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The Silver Screen or The Sofa?

April 8, 2021 by Ian Gibbon

We have all experienced a seismic change to our work and social lives over the past year. For many the commute has been put on hold, there is a constant knocking at the front door with deliveries from Amazon, Ocado or Deliveroo and there have been a few more direct debits being paid out to streaming services. Over the past year, 12 million people have signed up for TV streaming subscriptions which amount to about a fifth of the population.

A large part of dinner party conversations (pre-Covid) used to comprise of house prices – particularly when they are on the up; while there is no doubt just now that property prices are soaring with the stamp duty holiday, it’s likely that a large part of such table-talk when lockdown eases, will be now shared with what has everyone been watching while locked down at home.

So, what is the future of cinema? Will people leave their sofas and go down to the local Odeon, Rialto or Curzon? A lot of the aforementioned change over the past year will probably have a lasting impact on us. Prior to lockdown, 3 million people traveled in and out of London every working day. I personally cannot see that number being the norm going forward. I also think the era of home delivery is here to stay. I am less sure about the future of cinema.

The Silver Screen remains the ideal place to see the latest Bond film, No Time To Die and the new Top Gun sequel. The producers of both these films have resisted, so far, selling them to streamers. For big budget films to recoup their costs – sometimes approaching $300 million, they need the revenue from a theatrical release, and also from tie-ins, which earn more with the mega-rollout and marketing that multiple showings of a huge film can provide.

But, in order to keep these monthly direct debits rolling in, streamers must provide content and this leads to a great opportunity for independent producers. Buyers now have a greater interest in diverse independent films that can appeal to the home market. For reference to this, just look at the films that have been nominated for the BAFTAs and Oscars. The growth in independent films is now a major disruptor to the traditional business model.

I do feel and hope that cinemas stay with us, and that the great memorable evenings out that they provide, return. Whether they return to their former glory is perhaps doubtful.

As a quick rain check today, just look at the share price of Cineworld – down 40% – compared to Disney – up 40%.

Netflix gets in the fast lane

April 6, 2021 by Ian Gibbon

Viewing habits have undertaken a seismic change in the past year – the closure of theatres has seen a huge increase in the take up of streaming services and the quantity of film and tv content being consumed in the home. One of the big winners in this sea change has been Netflix-having spent $17bn on content in the last year it is difficult not to have some of their productions on everyone’s favourite lists

Having said that, there appears to have been a critical prejudice and a stigma against them in some parts of the industry. Cannes Film Festival banned its movies, Steven Spielberg called it ‘a clear and present danger to filmgoers’, and Christopher Nolan called it’s business practices ‘mindless’. This is reflected in their poor recent successes at the Film Awards. While Roma received two Oscars in 2018 it failed to get a best picture award. Back in 2018 Spielberg commented that Netflix should be banned from the Oscars. Last year it looked like Netflix was finally going to pick up the number of awards that it no doubt hoped for and that it’s investment would justify. Not so-it received 24 Oscar nominations for films including The Irishman, Marriage Story, and The Two Popes – but only went home with a meager two awards – best supporting actress for Laura Dern for Marriage Story and best documentary award for American Factory

However, as with many post-pandemic businesses and lifestyles, change is afoot. Just look at the winners at this week’s Screen Actors Guild Awards (SAG awards). Two Netflix films picked up the major gongs – best actor went to the late Chadwick Boseman for Ma Rainey’s Black Bottom with Viola Davis winning best actress for the same film, and The Trial of the Chicago 7 won best ensemble film award. It is interesting to note that the SAG big winners last year-best actor Joaquin Phoenix for Joker and best actress Renee Zellweger went on to repeat their success at the Oscars.

It was not only in the film categories that Netflix scored well. The Crown, Schitt’s Creek, The Queens Gambit, and Ted Lasso all picked up awards in the TV categories.

It would have seemed madness to predict that a streaming channel would be picking up this number of awards two or three years ago and putting out product made by the likes of Martin Scorsese and Aaron Sorkin.

The final vindication for Netflix could well come on 25^th April – the 93^rd Academy Awards – personally, I think they will get over the line.

Margin Call

April 6, 2021 by Ian Gibbon

The current debacle at Archegos Capital Management that has emerged after they defaulted on margin calls from their banks is part of a domino effect kicked off with a fall in share values of various companies in which it had big holdings including in Viacom and Discovery. Both these companies suffered their largest ever daily falls last week.

