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How the UK's biggest cinema chain fell into administration
George Oduro
June 26, 2023
128 cinemas. $350M in revenue. And yet Cineworld still failed.
A quick-fire summary of how the UK's biggest cinema chain fell into administration and how your business can avoid the same fate…
UK Cineworld location
(this post was remixed from a twitter thread you can find here)
How it started…
Let’s get straight into it:
The Cineworld group is actually made up of 3 parts; USA, UK, and Rest of the World.
In the years leading up to its collapse, the Cineworld group suffered from a potent mix of the following factors:
Aggressive debt-fuelled acquisition
The COVID-19 pandemic
The rise in online streaming services
The first nail in the coffin was the 2018 purchase of Regal Cinemas in the US, which the group piled on tons of debt to buy.
Fast-forward a year and cracks were starting to show from the company’s significant debt and lease liabilities.
As a result, the share price crashed 23% in June 2019.
Despite this, Cineworld management seemed to ignore the warning signs of its financial position.
In fact, they even proposed a further acquisition of Canada’s Cineplex Entertainment in December 2019.
That said, no one could have predicted what happened next...
The COVID pandemic hit in early 2020, forcing thousands of cinemas shut, and turning revenue to zero overnight.
In June 2020, Cineworld pulled out of the Cineplex deal.
Cineplex sued and was awarded ultimately CA$1.2B in a court judgement in December 2021.
How it ended…
Another UK Cineworld location
The story for Cineworld since the pandemic subsided has been a grim one.
Customers locked in their homes for months permanently changed their behaviour.
Being in a room for 2 hours with strangers no longer appealed once Netflix and Disney+ allowed movies from your couch.
As a result, Cineworld in the US filed for bankruptcy in October 2022.
In June 2023, Cineworld has announced plans to file for administration in the UK to try and save the UK & Ireland bit.
Learnings for your business
But what can you as a business owner learn from this?
Three things:
1/ Don't overdo it on debt
While the pandemic was pretty catastrophic for the cinema industry, Cineworld's debt pile was huge even before Covid.
Always be careful when taking on additional borrowing for your business.
Cash flow projections are a must:
Don't let someone else spend your money for you. 💸
Take control of your cash flow by budgeting wisely. 💰
Here's how (🧵 1/8):
— Afrolift (@afroliftdotcom)
4:52 PM • Apr 4, 2023
2/ Read the (economic) room
Cineworld did not heed the warning signs of its financial position before Covid.
In fact, even with a towering debt pile that investors baulked at, they still looked to expand even further.
Always regularly review your financial position:
Getting started with financial management for your small business doesn't have to be rocket science:
1) Set up a budget.
2) Track your income and expenses.
3) Review your financial performance regularly.
4) Adapt if things are off track.That's it.
It's that simple.
— Afrolift (@afroliftdotcom)
6:55 PM • May 9, 2023
3/ Adapt to the new world
Once Covid hit, it was clear Cineworld's business model was at risk.
They could have looked at alternative revenue streams like drive-in movies, cinema snack delivery or theatre rental.
When your business model is under threat, it is important to try and look at other revenue streams for your business.
AirBnb famously sold novelty cereal for $40 a box when their fledgling business was about to run out of cash in 2008.