Concerns over the future of the cinema industry have increased in recent years, driven by pressure from the growth of online streaming services such as Netflix and Amazon Prime. However it’s a market that still continues to see a wave of M&A activity, and over the past few weeks has made the headlines once again.
Earlier this month it was rumoured that CJ CGV, the largest cinema chain in South Korea which has a number of international brands, was interested in acquiring UK-based Vue Entertainment (Vue), backed by Canadian pension funds OMERS and AIMco. Vue, thought to be considering a float on the stock exchange, lost out on a takeover of competitor ODEON, which was bought by AMC Entertainment Inc (AMC) last year.
More news in the industry came just last week, as Cineworld, the second largest cinema chain in Europe, announced that it will enter the US market through the acquisition of the second largest cinema chain in the US, Regal Entertainment, for €3.1bn (£2.7bn). On completion, the deal will create the world’s second largest chain, behind NYSE-listed AMC (majority owned by Chinese conglomerate Wanda Group) which for the past 18 months has been on an acquisition spree, snapping up leading chains across the globe.
AMC is currently 50% larger than its next competitor after recent acquisitions including UK-based ODEON in November 2016 for €1.7bn (£1.5bn), followed by US-based Carmike Cinemas in December 2016 for €1bn (£905m), and Sweden-based Nordic Cinema Group in March 2017 for €872m (£771m) from private equity firm Bridgepoint. However despite spending over €3.5bn (£3bn) on acquisitions, it seems AMC is struggling. The group has seen its share price plummet more than 50% since the beginning of the year, and its market cap has a value of €1.66bn (£1.47bn) – less than the combined value of its takeovers.
The question is, would AMC have been better off buying a smaller, premium operator rather than buying for scale? With increasing pressure, cinema chains are likely to need to differentiate themselves in order to succeed. Chains which offer a more premium experience, which include sofa style, smaller screens, coupled with waiter services of G&Ts and pizza, are attracting more customers and a regular loyal audience. These companies are typically smaller but are able to charge higher prices for a premium offering.
In the UK examples include The Light, which was established specifically to capture the premium mainstream segment of the market. The firm is growing rapidly, with the aim of adding a further 11 cinemas to its 9 strong hold by 2020; also boutique cinema network Everyman, which listed on AIM in November 2013, currently trades at a whopping 33.6x EBITDA.
So is premium the way forward for the cinema market in order to combat increasing competition from streaming services? Or is there still a strong interest for standard multiplexes? It’s clear the cinema industry remains robust and this is likely to continue into 2018 with a string of highly anticipated sequels on the horizon including Fantastic Beasts: The crime of Grindelwald, Fifty Shades Freed, The Incredibles 2, Jurassic World: Fallen Kingdom, and Mamma Mia: Here We Go Again!