And, talking of margin calls takes me back to a very enjoyable movie made in 2011: Margin Call. I doubt if many people saw it as I have never seen it included in any top box office gross numbers. But everyone I have ever discussed it with, has hugely enjoyed it. It may perhaps be something to do with the people I spend a lot of time talking to – Finance people! If money turns you on, Margin Call will also.

It stars Paul Bettany, Kevin Spacey and Stanley Tucci, but my favourite character, the Chairman, is played by Jeremy Irons. He wants to know what the problem is, and asks the rookie who has discovered it: “Maybe you could tell me what is going on. And please, speak as you might to a young child. Or a golden retriever. It wasn’t brains that brought me here; I can assure you that.”

When he looked at the fallout from the Margin Call he reflects: “It’s just money – it’s made up. Pieces of paper with pictures – so we don’t have to kill each other, just to get something to eat!” And his thoughts on how to make a living: “be first, be smarter or cheat.”

The great script was written by Jeffrey Chandor who also wrote and directed another of my favourite films, A Most Violent Year! I have learnt to appreciate great screen writing more and more – no one could ever call it an easy job.

I would speculate that recent board meetings at Archegos Capital must have been as fraught and tense, as at the meetings in Margin Call. But, I bet no-one had these, or any other lines as great as those said by Jeremy Irons.

Cineworld: A Dark Place

April 1, 2021 by Ian Gibbon

Cinema is familiar to dark spaces; from the moment the lights go out in a theatre, to the dark recesses of the mind that inhabit the likes of Scottie Ferguson in Hitchcock’s Vertigo and Frank Booth in David Lynch’s Blue Velvet. Two truly great movies that take us into the inner turmoil and psyche of the human mind.

Alas, it is a dark place that Mooky Greidinger, Chief Executive of Cineworld finds himself at present. Cineworld, the world’s second largest cinema chain operates with 9300 screens at 767 theatres in ten countries. Its largest market is the United States which accounts for some 75% of its sales – UK and Ireland account for 15% of its revenue.

Cineworld reported a pre-tax loss of $3 billion last year compared to a pre-tax profit of $212 million in 2019, with revenue down from $4.4bn to $852m. Cinema admissions have crashed from 275 million to 54 million.

As if the above numbers were not enough to pick up the phone to Spiderman for help, the group is weighed down with debts of $4.5bn and is burning through cash at the rate of $60m per month. This debt pre-dates Covid in the main and was taken on to finance an aggressive acquisition spree. In buoyant growing markets it is always tempting to accelerate organic growth by acquiring one’s competitors which will be invariably paid for by finance from debt providers at an attractive cost of capital – well certainly at the time of acquisition. As long as revenues continue to grow and debt costs remain stable, initiatives such as corporate strategy can produce fabulous results. But, if the doors are shut to the public and the revenue stream is cut off, the debt burden becomes an ogre.

To quote Warren Buffett: ‘when the tide goes out you can see who has been swimming without shorts.’

In order to survive, Cineworld is banking on cinemas opening worldwide in May at 60% of 2019 capacity rising to 90% by the end of the year. However, Covid restrictions remain uncertain going forward with further possible restrictions.

Alas, the outlook for Cineworld remains dark but for the future of cinema we must hope the lights are switched back on as soon as possible.

The British Are Coming

March 22, 2021 by Ian Gibbon

Those of a certain age will remember the rousing speech of Colin Welland at the 1982 Oscars; having just accepted the award for best original screenplay for ‘Chariots of Fire’, he waved his Oscar above his head and declared to Hollywood: “The British are Coming!”

Chariots of Fire has, in my opinion, kept its charm and poignancy and has not dated. Word to the wise – as lockdown eases, go to the coast, put your running shoes on and go for a jog or run along the sea’s edge. Put Vangelis on your listening device and you too will be an Olympic champion. Oh, to dream!

Anyway, the British are back on the march. Nominations for this year’s Oscars are packed with British contenders. Emerald Fennell leads the way with three nominations for direction, production and the writing of ‘Promising Young Woman.’ Her nomination for Director makes her only the sixth woman to receive this accolade; Kathryn Bigelow being the only woman to win the award (for ‘The Hurt Locker’).

The star of Promising Young Woman, Carey Mulligan is nominated for Best Actress. Fellow Britons Daniel Kaluuya, Sacha Baron Cohen and Olivia Colman are shortlisted in the best supporting categories while Sir Anthony Hopkins (in ‘The Father’) and Gary Oldman (in ‘Mank’) are in contention – again – for Best Actor.

