What went wrong at Cineworld?

UK-based cinema group Cineworld has filed for Chapter 11 insolvency protection in the United States as it struggles with huge debts and empty theatres

Cineworld is the second-largest cinema group in the world after AMC Theatres, with 128 cinemas dotted around the UK and Ireland, plus 751 around the globe.

Battling bankruptcy

In August the group, which has racked up $4.76bn in debt, reported that its stock had crashed by more than 60%. Cineworld has struggled to finance its debts since its recovery from the Covid-19 pandemic proved slower than expected.

“The pandemic was an incredibly difficult time for our business, with the enforced closure of cinemas and huge disruption to film schedules that has led us to this point,” CEO Mooky Greidinger said in a statement confirming Cineworld’s Chapter 11 status.

Screening blockbusters such as Top Gun: Maverick, The Batman and Thor: Love And Thunder haven’t been enough to reinvigorate the business. Indeed, Cineworld noted in a statement to market that it did not expect the number of admissions through its doors to pick up until November 2022.

With interest on its debt soaring, however, the business could ill-afford a slow recovery, something that has been exacerbated by fewer releases than usual. Over 2022, there were roughly one-third fewer wide-release movies in theatres compared with the years before the pandemic. That’s not to mention the competition posed by streaming services such as Netflix and Amazon Prime.

On top of that, the chain is further weighed down by a $959m Canadian court judgement against Cineworld for pulling out of a deal to buy Canada’s Cineplex chain – a judgement that Cineworld is in the process of appealing.

The show’s not over yet

Despite these issues, the prevailing wisdom is that the business won’t disappear, particularly as it remains profitable despite its debts and due to the protections offered by Chapter 11.

Chapter 11 is essentially a reorganisation bankruptcy, and does not mean the end for the company. It allows the business to continue to operate more or less as normal, and would have minimal impact on employees, Cineworld said. Firms including General Motors and Marvel Entertainment have in the past made Chapter 11 filings, only to bounce back later.

Given Cineworld’s debts, a distinct possibility is that elements of the business, such as the Picturehouse brand, will be sold off in order to inject some liquidity and help service the liabilities.

The lesson, then, is to not overstretch yourself and not assume the favourable conditions will last in perpetuity. Pandemics, of course, are aberrations, but unusual events can and do occur frequently, so it’s vital to be prepared so as to absorb their effects.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.