#1213 – Digital Dreams for Silver Screen

A cacophony of amusement and attraction events continued in the run into Summer. The Cinema scene in Europe is in the spotlight, while the continued swirling of mergers, acquisitions, and restructuring impact the market, seeing major developments for well-known corporate brands in the sector and beyond.

AI Constructed Brief

CineEurope 2024, held in Barcelona June 17-20, marked a pivotal moment for the European cinema industry amidst a challenging box office landscape. The 33rd edition of this annual convention, produced by The Film Expo Group and officially associated with the International Union of Cinemas (UNIC), brought together major, regional, and independent cinema exhibitors to showcase upcoming films, discuss industry trends, and explore technological innovations. Despite recent box office disappointments, the event highlighted the industry’s resilience and adaptability, with a focus on diversification strategies such as “Cinetainment” approaches and studio acquisitions of theater chains. The convention served as a platform for industry professionals to address current challenges and explore new opportunities in the evolving cinema landscape, making it a crucial event for investors monitoring the sector’s transformation and future prospect.

The merger between Skydance Media and Paramount Global, valued at $8 billion, has been confirmed after previous uncertainties. The deal includes a $2.4 billion payment to National Amusements, Skydance’s acquisition of over 50% of Paramount‘s shares, and a $1.5 billion cash injection to reduce Paramount‘s debt. The merger is expected to have significant impacts on the entertainment industry, including potential divestment of certain Paramount assets and restructuring of management. The deal also raises questions about the future of Paramount Animation and the combined company’s involvement in theme parks and location-based entertainment. This consolidation trend in the movie industry may affect theater businesses and content availability. Investors should note the rushed nature of the deal’s completion before the 2024 Sun Valley Conference and the potential for further industry consolidation and asset sales in the entertainment sector.

Full Stinger Report

Movie Business Diversification

June saw the holding of the CineEurope convention – the European leg of the FilmExpoGroup suite of events. The event was celebrating its 33rd year supporting the European cinema sector. Held in Barcelona, Spain, this year’s event marked a pivotal moment for the cinema scene. While hopes had buoyed during CinemaCon’24 for a better box office for the industry, several tentpole films released during the memorial holidays failed to meet hoped-for expectations, such as ‘Fallguy’, ‘The Garfield Movie’, and ‘Furiosa: A Mad Max Saga’, impacting the overall cinema scene.

No amount of gloss could be placed on this situation, and major studios such as Walt Disney were showing signs of strain as they faced failing audience appeal to their roster of releases. Many observers have been looking towards the release of ‘Deadpool & Wolverine’ as a glimmer of hope – which was eventually confirmed with record openings, seeing an estimated $205m in the North America box office during its first weekend (a new record for an R-rated movie). Meanwhile, despite speculation that the Disney release ‘Inside Out 2’ would suffer poor audience numbers, in a second glimmer of hope, the Pixar developed film saw an estimated $155m in the North America box office during its first weekend. This was Pixar’s second highest opening weekend, the first being ‘Incredibles 2’ in 2018 at $182m. This much needed boost will hopefully address concerns that saw Pixar laying off 181-staffers in May.

In the face of this situation, the cinema and movie studio scene was seeing major restructuring to defend its future. For example, Sony Pictures has acquired Alamo Drafthouse Cinemas – described as a dine-in movie theater chain, with some 35-locations across the USA. The Alamo Drafthouse chain had only just entered Chapter 7 bankruptcy protection when this development happened, and this move continues the momentum in M&A developments in the cinema scene. This also marks the first time in some 75-years since a cinema chain has been owned by a Hollywood studio, and is expected to spark a new acquisition frenzy from studios and affiliates towards control of the bricks-and-mortar theater operations.

