Exhibitors are reworking finances as cash runs out and the prospect of cinema screens closing gets closer.
Omdia view
Summary
The effects of enforced cinema closures, cash reserves being depleted, exhibitors going into bankruptcy protection, circuit consolidation and trimming, a lack of content to play, older screens no longer being viable, and reduced investment in refurbishment are beginning to be felt.
Exhibitors are reworking finances as cash runs out
Leading Malaysian exhibitor Golden Screen Cinemas (GSC), which is owned by PPB Group, is acquiring the majority of cinema assets from the operators of fellow circuit MBO Cinemas, which is currently undergoing a creditors’ voluntary winding-up. GSC signed deal on February 23, 2021 and is expected to complete the deal at the end of June 2021. MBO has 27 sites across 10 states. Currently, GSC operates 344 screens in 34 locations in Malaysia. It also operates in Vietnam where it has 108 screens in 18 locations through a partnership with Galaxy Studio. GSC’s acquisition of MBO’s assets is based on a firm belief in the future of cinema as a medium, and in their view, is timed to coincide with an upturn in the business thanks to vaccine availability and a reopening of cinemas worldwide.
In the US, the well-known and innovative in-dining theater circuit Alamo Drafthouse has also filed for Chapter 11 bankruptcy protection. The filing is part of a wider asset purchase agreement with a current investor, Altamont Capital Partners, as well as a new backer Fortress Investment Group.
Founder Tim League, who became chairman in 2020, will remain involved with the company and is among the lender group buying the assets. Operations will continue almost as normal during the protection process, with only a few underperforming sites having to close.
Studio Movie Grill (SMG), also a dining cinema circuit with 33 sites and which benefited from a $75m investment in 2018, filed for Chapter 11 bankruptcy protection in October 2020. Not finding a buyer, SMG has now filed to exit bankruptcy protection.
In South Africa, leading exhibitor Ster-Kinekor filed for voluntary business rescue in February 2021. Ster-Kinekor, a successful operator and credited with the invention of the multiplex cinema, operates 55 commercial cinema complexes in South Africa and seven in neighboring Namibia, Zambia, and Zimbabwe.
Omdia analysis
The global screen base exceeded 200,000 screens in 2020 for the first time and has almost doubled in less than 20 years. Until the pandemic hit, cinema had been a growth medium globally. However, the effects of enforced cinema closures, cash reserves being depleted, exhibitors going into bankruptcy protection, circuit consolidation and trimming, a lack of content to play, older screens no longer being viable, and investment in refurbishment not being possible may all conspire to reduce the global screen base over the next few years, even with new screens in China still being built.
A different approach from bankruptcy protection has been signaled by two leading South Korean exhibitors, CGV and Lotte, which have both decided to cut their overall screen estate in their domestic market of South Korea. Lotte Cinemas is to close 20% of its sites over the next two years while CJ CGV has announced it is planning to close 30% of screens over the next three years because of the COVID-19 pandemic. This could well signal a wider shift in the global market, especially in the multiplex sector.
There are other dynamics closing screens in India. There is a twin dynamic at play and has been for some years now. Older single screens (which used to dominate the market) have been in decline for some time, but COVID-19 has accelerated this process, with 1,500 likely to close this year. While multiplex sites are still growing, there may well be a lower screen count in India for some years to come, even as box office rises.
Not every country will see screen closures. Public investment will be forthcoming in some countries, and other support mechanisms have come into place backed by agencies, trade bodies, manufacturers, and suppliers, but screens are likely to disappear in some countries including major cinema territories such as China and India.
Exhibitors in trouble will seek to keep alive their most profitable venues, trimming their less profitable sites, as has happened to Alamo Drafthouse and the South Korean exhibitors. As well as reducing the screen count, this has a potentially negative impact on communities and town centers.
Whether the impact on the sector produces permanent scarring in the shape of exhibitor bankruptcies and closures now depends on how quickly cinema can get back up and running following vaccination programs, new product supply, summer arriving in key Western markets, and cinemas opening up to customers again.
We know the cause of this crisis, but we have yet to see the full effects on the cinema exhibition sector.
Appendix
Further reading
COVID-19 Impact on Cinema Activity – February 2021 (February 2021)
Author
David Hancock, Senior Research Manager, Cinema