Overall, this is a fantastic achievement and an endorsement of the success of the UK Film Industry. Back in 1982 Welland expressed his despair about the lack of investment in British cinema. That is no longer the case today. Alongside an invasion from the major studios and streamers including Disney, Warners, Amazon and Netflix, the government’s Film Tax Credit has encouraged a huge increase in the appetite to invest in British cinema.

The ballpark 20% refund on UK spend (25% x 80% of UK eligible production costs) does not always initially appear as rosy as other territories’ tax credits but, the UK Tax Credit is for pre-production, production AND post production spend. AND the refund is given as a ‘cheque’ into the hand of the Producer.

The refund is claimed when the financial statements and Corporation Tax Return are submitted to HMRC. In order to claim a film tax credit, the production costs must be passed through a limited liability company. The refund is paid out from HMRC to the producer within eight weeks on average. Knowing this is coming, allows producers to obtain a loan from a bank or investor to fund costs in the meantime, should there be any cash flow restraints.

Looking at the current activity and accolades being handed out to British cinema, I would hazard a guess that Mr Welland will have a smile on his face looking down today.

Another star is born

February 16, 2021 by Gordon Soutar

A long, long time ago – before streaming, before cable, before video and yes even before television, cinema ruled the screening world. And, sitting at the top was Leo the Lion; the mascot of Metro Goldwyn Mayer (MGM), the studios boasted of having ‘more stars than there are in heaven’

Their library today consists of 4000 film titles including iconic movies, ‘Gone With The Wind’, ‘Singin’ in the Rain’ and ‘The Wizard of Oz’, all the way to the James Bond franchise. Perhaps sadly, we all know what a changing world we live in – just take a quick look at the High Street – and the mighty MGM has alas been no stranger to the ‘slings and arrows of outrageous fortune’. It has fought off bankruptcy and is allegedly up for sale again – $5bn apparently will give you a step onto the Yellow Brick Road.

I am no astrologer but as one star falls, another rises. The new ‘Star’, which launches on 23^rd February is the latest channel that Disney+ is adding to its streaming service, which already includes The Simpsons, Star Wars, Pixar and Marvel. Star is aimed at more mature, grown up audiences than the majority of consumers of Disney+ content. It will include a lot of shows from the American networks, ABC and Fox with titles including ‘Buffy the Vampire Slayer’, ‘Modern Family’ (guilty pleasure – I loved the first three or so series) ‘24’ and The X-Files.

Among its film titles is one of my favourites, ‘The French Connection’ starring of course the great Gene Hackman who won Best Actor for his portrayal of ‘Popeye’ Doyle. All of the above comes to our homes relatively cheaply at £5.99 per month – comparing favourably to a Netflix premium plan at £13.99 per month – which personally, I still consider great value.

Both Disney and MGM were founded around the same time – almost 100 years ago. However, Disney is looking a far healthier proposition than MGM, albeit it has experienced fallow times particularly in the 1970s – and has suffered severely in the past 12 months. Cruise ships and their parks were its highest earning divisions in 2019 and it is still paying out for three cruise liners under construction in Germany.

I shudder to think where Disney would be without Disney+, and I am pleased to see its Star continues to shine a light over all of us. I wish it well.

It’s a Great Time to be a Consumer of Entertainment

January 26, 2021 by Mary Kacigeras

That’s a quote from the recent report Netflix sent to shareholders. And it must be said – the observation is spot on.

Starting from 2013 when Netflix decided to invest in its own productions with ‘House of Cards’ to their enormous current library with series such as ‘The Crown’ and films including ‘The Trial of the Chicago 7’. The range of choice and content available to their subscribers is outstanding. I wonder how long it would take each week to catch up with all their new releases? It may be a challenge that even I will have to skip!

Anyhow, the aforementioned jamboree of productions has had a very positive impact on their financial performance. New subscribers topped eight million in Q4 2020 bringing total subscriber number to over 200 million. Netflix forecasts an additional six million subscribers in Q1 2021, revenues of $7.13 billion and net income of $1.36 bn, double that of the same period last year. To get to this market share they have burnt through cash, investing in new content, and their borrowings hit $16 bn at one point. However, Netflix has now announced that it no longer requires external financing to fund day-to-day operations, saying it now has enough money to both repay its loans and to continue with spend on content.

And just to help this along, it has announced hikes in subscription rates from next month. The standard monthly subscription will go up to £9.99, with the premium subscription rising to £13.99. The premium subscription works out more per annum than the BBC licence fee. But for the content available most subscribers seem happy.

