Cineworld’s Temporary Closure in The US and UK To Result in Almost 45,000 Job Losses

Summary

• The Entertainment sector is due for more job redundancies, Cineworld’s temporary suspension of its theatres in the UK and the US could lead to downsizing of its workforce by nearly 45 thousand
• Lack of new blockbuster releases and fear of no show has led to the closure of screens in UK and different parts of the world
• Online streaming services have changed the landscape of conventional cinemas and are giving stiff competition to Cinema chains

The coronavirus pandemic continues to devastate the Entertainment & Leisure sector. The sector has been facing an existential crisis since the onslaught of the deadly pandemic in March. Covid-19 pandemic has accelerated the maturation of the cinema industry, with the increased focus on online streaming platforms, such as Universal and Disney. Moreover, the situation of the Covid-19 pandemic has aggravated further, and thus, the devastation in the sector is expected to continue.

British cinema company, Cineworld Group Plc (LON: CINE) announced a temporary suspension of its theatres in the UK and the US due to an increasingly challenging theatrical landscape and sustained key market closures due to the Covid-19 pandemic. 536 Regal theatres in the US along with 127 Cineworld and Picturehouse theatres in the UK would be temporarily closed with effect from 8 October 2020.

The company recorded a huge 67 per cent decline in its statutory revenue, at $712.4 million during the first half of 2020. The company managed to raise $360.8 million of additional liquidity during the first half of 2020. Notably, the level of debt has been rising consistently for the company. The cinema chain, Cineworld Group however had attained a CAGR (compounded annual growth rate) of 76.27 per cent as its total revenue grew to USD 4,369.7 million in 2019 from USD 797.80 million in 2016.

A business lull at major markets

The cinema company’s major markets such as UK and the US, as of now have no clarity with respect to reopening timings after being closed for such a long period of time. In addition, Movie studios are refraining from releasing their new films in the pipeline as they believe that reduced viewership may lead to losses. Newly arrived James Bond film, “No Time To Die” was postponed for the second time this year and is now expected to release in theatres in the first half of 2021.

Cineworld needs strong commercial films to pull the audience back to theatres. However, amid the coronavirus crisis, the company has decided to suspend operations in its major markets that could lead to downsizing of its workforce by nearly 45 thousand.

The temporary closure of screens can also be attributed to cash preservation and cost reduction along with the safety of customers and employees as the nation is witnessing a sudden spike in the number of coronavirus infected people. Moreover, the cinema company is looking forward to additional liquidity options.

Also read: Companies Should Devise A Plan To Counter Second Wave Of Infections: Alert From The PM

As soon as the announcement was made on Monday, the stock took a huge beating and was down by more than 35 per cent. The company witnessed a substantial erosion in its market capitalisation, since January till date, the shares of the cinema company were down by nearly 90 per cent. During the peak of the coronavirus pandemic, Cineworld shares created a 52-week low of GBX 21.38 on 17 March 2020. However, since then, the Cineworld shares have recovered by more than 26 per cent.

Cineworld not a one-off a case

The world’s largest cinema chain with more than a thousand outlets, Odean, has decided to open 25 per cent of its cinemas only at weekends. Odean believes that the fear of the second wave of the pandemic would deter people from going to theatres. In addition, Odean senses a dearth of new Hollywood blockbusters to pull the crowd to theatres.

Also read: Streaming Services Gain Foothold in Entertainment for Britons

OTT platforms emerge as a parallel industry amid coronavirus crises

Most of us need a daily dose of entertainment to relax after a day’s work. People were not able to visit theatres due to lockdown induced by the unprecedented crisis, and the movie makers turned sceptical about releasing their movies in theatres as they feared no show.

In the changed scenario, people resorted to online streaming services for their daily dose of entertainment. People across the UK spent nearly half of their day watching content online and television during the lockdown induced by the unprecedented crisis, according to a report from Ofcom, the media watchdog.

Online streaming web applications and OTT (over-the-top) platforms have become the preferred choice for Britons during the lockdown period. The consumer spending on the subscription of the streaming services such as Netflix, Disney+ and Amazon Prime Video has risen substantially. The reason why the online streaming providers are so successful in these turbulent times is because they operate in the business to consumer segment and therefore, can connect with a larger audience.

The moviemakers are now looking forward to these platforms for releasing movies. American science-fiction movie, Artemis Fowl was released in the UK on Disney during the heightened crisis. The onslaught of the coronavirus pandemic has led to a seismic shift in the way content is presented in contemporary times.

The prolonged closure of theatres due to Covid-19 has led to a liquidity crisis. The businesses could face further pressure on their revenue and profitability in the near term. Moreover, the inability to deal with technological advancement, which is the key to remain competitive can impact the long-term sustainability of the businesses. Future pandemics might create an existential crisis for the cinema industry.