The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
I think the Disney announcement brings a lot of uncertainty about the future.
Also I'm not sure if it's been mentioned on this board yet, but MGM may be looking for buyers, so Bond might not ever make it to cinema.
I think if you forget about home viewing it's a total mystery why the price is falling.
However, if you take into account that the biggest supplier of product to Cineworld over the last decade announced yesterday that they are cutting out the middleman it seems pretty obvious.
2021/22 currently has the strongest slate of films ever. Whilst in theory this is great for Cineworld, there are a number of issues they might mean they will get the kind of numbers they're used to getting.
- Hopefully things will start getting back to normal soon, but there will inevitably be a period of time where box office numbers are lower than they were pre-covid. My guess is that the studios would be more than happy with 70% of pre-covid box office, but that will be a loss for the exhibitors.
- No big budget films are being green lit at the moment, so I think the studios will space out what they've got until probably 2023 to cover the shortfall. I don't think this is actually a bad thing for Cineworld as it gives them time to get back up to speed, but it does make next year look fuller than it probably is.
- I think the biggest danger for Cineworld is PVOD. I think it's pretty obvious that it's not doing the numbers for the blockbusters that the studios need, but they've not really tried out different strategies yet. And until there is a vaccine they still have an incentive to make PVOD work. It's easier for Disney as they have Disney+, but I think there may be other partnerships that could work for other studios. Maybe we are going to enter a new era of films that top out at $125M budget + $75M marketing that can make money on PVOD.
I think a government bailout will be a politically tough call because of the levels of debt the company has, and also how many zero hours staff they have.
But that said there are a lot less worthy companies with their fingers in the cookie jar, so they may be able to get at least a government backed loan with a reasonable interest rate. I'd personally like this tied to a real commitment to the British film industry, which I think would help sell this to the public.
How do Disney not have any brand identity? Or Netflix? I'm not talking about cinema as we know it - it will need to be more experiential to survive. It will need to be something much more than movies and popcorn. I can see Disney snapping up city centre sites and making them into Meccas of their product.
And most people don't care about the brand anyway - they go to the closest cinema to them. Cinema brands come and go in the UK - ABC, Warner Village, Ster Century, Apollo, UCI, Virgin and Cannon are all cinemas I've personally been to. Nobody cares about the brand - except maybe Everyman who are seen as premium, and is probably why their attendance figures are currently the best in the UK.
I don't understand why anyone would take over Cineworld. Surely it would be much cheaper to cherry pick the best locations, get the landlord to evict Cineworld due to rent arrears and put in your own fittings.
Going forwards they don't need to make $1B to make the same money. They will probably pay less than 20% to streamers as opposed to 50% to cinemas. Disney have streaming for free. Marketing will be a lot cheaper too.
The studios will really show their cards when they green light their next big movie. If the budget is $100M then they have decided to abandon the cinemas.
Unlimited cards will be another problem for Cineworld as they have to pay the studios for every viewing no matter how the customer has paid them. So actually having all these films come out at once might not mean as much money for Cineworld as it would if they are spread out.
If things do get back to normal though, I think the studios will spread things out into 2022/2023 anyway as they have to get new films finished to get things back on track.
Also, having thought about this for a bit there's a huge case against PVOD, and that's the subsidiaries that studios get for film production. I believe that they will usually require a cinematic release for the money to be paid, so the studios will need to take those billions into account too.
There's certainly a huge backlog of films, but there's no guarantee that it will be Cineworld showing them.
At the moment we have no idea what the baseline is for a big release. Even if Covid vanished overnight we have no idea whether viewing habits have been changed permanently.
PVOD hasn't been properly tested yet. Streaming was always an afterthought for the studios until now, and they've only really tried a few releases up until now. They've not tested marketing strategies or partnership opportunities yet. PVOD might not ever hit the big numbers, but it doesn't need to to make the studio's more money.
And the studios need money. They can't just sit on their product forever. It might not go off like pick-and-mix, but it does have a shelf life and eventually needs to be sold one way or another.
AMC have made concessions with the studios in this area. Cineworld haven't. Just because cinema has no time to die, doesn't mean Cineworld will die another day.
My point is that UK cinemas have been running at an average attendance per screening of less than 20% for a long time. Any reduction in capacity is really bad because you can no longer balance an empty screening on a Wednesday afternoon with a packed house on Saturday.
To put it another way, if capacity is halved, average attendance will also be pretty much halved.
Cinemas make a profit at 16% attendance, not 16% capacity.