Market Insight

Cineworld to become the largest exhibitor in North America

December 19, 2019

Pablo Carrera Pablo Carrera Principal Research Analyst – Cinema, IHS Markit

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UK operator Cineworld has announced the intention to acquire Canadian Cineplex International to become the largest exhibitor in North America.

The operation would add 168 sites and 1,718 screens to Cineworld, taking its total to 973 cinemas with 11,314 screens worldwide. Cineworld acquired Regal Entertainment in the US in February 2018 and it would control shy of 9,000 screens in North America, 10% more than AMC, which sold its Canadian cinemas a few years ago.

Cineplex is the largest exhibitor in Canada and enjoyed a 75% market share as at September 2019. In the first three quarters of 2019 it has sold 49.5M tickets and generated CAD 523M in box office.

The transaction includes Cineplex’s Amusement and Leisure, and Digital Media businesses and is priced at CAD 34 per share, conveying a market valuation to Cineplex of CAD 2.8BN. It is subject to shareholder and regulatory approval and is expected to complete in H1 2020.

 

Our analysis

Cineworld has embarked, as Wanda and AMC did, in the course to become a true global powerhouse. It did so with the acquisition of Regal Entertainment in 2018, and not it has consolidated this status by growing into the leading exhibitor in the largest box office market globally.

The acquisition of Cineplex Canada ties well with that of Regal given the similarities and proximities between US and Canadian markets. The result of the elections in the UK, where Cineworld is listed, and the certainty of Brexit don’t look like a coincidence for the timing of the closing of the agreement.

Canada is a mature and stable market. Cinema admissions have fluctuated in the last five years and followed a slight decreasing trend, very similar to what has happened in the US. However average ticket price and box office have achieved compound annual growth rates of 1.9 per cent and 3.5 per cent respectively, making it an attractive market for acquisition. More so if the opportunity presents to enter such a market as the dominant player.

On the one hand, the acquisition increases Cineworld’s resilience globally and in each of the market it operates, in a landscape of ongoing consolidation. On the other hand, it is an opportunity to increase value for its shareholders in two ways: through the cross-border joint operations of both Regal and Cineplex, and wider global synergies; and through the implementation of proven strategies and concepts to increase attendance and revenue in the Canadian cinemas. Cineplex has been an innovative exhibitor branching out into leisure and other entertainment offerings and Cineworld may also tap into that.

It is worth noting that one of these concepts is cinema subscription. Cineworld introduced its Cineworld Unlimited programme in Regal cinemas in the US and plans to introduce it to Cineplex after the acquisition. This would take to 40% the number of screens in the North American market accessible under subscription services, when added to those of AMC (and its A-List subscription offer) and Alamo Drafthouse.

In Canada, Belgian operator Kinepolis acquired Landmark Cinemas in 2017, the second largest Canadian operators with 325 screens as of September 2019. Kinepolis will see in Cineworld/Cineplex an even stronger competitor in Canada. Landmark attained 12% of the Canadian box office in 2018 with a similar share of screens. Kinepolis also completed acquisition of MJR Cinemas in the North of the USA.

Consolidation in the cinema sector is creating larger groups with more power in industry negotiations, notably about windows, film rental and even technology standards. It echoes what happens on the other side with Hollywood studios also consolidating. After Cineplex acquisition, the three largest operators in North America, AMC, Cineworld and Cinemark, will control 50% of the total screens and 53% of the PLF screens.

Research by Market
Media & Advertising
Category
Cinema
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