Market Insight

The impact of COVID-19 on the global cinema business (as at 25/3/20)

March 25, 2020

David Hancock David Hancock Director – Research and Analysis, Cinema & Home Entertainment

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In the USA, the legislative discussions have been concluded and a $2 trillion stimulus package has been agreed that ‘will literally save the movie theatre industry’ according to John Fithian, head of NATO.

In terms of their people, and before the government unveiled the rescue package, cinema exhibitors had displayed different approaches to the uncertainty. In the USA, Regal (owned by UK’s Cineworld) is said to have furloughed the vast majority of its staff, prompting complaints from staff. AMC also laid off most of its staff, while Cinemark laid off some hourly staff in many sites but retained most corporate employees. The same situation regarding laying off staff happened in the UK, with Cineworld and Odeon also taking swift action on job layoffs.

However, in both countries and others, government help should change the situation for all employers and may prompt a re-think from exhibitors putting staff on furlough. After all, they need to have a business afterwards. However, cinemas are unlikely to pay any unwanted or non-essential costs during a period where no revenues are being generated. The clear objective is to maintain the business as a viable one when this situation is over, so that the previous revenue levels can be worked toward.

In an interesting partnership, Regal employees are being favoured for employment at grocery chain Albertsons. The chain needs 30,000 new staff and Regal staff do not have to sit an interview to speed up the hiring process. This is similar to the retraining and re-purposing of staff that was reported happening in Dubai by Majid Al Futtaim (see yesterday’s update).

With most cinemas around the world now closed, the industry can turn to China to see how a re-opening can best be achieved, and whether such a move is permanent or will be a series of openings and closings as the virus flares up periodically. This will help us get some sort of sense of the damage to box office for the year. Cinemas were shut nationwide on January 24, two months ago. Given the early re-openings are now happening but with very low visitor numbers, it may be reasonable to assume a three-month gap in box office for all affected countries, and therefore a 25% drop in global box office for the year (around $10.5bn). This may be somewhat mitigated by a strong return to cinemas as people seek out social and out-of-the-house experiences but we are not there yet.

On top of the money earned at box office, the cinema sector also drives concessions sales and advertising, and these are also ended for the moment. The true cost of consumer level revenues from the cinema shutdown needs to take account of those areas too. The US estimates this cost domestically at $15bn a year.

On the distribution side, Wonder Woman 1984 is maintaining a theatrical release first strategy but Warner Bros has pushed the date out to 14th August instead of 5 June, replacing an existing slot the studio had for Malignant. Warner has also pulled In The Heights with no date yet attached to a release.

Previous postponements had focused on those movies being released in April and May, but studios are now looking at those in June as well. Given that cinemas are being closed around the world in the past week, a minimum period of two to three months would seem a reasonable timeframe for delaying releases, with maybe a month or so on top for any business to begin to come up again. The timing is especially acute for movies that are expected to lead the box office as the wrong timing could take away a significant proportion of that box office.  We can probably expect more distributors to look at postponing larger titles.

A trend that is becoming clear is that the majority of major films that were yet to come out in cinemas have not moved straight to early digital releases. The latter strategy has been used relatively sparingly and is usually to capitalise on marketing spend already committed. This underlines that when push comes to shove, cinema is the favoured launch and viewing medium of the major studios and other larger distributors and remains the central value creator of the revenue maximisation model.

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