The Cineworld Group (LSE: CINE) share price fell by as much as 20% when markets opened this morning. As I write, shares in the troubled cinema chain are trading down by 11% at 65p.
Today’s slump has been triggered by news that US movie giant Warner Bros will release new films to US streaming and cinema at the same time next year. The decision could mean that US cinema fans choose to stay home and watch movies rather than going to the cinema.
How Warner’s plan will work
Traditionally, we’re used to seeing films at the cinema before they’re released on streaming services or DVD. Warner’s plan means cinemas will lose their exclusive right to show new films first.
Some leading US cinema chains have already accepted shorter periods of exclusivity on new releases, but Warner’s decision takes this concept further. In 2021, the company will release new films to US cinemas at the same time as making them available on its flagship HBO Max streaming platform.
After one month, new films will be taken off HBO Max. Cinemas will then be able to continue showing the films, both in the US and overseas.
WarnerMedia expects US cinemas to operate at reduced capacity throughout 2021. The company believes that by releasing new films to HBO Max, it will be able to attract new subscribers and boost total earnings from new film releases.
Cineworld share price: why it’s falling
Today’s news is a blow for Cineworld, which generated about three quarters of its sales in the US last year.
When Cineworld decided to close all its UK and US cinemas in early October, the company blamed delays to major film releases. Without these, the company said it couldn’t attract enough customers back to cinemas “against the backdrop of Covid-19”.
Warner’s decision could mean that for Cineworld, 2021 trading will be tougher than previously expected. However, Covid-19 isn’t the company’s only problem. As I’ve reported before, Cineworld’s financial situation also looks troubled.
What happens next?
Vaccine news in November caused a surge of buying as investors speculated that a return to normal might be possible in 2021. Even after this morning’s fall, Cineworld’s share price is up by 130% over the last month.
It’s also worth remembering that Warner Bros isn’t the only big studio that supplies cinemas with new films. We don’t yet know how much impact Warner’s decision will have on US cinema trading in 2021.
Right now, shareholders might be more worried that Cineworld doesn’t yet have any plans to reopen its UK and US cinemas.
Here in the UK, rival Odeon is reopening some UK venues from today. However, Cineworld’s UK website is still advising customers that “at present there is no date for re-opening”.
Cineworld’s market-cap of £1bn suggests the market sees value in the group’s equity. But broker forecasts suggest the company will report combined losses of $1.2bn for 2020 and 2021.
What’s clear is that the situation remains uncertain — watch this space for further updates.