feel that sit­ting in a public place for over an hour is too much of a risk, while strict hy­giene and so­cial dis­tanc­ing mea­sures could suck out the fun. This could prompt stu­dios to re­think their dis­tri­bu­tion model and re­lease a wider range of films through stream­ing ser­vices such as Net­flix or Ama­zon Prime, rather than giv­ing cin­ema the­atres pri­mary and exclusive access.

Net­flix is cur­rently plough­ing $200m into mak­ing its most ex­pen­sive film yet, a spy thriller star­ring Ryan Gosling and Chris Evans, as part of am­bi­tions to take on the likes of Marvel and Uni­ver­sal in cre­at­ing big block­buster fran­chises.

“It re­ally shows that Net­flix wants to in­vest in its films and at­tract more sub­scribers,” Jain says.

How­ever, on-de­mand film dis­tri­bu­tion is un­likely to spell the death knell of the cin­ema sec­tor just yet, Jain adds. The­atri­cal re­leases re­main a far more lu­cra­tive route for stu­dios, not to men­tion the pres­tige they carry for film­mak­ers.

Cin­ema has al­ready changed be­yond all recog­ni­tion since Grei­dinger’s grand­fa­ther opened his first cin­ema in 1929.

He will be pray­ing it is not cur­tains for the family busi­ness just yet.

El­iz­a­beth De­bicki and John David Wash­ing­ton in a scene from Tenet, whose re­lease has been de­layed

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