The Business Of

Movies | Cineworld | What Do They Do?

Morning All!

Welcome back to The Business Of… hopefully you didn’t miss us too much?! This week, we’re introducing a slightly different format for the newsletter! So far we’ve been mixing up the industries every week. We jumped from supermarkets (Tesco) to food delivery (Deliveroo). To football clubs (Man United). To asset management (Ninety One). Before looking at the luxury goods industry (LVMH) last time.

However, after speaking to some of our subscribers last week, we thought that doing 3-week series on particular topics might be a more useful format for students. So to kick us off - for the next 3 weeks, we’re going to be looking at The Business Of Movies! And we’ve got 3 cracking business models to dive into…

• Week 1 - Cineworld: the #1 UK cinema operator has faced significant pressure from the rise of streaming platforms.

• Week 2 - Netflix: the #1 global streaming platform has changed the way people consume films but now faces stiff competition.

• Week 3 - Disney: is in the unique position of being one of the world’s largest film studios and reaches consumers via cinemas, like Cineworld. But they also have Disney+, the #2 global streaming platform, and reach consumers directly via this channel!

But without further ado, let’s take a look at what Cineworld does. And no, it’s not as obvious as you may think!

Not Just A UK Company…

So, I’m certain most of you reading this will be aware of Cineworld because of their UK operations. However, did you know that only 14% of Cineworld’s sites are in the UK?! As the screenshot below shows us, there are actually 4 other cinema chains that are a part of the Cineworld group!

And those 5 brands are seen all over the globe… Regal cinemas are in the US. Cineworld and Picturehouse are UK-based. And Cinema City and Planet are in Eastern Europe.

Is Amazon More of a Retailer Or a Cloud Computing Business?

So, a quick divergence - but very much related to Cineworld. In 2021, Amazon made ~84% of their revenues from their retail business. And they made the remaining ~16% of their revenues from their cloud computing business (AWS). However, because of their different margin structures, the retail business only made up 26% of their profits. Whilst cloud computing made up 74% of their profits!

The reason we bring this up is because we see something similar at Cineworld. Something to keep in mind as we go through the business model this week, is this difference in contribution to revenue and profit. Because as we’ll see tomorrow (spoiler!), Cineworld makes most of its revenue through ticket sales, followed by food and drink. However, like Amazon, is one segment far more profitable than the other? Well, as we see on Wednesday (spoiler!), the answer is Yes. But that’s enough spoilers! We’ll dive into these topics in more detail tomorrow and Wednesday.

Plot Twist

Some of you may be familiar with what’s going on with Cineworld right now. But it’s safe to say that the company has seen brighter days. Back in September 2022, the company filed for bankruptcy protection in the US. And so the question to ask is… where did it all go wrong?

Well, on Thursday we’re really going to be diving into this question. Was it Netflix? Was it the pandemic? Was it something completely different? And then on Friday we’ll look at what the future holds for Cineworld and the other top cinema operators in the UK (Vue, Odeon).

Career Talk

And to help us with our understanding of what went wrong with Cineworld, we have a special Career Talk this Friday with my friend, José Ignacio Legorburo - or as his friends lovingly call him, Nacho!

After graduating from the Polytechnic University of Madrid in 2015, Nacho pursued his Masters in Finance at IE Business School. Where I had the pleasure of sitting next to him for two terms! After leaving IE, Nacho moved to London and worked in M&A @ Credit Suisse for 3 years. Before moving over to do Private Equity @ DigitalBridge. He’s been at DigitalBridge for 3 years now, moving up to the title of Vice President. You’ll see in Thursday and Friday’s newsletters why Nacho’s M&A and PE experiences make him the perfect person to talk through Cineworld!

3rd Apr 2023

Nigel Jacob CFA