It’s interesting to note that in an article published by Forbes in April 2019, it suggested that Netflix had hit the buffers and its stock was over-valued.

Two years is a long time in this Covid 19-era world. Today, the former DVD mail out service set up in 1997 is one of the world’s largest internet companies with a market value of $250 bn.

So, for us consumers let’s put our feet up and press the play button. My fingers are hovering on the hit French TV series ‘Call My Agent!’ and I really must watch ‘Mank’ – surely an Oscar contender? And these are only a couple on my wish list – I better go and find my remote control.

Mickey Mouse and Major Tom – Two of A Kind

January 18, 2021 by Ian Gibbon

The recent five-year anniversary of David Bowie’s death reminded me of the breadth of his creativity and his ability to drive change by constantly re-inventing himself; it ensured his fan base remained not only engaged but grew as new audiences found something to attract them. It might be a bit of a stretch, but I can see a similarity between Bowie and Walt Disney, the creator of Mickey Mouse and founder of the Disney empire.

Bowie started out as a youngster with an acoustic guitar singing the nonsense song with his first solo release being ‘The Laughing Gnome’ and his career moved on through various alter egos including Major Tom, Ziggy Stardust, The Thin White Duke and various musical eras onto his final reflective masterpieces – ‘The Next Day’ and ‘Blackstar.’

Today, Disney is orchestrating a corporate restructuring that will change, not only its own content composition, but will be a significant feature in how the worldwide media sector transforms. Disney has driven change to ensure that as one sector of its business comes under fire as a result of the effects of the pandemic, other sectors respond – or are created – so that as a Group, it remains exceptionally successful.

The new Disney Digital Transformation Plan announced last month is focussed on its streaming channel Disney+ that was launched in March 2020. At launch, Disney forecast 60m – 90m subscribers by 2024; in a Covid environment they have exceeded this target and within eight months have 195m subscribers. Their new target for 2024 is north of 300m. They will hope to hit this target due to a phenomenal content budget. They spent about £2.6bn on productions in 2020 and aim to drive this up to $8bn by 2024. Alongside this spend by other Disney companies including ESPN and Hulu, they will be spending in the region of $14bn per annum on content – close to Netflix’s $17bn.

So what are they going to spend this money on? Well, the list is endless and reflects the depths of the brands owned by Disney – 10 Star Wars Series, 10 Marvel-branded productions plus 15 new original series and 15 feature films.

The news has been music to the ears of the Stock Market. Following the content budget announcement, Disney’s share value leapt by $38bn; their total capitalisation is now over $300bn.

Disney has come a long way since its formation in 1923 when the brothers Walt and Roy formed the company. Back then it produced short animation films, but in 1937 they released their first full length animation film, ‘Snow White and the Seven Dwarfs’. Other equally well-made, commercially successful animated films, followed, notably ‘Fantasia’, ‘Pinocchio’, ‘Dumbo’, ‘Bambi’, ‘Peter Pan’, ‘The Lady & the Tramp’, ‘Sleeping Beauty’, ‘One Hundred and One Dalmatians’ and ‘Jungle Book’. From the 1950s, live dramas and comedies geared to the family audience followed, firstly ‘Treasure Island’ in 1950 while the high point came in 1964 with the release of ‘Mary Poppins’; a multiple Oscar-winner.

Their Touchdown Picture division produced a whole batch of successful films from the 1980s catering for a wider audience, ‘Down and Out in Beverly Hills’, ‘Good Morning Vietnam’, ‘Dead Poets Society’, ‘Pretty Woman’ and ‘Sister Act’. Mainly led by their CEO Michael Eisner at the time they embarked on an acquisition trail that mopped up the Star Wars, Muppets and Marvel franchises, Pixar, National Geographic and the ABC broadcasting channel.

Alongside this, they have built and run 14 theme parks worldwide including Florida, California, Shanghai, Hong Kong and Paris, but in this area, Covid has had a devastating effect. They have had to suspend pay to 100,000 employees and pay off about 20,000. The losses for 2020 are well over $1bn.

Companies adverse to diversifying from their core business should take note of Disney’s ability to always look forward at changing markets and trends; as a result the punitive costs of Covid have been partly offset by the creation and growth of Disney+.

Perhaps the legendary sage of Omaha, Warren Buffet summed up change best when he said: ‘In a chronically leaking boat, energy devoted to changing vessel is more productive than energy devoted to patching leaks.’