The Cineworld Group (LSE: CINE) share price has had a stunning couple of months. Hopes over a Covid-19 vaccine has helped the world’s second-biggest cinema chain to rise 126% since the start of November. It’s been the best-performing UK share on the FTSE 350 in that time too.
It’s no surprise to see investors piling in. The spectre of its cinemas being packed to the rafters again means many see the business as a terrific turnaround play. But I worry that those who’ve got caught in the stampede are setting themselves up for a fall. Cineworld still faces significant structural challenges, worsened considerably by the Covid-19 outbreak.
News late last night worsened the long-term outlook for cinema operators like this UK share. The Cineworld share price has slumped by double-digit percentage in Friday business as a result.
Cineworld in danger?
The threat of streaming services in a post-coronavirus landscape to Cineworld et al is considerable. Demand for services like Netflix, Amazon’s Amazon Prime and Disney’s in-house platform has taken off since Covid-19 lockdowns were introduced in early 2020. It could prompt a sea change in the way the world watches movies.
The streamers have pulled their tanks directly onto the cinema operators’ lawns in recent months too. A slew of films such as Mulan on Disney+ and, more recently, Borat 2 on Amazon Prime have bypassed theatre releases entirely and been streamed straight into customers’ homes instead.
Moves like this may have been prompted by necessity as movie studios scramble for revenues during cinema closures. But some filmmakers believe customers might be prepared to shun the theatrical experience entirely in favour of staying at home.
Warner Bros piles on the pain
Universal has signed deals with a cluster of North American chains recently to shorten the theatrical window. It could see cinemas lose exclusivity on playing the studio’s titles to as little as 17 days.
The cinema industry received another possible hammerblow from Warner Bros in recent hours, sending Cineworld’s share price through the floor again. The studio went one step further by announcing that all its 2021 films will be released in the US on the HBO Max streaming service on the same day they hit cinemas.
The news means Cineworld will lose out on a huge chunk of revenues that Warner Bros’ upcoming blockbusters, including Dune and The Matrix 4, would have provided. And it’s particularly bad news for this particular UK share. It desperately needs to start pulling in the punters to pay down its colossal debt pile.
Cineworld faces considerable near-term uncertainty. Rocketing Covid-19 infection rates in its key US market threaten to keep its theatres empty. Possible setbacks with coronavirus vaccine rollouts could cause it to go back to the well for further financing too. The risks in the short term and beyond remain considerable. So I’ll continue to ignore the Cineworld share price and buy other UK shares instead.
