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
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