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What lies ahead for movie business as lockdown is lifted? Will it be curtains for Cineworld?

Coronavirus has blown the bloody doors off the movie business and it is not obvious that Cineworld will be part of the 'new normal'.

Cineworld Group PLC - What lies ahead for movie business as lockdown is lifted? Will it be curtains for Cineworld Plc?

Predicting trips to the cinema are unlikely to be part of the post-coronavirus “new normal” doesn’t really require Grays Sports Almanac, a Jedi prophecy or a gauntlet affixed with a time stone.

Unfortunately for cinemagoers, the plot here is as predictable as 007’s escape from a laser-beam and/or shark infested water.

The decline looks as inevitable as the next instalment of Fast & Furious, and, as disappointing as either Matrix sequel.

If those movie references are a bit too GenX for you - basically, COVID-19 has blown the bloody doors off what was already a difficult business.

The cliff edge is right there and, while it is not over for the industry yet, it presently looks like an Italian security van full of Englishmen.

Nonetheless, London-listed Cineworld Group PLC (LON:CINE) on Thursday managed to arrange some US$155mln of extra liquidity in a deal with existing creditors as it works to reopen all of its cinemas by July.

Cineworld, which owns 787 sites across ten countries, has at the same time arranged looser covenant terms with its lenders – skipping a leverage test in June and setting a more passable test for December.

Nothing was said about Cineworld’s previously agreed acquisition of Canada’s Cineplex, a US$2.1bn deal announced in December.

Thursday’s debt deal could be described as a lifeline for Cineworld – one could also, perhaps, say it’s a floating wooden door in the vicinity of an iceberg and the firm’s creditors are promising they’ll never let Cineworld go (that’s the last corny movie reference, honest).

COVID catalyst in a long building trend

COVID-19 has plainly dealt a hammer blow to cinema businesses by forcing the closure of theatres and stopping the Hollywood conveyor of movie production, but, as is the case with a vast number of industries the pandemic acted more like an accelerator pedal to existing trends in technology and consumer behaviour.

In April, Universal and Dreamworks title Trolls World Tour was a smash hit in the virtual box office, as it was released during lockdown to viewers at home exclusively via online, on-demand distributors.

The animated sequel made around US$100mln in its the initial weeks of its release, far in excess of the studio’s expectations.

Around the same time a few other movies were also released, with more moderate results (according to Forbes some US$60mln was earned via premium on-demand sales for The Invisible Man, The Hunt and Emma).

Debate remains whether the success of the Trolls movie - rated 6.1 out 10 by IMDd and 70% on Rotten Tomatoes – can or can’t be dismissed as an anomaly in an obviously extraordinary time.

It arrived with an amount of novelty for consumers and it coincided with the initial shock period of lockdown and the Easter holiday weekend – given parent’s plenty of incentive to take up the pay-per-view movie.

Movie studios will therefore be keen to see how the next wave of new movie releases surface and as cinema theatres begin to reopen.

Universal will soon test the PVOD market again in the coming weeks, as 40-Year Old Virgin and Knocked Up filmmaker Judd Apatow releases The King of Staten Island on 12 June.

Warner Bros, meanwhile, in May released the latest animated title from the Scooby Doo franchise, SCOOB!.

This burst of activity and a rapidly shrinking timeline between a movie’s cinema run and its release for online viewing has built tensions in the industry.

AMC, America’s largest cinema chain, in April said it was banning all future Universal movies citing “unilateral actions and intentions” as the reason for its decision.

At that time, AMC chief executive Adam Aron said: “This policy is not aimed solely at Universal out of pique or to be punitive in any way, it also extends to any movie maker who unilaterally abandons current windowing practices absent good faith negotiations between us, so that they as distributor and we as exhibitor both benefit and neither are hurt from such changes.”

Disney notably decided to postpone the release of movies from some of its flagship franchises – with Marvel’s Black Widow moving to November from May, while the live-action Mulan is expected in July as cinemas re-open and Pixar’s Soul is also on the revised slate, with a release date next month.

The House of Mouse did, however, bring both Frozen 2 and Onward onto the Disney+ streaming service significant faster than originally scheduled, with both becoming available in certain territories in early April.

Disney’s streaming service has been the bright spark for entertainment giant, though not enough to counterbalances losses from closing its theme parks. Some 50mln users are now subscribed to the US$7 a month service, according to financial results in early May.

Its rapid capture of users was no doubt boosted by the scheduled European launch in mid-March coinciding with the start of lockdown.

Indeed, global lockdown has triggered a surge in viewership across the board.

Netflix remains dominant, even with success of Disney+

New Netflix sign-ups doubled in the spring months, adding 16mln to exceed 182mln subscribers worldwide, and, stats from internet service providers confirm that traffic has reached new record levels.

Netflix and Amazon Prime have been the established streaming services over a number of years, and both have invested heavily in their ‘original’ content as well as in-license third party catalogues of movies and TV shows.

Significantly, Netflix is increasingly focussing on movie making along with its long running strength with ‘binge watch’ TV shows and real-crime documentaries.

Netflix received the highest number of Oscar nominations in 2020, with twenty four, though it only won two – with  Laura Dern named Best Actress in a Supporting Role for playing Nora in Marriage Story, and the other was won by Obama-produced American Factory in the category for Best Documentary Feature. 

As something of a quirk, Netflix actually now puts its movies out for cinematic release only to satisfy the Academy’s rules that exclude direct release movies from consideration.

Plainly Cineworld’s debt deal and the pending reopening of its cinemas is undeniable good news, beyond staving off the immediate threat, however, the future would remain very challenging for the whole industry.

Looking at the London share’s performance, Stockbroker Peel Hunt commented: “Cineworld's share price is up four-fold since the post-Covid-19 bottom, some of that movement has been quite recent, perhaps in anticipation of a positive announcement on debt facilities such as the one we have had today.

“But it remains more than 70% off its high, one of the biggest laggards among the Travel & Leisure companies we follow. We believe there is probably more upside, but it will be easier to make that call once it becomes clear whether the Cineplex deal, priced before Covid-19, is to go ahead and on what terms.”

Quick facts: Cineworld Group PLC

Price: 60.16 GBX

Market: AIM
Market Cap: £825.38 m

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