Cineplex revenue sinks 85% as COVID-19 pandemic restrictions continue to hit attendance

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Winter is coming, and Cineplex Inc. is staring down a holiday season relatively bereft of the usual blockbusters. But CEO Ellis Jacob would rather focus on something else: Japan.

With COVID-19 numbers far lower in that market and movie theatres reopened, the anime film Demon Slayer had the biggest opening weekend in Japanese history last month, and has racked up more than 20 billion yen (more than $250-million) so far. Mr. Jacob said he believes this proves that audiences will come back once the pandemic is under control.

“Our guests want to have that experience, and are really starved for not going to the movie theatre,” he said in an interview Friday, after the Toronto-based company reported an 85-per-cent drop in revenues and a $121.2-million net loss in its third quarter.

Cineplex executives were encouraged by news this week of Pfizer’s progress on a COVID-19 vaccine, and say they believe things could begin to return to normal in the spring. Until then, Canada’s largest movie theatre owner is focusing on conserving cash, to wait out the lean months ahead.

It got some breathing room on Thursday, reaching a deal for temporary relief from financial covenants under its $460-million credit facilities. That delayed a test of its leverage compared with earnings until its second quarter in the spring. This leaves Cineplex “with sufficient room assuming the box office film slate [ramps up] in April as currently scheduled,” Bank of Nova Scotia analyst Jeff Fan wrote in a note on Friday. Cineplex has also raised $303-million in new financing.

Restrictions on public gatherings owing to the global pandemic have continued to have a significant impact on the movie theatre industry. Cineplex reported on Friday that 1.6 million visitors came to its theatres in the three months ended Sept. 30, compared with an audience of 17.5 million in the same period last year.

After closing all of its 164 movie theatres across Canada on March 16 to help curb the spread of the novel coronavirus, Cineplex began reopening some venues in late June. By Aug. 21, all of its locations had reopened. Canadian movie theatres were among the first to screen the highly anticipated Christopher Nolan thriller Tenet.

Since the end of the third quarter, however, restrictions have been reinstated in some regions, including Ontario, Quebec and Manitoba, and theatres have shut down again. Theatre closings have also continued in key movie markets such as Los Angeles and New York, prompting Hollywood studios to delay high-profile film releases, including the latest James Bond instalment, Dune, Wonder Woman 1984 and Fast & Furious 9. Other films, such as Disney’s Mulan remake and The Trial of the Chicago 7, have gone straight to streaming services.

“[Studios] are concerned and worried because they don’t want to end up with movies sitting on the shelf for a significant period of time,” Mr. Jacob said. “But they still love the theatrical experience and the partnership that we share with them.”

The releases being pushed back will delay Cineplex’s return to profitability, and Mr. Jacob acknowledged that the planned Christmas Day release of Wonder Woman 1984 is somewhat uncertain.

“The only one I’m a little bit waiting to find out on is Wonder Woman,” he said. Studios look at a number of global markets as they make decisions about releases. “The challenge we are faced with, more than anything, is the fact that the U.S. locations like L.A. and New York are still not open, and Europe is also in a bit of a disarray.”

With all of the closings, films released this year have had little chance to gain momentum. So far, the three top-grossing films of 2020 for Cineplex were all released late last year: 1917, Star Wars: The Rise of Skywalker and Jumanji: The Next Level.

On Friday, Cineplex announced that it is launching a new project allowing visitors to rent out a theatre auditorium for private gatherings of up to 20 people, starting at $125, as well as offering rentals at the company’s Playdium and Rec Room locations. While private bookings have always been available for Cineplex venues, the company has lowered the price during the pandemic, set aside dedicated auditoriums for private gatherings and made bookings more readily available through its website. Bookings will not be possible where government orders have closed venues, such as in Quebec, Manitoba and parts of Ontario.

Cineplex reported $61-million in total revenue for the three months ended Sept. 30, down 85.4 per cent compared with the same period last year as both ticket sales and food sales plummeted. It reported a net loss of $121.2-million, or $1.91 a share, compared with net earnings of $13.4-million or 21 cents a share in the third quarter last year.

The company has been burning $15-million to $20-million in cash per month since it had to close its theatres. In the third quarter, this amounted to a total of $49.7-million. On Friday, it also reported an impairment charge of $65.6-million on long-lived assets and goodwill.

The company has also reduced its rent payments by $58-million, and received $22.5-million in government wage subsidies. Those subsidies, combined with temporary layoffs during theatre closings, meant that theatre payroll expenses were reduced to $3.9-million in the third quarter, compared with $40.9-million in the same period last year. Cineplex has sold some of its lease rights to landlords and has announced plans to sell its headquarters in Toronto, which it could continue to lease from the new owner.

During the pandemic, a deal to sell Cineplex to British-based theatre giant Cineworld Group PLC fell apart. The two companies are now facing a legal battle over the deal; a trial date has been set for September of next year.

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