Merger at the Movies

Merger at the Movies

British cinema chain Cineworld will buy American chain Regal Entertainment for £2.7 ($3.6) billion

The merger announcement comes at a time of tough competition amongst theatre chains as they struggle with long-term declines in audiences and changes in consumer behaviour.

Exclusive release windows continue to shorten.  Introduction of the Video Home System (VHS) technology in the late 1970’s posed a significant threat to the traditional studio-to-cinema distribution model. Studios and cinemas created the “release window” system in the 1980’s as a strategy to keep different film formats from competing with each other. Only after a film was shown exclusively in cinemas for a particular “window” of time would it then be released for home rental or purchase. In 1999, the window had an average of 27 weeks. Today, the average is just 15 weeks, with smaller films often having release windows of just a few weeks or even days. This poses a challenge to cinemas, as they have a shorter amount of time to exploit their monopoly on the film before it becomes available on DVD or on-demand.

Netflix: from disruptor to key industry player.  The 20 year-old company that started as a simple DVD home delivery service just announced plans to release 80 original films next year. With nearly 110 million subscribers around the world, has doubled its audience base since 2014. Other streaming platforms including Amazon, Hulu and YouTube have also made significant dents in Hollywood’s business model.

While Regal has not disclosed why it selling, there are many plausible benefits to consider.  Firstly, Regal and Cineworld would likely reduce expenses across a variety of departments, as redundancies between the two – for example in marketing or finance – would be streamlined. The two chains would also benefit from joined resources, including that of knowledgeable staff, pre-existing cinemas, and the leveraging of existing networks. Cineworld would also gain access to American customers by acquiring Regal, without the start-up costs traditionally involved in venturing into new jurisdictions.

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