This news comes after the announcement that rebranded Elev8 Fun had signed a partnership with Apple Cinemas – what has been described as seeing the operators “pair together” towards offering cinema sites a diverse attractions mix. This follows more along the lines of the “Cinetainment” approach, charted during the CineCom’24 event. As part of the Elev8 expansion plans, the partnership will see

Apple Cinemas (currently operating some 12 venues) adding an amusement and entertainment element to the locations. Another Cinetainment announcement saw the Cinergy Cinemas & Entertainment location in Odessa, Texas, reveal the opening of their new social gaming lounge – along with AR darts, the space includes bowling, VR, and amusement.

This move towards Cinetainment was seen being applied by other cinema chains too. Cineplex revealed plans to open, in the Fall, their second ‘Rec Room’, in downtown Vancouver. The mixed-use entertainment center covers 45,000-sq. ft. across three floors and will employ some 200 staff. The site being utilized is a previous ‘Empire Granville 7’ movie theater that had closed in 2012. Construction of the new entertainment space started back in 2020 but was impacted by the global lockdown, delaying the project.

Cineplex had entered a tempestuous merger discussion with CineWorld and, following the European trade event, the fallout of the merger was still being felt. It was announced that CineWorld, representing some one hundred cinemas in UK and Ireland, has been undergoing changes after existing bankruptcy protection. Following the failed acquisition plans for Cineplex and the resulting legal battle, it had started moves for 50 sites to enter into negotiations for rent reductions. At the same time, the closure of approximately 25 sites in the UK was announced as part of the restructuring plan. This will see hundreds of staff layoffs from impacted sites that close, and a restructuring of the operation to address financial conditions.

The traditional cinema business needs to evolve to the changing landscape, and “Cinetainment” business approaches are also in the news. It was confirmed that Cosm had successfully raised additional capital of $240m towards rolling out plans based on its “Shared Reality” theater business. The operation also announced a planned third facility – following behind the Los Angeles flagship site, and the planned Dallas venue, the operation revealed plans to open a third site in Atlanta, GA. The 70,000-sq.ft. shared reality venue will have an 87-ft., 12k+ LED dome screen.

Mergers & Acquisitions Hit Hollywood and Beyond

As CineEurope’24 ended, news emerged that Paramount Global had confirmed reversal on previous news stories and had pivoted to accept the deal to merge with Skydance. This came into play following a counter proposal from Apollo Global and Sony Pictures, and then from Warner Bros. It was confirmed this final signoff for the deal depended on the largest Paramount stakeholder, National Amusements, controlling 77 percent of shares, agreeing to the plan.

The terms of the merger deal were reported to include National Amusements receiving $2.4b, whereas Skydance would buy out over 50-percent of Paramount class A & B shares and see a $1.5b cash injection to help reduce debt (one of the aspects sweetened to allow the deal to be agreed). This agreement is cited to be accepted, without being put to the board, and will also see some of the assets of Paramount being still considered as being divested for sale (a process already started before the merger completion).

Media reported that the deal was valued at $8b. The on-again-off-again deal saw stocks rise to the news of negotiations with Sundance being back on. The operator is started to divest assets and expenses, that saw the controversial move of sunsetting MTV and deleting the archive, including the loss of many episodes of the Music Network and Comedy Central archives, just to take the write-down (reduction in value) and remove the expense of server usage.

Paramount Animation was a hot topic of discussion in some media, with claims that executives would not work with Sundance Animation due to disagreements with controversial key management. These problems are expected to be addressed with the news of a complete replacement of the management structure across Paramount. The negotiation and completion seemed to be rushed near the end, to ensure it took place before the 2024 Sun Valley Conference – organized by the investment firm Allen & Co. Media and proven to be a major event for billionaires and investment influencers.

The impact of this merger on the Out-of-Home Entertainment sector will be considerable. The previous defunct Paramount Park, theme park and resort division, had attempted many ambitious projects in the theme parks and resort sector – including the abortive Paramount London entertainment resort concept that imploded over ten-years ago. The operation was also interested in LBE projects. It is expected that, as with Sundance licensed IP attraction and venue projects, the combined operations will invest afresh in this sector. But even so, as we go to the wire there is still the possibility that the Paramount / Sundance deal is not all cut and dry! (watch this space).

