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Video games and streaming in the ascendancy, cinemas fall behind as coronavirus convulses entertainment sector

While the lockdown has some move theatre chains fighting for survival, the lockdown has proved to be a boon for video game makers

Cineworld Group PLC - Video games and steaming in the ascendancy, cinemas fall behind as coronavirus shakes up entertainment landscape

Along with other industries, the coronavirus pandemic is pushing a fundamental realignment of the entertainment sector as venues such as cinemas that require people to journey for the experience find themselves almost entirely closed down as quarantine measures force moviegoers to stay at home.

By contrast, the global lockdown is proving to be a boon for streaming firms and video game developers as consumer increasingly turn to ‘in-home’ services to pass their time in confinement.

Final curtain for cinemas?

The world’s cinema firms, many of whom were already struggling to hold back the tide of streaming services taking primacy for movie releases due to their larger audience, are finding their situation has worsened due to the pandemic, as many chains have been forced to shutter their entire estate to comply with quarantine restrictions.

For example, Cineworld PLC (LON:CINE) has had to close down all 787 of its cinemas across ten countries, warning last month that a prolonged period of lockdown could see the company fold completely.

READ: Cineworld scraps dividend and defers executive salaries as entire estate closes

The company has net debts of US$3.5bn and is in talks over its liquidity requirements with the providers of its revolving credit facility, while analysts at broker Peel Hunt have said it will be “in Cineworld’s best interests” for the company to stop its US$2.3bn acquisition of Canadian cinema chain Cineplex.

However, the firm could yet see a happy ending, with Peel Hunt saying the bunching up of cinema schedules for the second half of 2020 as delayed films finally reach audiences “could imply a revenue boost for the cinema industry” if consumer behaviours return to their pre-pandemic parameters.

Video game groups level up

While the cinema industry struggles for survival amid coronavirus, video games are seeing rapid adoption as a key choice of entertainment for quarantined customers, particularly digital copies of games.

In a year-end trading update on Tuesday, racing game maker Codemasters Group Holdings PLC (LON:CDM) said a shift to digital sales of its products had “accelerated greatly”, which in turn had pushed up its profit margins as it was spending less on costlier physical copies of its games.

Despite rising 9% to 270p on Tuesday, Codemasters shares are still down 4% in 2020, while Team17 Group PLC (LON:TM17), the developer of games such as Worms and Overcooked, has been one of the winners already, with its shares up 35% to 520p so far this year. Fellow games developer Frontier Developments PLC (LON:FDEV) at 1,282p is 4% higher in the year to date.

On the other side of the Channel, analysts at Berenberg highlighted that French computer game giant Ubisoft is one of their favourites on the longer-term positives for the industry.

“In the short term, the whole video game segment is experiencing a boost from the lockdown,” Berenberg said, adding that in the US alone video game spending was up 60% year-on-year and that an increased level of player engagement during the quarantine period was also likely to have “permanent positive effects”.

However, one potential pitfall of the pandemic, Berenberg warned, was that a prolonged lockdown could cause drops in productivity among game developers, increasing the risk of delays to new releases.

Can streaming save Games Workshop from a (War)hammering?

With streaming services and video games seemingly accelerating in their push to take market share from other entertainment options, it may provide food for thought for Warhammer maker Games Workshop Group PLC (LON:GAW), which last month saw strong growth in its share price brought to a crashing halt as the pandemic forced it to close all of its stores, where it not only sells its miniature figurines but also holds tournaments to draw in more customers.

The shares hit an all-time high of 7,350p in early February, however as the pandemic has escalated they have plummeted to around 4,712p, a decline of 36%.

READ: Games Workshop slides as it warns on trading and closes all stores amid coronavirus pandemic

In its half-year results in January, the company said it was currently working on the development of a TV series based on the company’s Eisenhorn series of novels set in the Warhammer 40k universe.

While some analysts said at the time that the move into TV series was a risky one, with its stores shuttered for an as yet undetermined period, the firm may need to accelerate the project if it wishes to ride the surge in TV streaming and shore up its bottom line until the pandemic subsides.

Quick facts: Cineworld Group PLC

Price: 85.94 GBX

AIM:CINE
Market: AIM
Market Cap: £1.18 billion
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