In a sunset industry, Cineworld’s woes are a plot twist many saw coming

Cinemas have more obvious charms wrapped into their real estate history, so it sounds strange to say I have many fond thoughts about Cineworld and the site on Dublin’s Parnell Street on which a multiplex has been open, excepting lockdowns, since 1995.

When your cinemagoing memories date back to the single-screen era of the Ambassador, as mine do, or perhaps the days when it seemed like every second unit on O’Connell Street was an art deco palace, declaring a soft spot for Cineworld is a bit like confessing a sentimental attachment to Tesco, not the quaint newsagents that used to sell sherbet Dip Dabs.

But 27 years is a long time. In 1996, I saw Trainspotting in the building’s original 10-screen Virgin incarnation, when the foyer walls were painted a brash purple and travelling up its central escalators — beneath a starry ceiling? — seemed thrillingly grown-up.

Later, in its UGC trading days, my friends and I spent a college semester indulging in a string of high-quality new releases there every Friday afternoon in the sort of timetabling luxury that has yet to find a sequel in my life.

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Before this starts coming across as a quasi-eulogy, I should point out that Cineworld Dublin is open and remains a going concern, with functioning vats of madly priced popcorn, really quite harsh bathroom lighting and a good 20 minutes of trailers and advertising before the Irish Film Classification Office certificate mercifully arrives. I still love it.

The good news is a Chapter 11 filing doesn’t herald an immediate closure of its cinemas, either in the US or internationally

Long a 17-screener, Ireland’s biggest cinema complex underwent a part-refurbishment during its pandemic shutdown period — an act that contributed to brief but incorrect whispers of a more permanent closing — while the chain opened its first Cineworld in Northern Ireland as recently as last December, having spent much of the pandemic redeveloping and rebranding the multiplex at the Odyssey in Belfast’s Titanic Quarter.

Alas, the Cineworld parent company is now destined for an iceberg of its own. In a terse “response to media speculation” issued last week, it admitted it was considering filing for Chapter 11 bankruptcy in the United States. Such an outcome could result from its “evaluation of strategic options to both obtain additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction”.

Ah, a comprehensive deleveraging transaction — the kind of dramatic transformation that does not win Oscars. It means, of course, a desperate bid to escape from the weight of ship-sinking debt. The Cineworld horror show can be quantified at $5 billion (€4.99bn) in borrowings, a sum too great for even the second-largest cinema chain in the world to carry these days.

With rumours of its impending bankruptcy swirling the markets, and some investors walking out before the end, Cineworld’s shares have plunged, making it all but inevitable that its biggest lenders will take over. A “very significant dilution of existing equity interests” beckons in the event of a deleveraging — in other words, shareholders will likely lose more money than Cats.

The good news is a Chapter 11 filing doesn’t herald an immediate closure of its cinemas, either in the US or internationally, with Cineworld indicating it expects to “maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term”. Distribution companies continue to supply the group with as many of the available films as it wants.

But once under new control, some shrinking of the Cineworld footprint would not be shocking, with the extent of this exercise depending on the outlook for the wider cinema business — the future of which is far from assured — on a market-by-market basis.

Cinema optimists may glean initial comfort from analysts who stress that particular decisions made by Cineworld’s management have brought it to this debt-stricken predicament.

“This is not a company you should feel sorry for in any way,” said Argonaut Capital Partners’ Barry Norris, as he bluntly recounted the UK-based chain’s pursuit of debt-funded acquisitions on Bloomberg Television. “Observing the demise of Cineworld has been like watching a tiresome disaster movie populated by B-list actors” was the investment fund manager’s verdict.

Norris is among those unimpressed by Cineworld chief executive Mooky Greidinger and his brother and deputy Israel Greidinger, who led the UK-based company into an ill-timed expansion, closing a $3.6 billion deal to buy US-based Regal Entertainment Group in 2018, and then attempting a $1.65 billion takeover of Canada’s Cineplex that it had to scrap, at some cost, in the middle of 2020.

This aggressive empire-building was spectacularly ill-timed. Unfortunately for cinema optimists, Cineworld’s critics argue that this ill-timing wasn’t purely because Covid was about to unleash havoc. The pandemic, they say, has only hastened what would have happened anyway.

Its financial teetering should have been “entirely predictable” to the Greidingers because cinema is a sunset industry, Norris told Bloomberg, adding that it was “in structural decline” thanks to the ubiquity of streaming services, pressure on release exclusivity windows and “the poor quality of Hollywood films” relative to those of previous generations.

Indeed, while the pandemic prompted a sharp plummet in revenues at Adelphi-Carlton Ltd, the Cineworld subsidiary behind Parnell Street, from €10.7 million in 2019 to €2.2 million in 2020 (or a fall from €7.6 million to €1.5 million if box office alone is counted), the pattern of revenues over the preceding years suggests a business that was not exactly setting the world on fire.

Cineworld itself says recent admission levels across the company have been below expectations, blaming this on “a limited film slate” until November. It is far from the only cinema giant to be frustrated by Hollywood studios’ weak supply of product in 2022. Tom Cruise is a powerful man but one Top Gun: Maverick does not make a summer. Some residual Covid nervousness lingers, too. In the Irish market, cinema admissions in the first half of this year were still down 25 per cent on the same period in 2019.

Cineworld’s woes, therefore, may have been aggravated by the type of corporate bullishness that can be found in any industry, but they are not unrelated to a malaise that grips its own.

This Saturday, film tickets will be reduced to €4 at participating cinemas across Ireland, including Cineworld, for National Cinema Day, an initiative also running in other countries. It sounds wonderful. But like most cinema fans, I’d prefer an industry that’s thriving, not one that needs a special day.