Continued consolidation in the movie industry is impacting theater business, such as the lessening of available content from wider sources. Skydance and Paramount have been production partners, co-financing and distributing film franchises that have been successful, such as the ‘Mission Impossible’ series, ‘Terminator’, ‘Star Trek’, ‘Top Gun’, and ‘Transformers’. There is a need to address audience concerns over the quality of releases, along with quantity. Already, the clearing of the decks is underway with changes and cancellations in previously announced animation releases and film projects from the newly merged group. Other major Hollywood studios, such as Warner Bros., are also seeing their name associated with possible mergers with the likes of Sony and Disney.

One of the toy brands that has seen extensive work in using its IP in the movie and LBE sphere is Hasbro. The company was in the news again as the CEO stated, in an earnings call, that the business was becoming a digital play company – the corporation is seeing success in its games division, such as with the $3b revenue generated from the ‘Monopoly Go’ game. This development comes following a staff cull of over 1,000 positions at the end of 2023. The toy manufacturer was linked to developments in the business regarding possible mergers and acquisitions, having obtained the number one spot regarding recognized and profitable toy brands. Speculation surrounded brand rival Mattel, indicating they may also be the target of acquisition interest, although details are still fogged in mystery.

Regarding the Panasonic Connect sale, which we covered some weeks ago, it has been reported by Japanese media that the commercial projection division has been sold for a sales price of $635m to the previous bidder, Japanese financial service group Orix. The division is in the spotlight for its work in commercial entertainment and leisure projects, most notably the operation supplied 130 projectors for the Paris Olympics. The new acquisition will see the consolidation of this work.

As if the continued momentum in M&A could see no signs of slowing, it was announced that gaming giant Bally’s was to accept the offer from Standard General LP (its largest shareholder), for a $4.6b merger agreement. The deal will see the gaming operation merge with regional gaming operator The Queen Casino & Entertainment, part of Standard Generals operation. The deal will include properties in development by Bally’s, such as the Tropicana Las Vegas casino resort (under development), and other new casino projects. The combined operation will operate some 19 gaming facilities across the US, as well as international interests. It will also see the Bally’s game development operation also rolled into the merger, expected to be concluded by the end of 2025 – with a $500m injection of investment to secure the process.

In the wake of the consolidation of the Six Flags Entertainment merger, we hear news of further impacts within the US entertainment sector. It was reported that Palace Entertainment will be up for sale. Owned by Parques Reunidos, the international entertainment operator has over 60 parks internationally and is owned by investment firm EQT AM. Sources revealed that Parques Reunidos had retained and instructed JP Morgan to start the process to investigate selling its US assets, representing Palace Entertainment and its holdings – comprising seven parks, six water parks, and four FEC sites, for a total of 17 leisure centers in the territory. This includes the ‘Boomers’ chain of six entertainment venues (many converted ‘SpeedZone’ sites), and the ‘Big Kahuna’s’ water park.  Parques Reunidos acquired Palace Entertainment in 2007 for some $330m. This further consolidation in US entertainment holdings marks a growing trend in the sector, as speculated upon after the Six Flags agreement.

Around the industry in the June and July period, we saw the holding of World Experience Summit 2024 (WXO’24). The event focused on bringing together designers, producers, professors, operators, and investors who are defining the future of experiences. Meanwhile, the Experience On Main Street Conference was also held, supported by BALPPA and ExperienceUK. These trade gatherings allow the sharing of information and approaches towards the business, and also shed light on new developments in the market. The M&A aspects of the market were also revealed as, following the news that dark ride manufacturer ETF Ride Systems founder had retired from the operation, the company had been acquired by a private family group which is deeply involved in the amusement industry. The new owners intend to maintain ETF Ride Systems as an independent company, retaining the same team and premises.