The future of film
By CA magazine
7 July 2021
As blockbuster season explodes into action and Cannes finally reconvenes, it may seem like business as usual for cinema. But peek behind the scenes and there are still huge challenges to overcome. Three CAs in the sector tell Christian Koch about the big screen’s make-or-break moment.
Hollywood and accountancy may seem unlikely bedfellows. But onscreen accountants have had major roles, such as Ben Affleck’s maths genius in The Accountant, Tim Robbins’ jailed hero of Shawshank Redemption or even Cher’s widowed bookkeeper in Moonstruck. Offscreen, there’s behind-the-scenes work managing tax for studios or balloting at the Oscars.
The industry needs these unsung heroes more than ever. With cinemas closed for much of the pandemic, the global box office lost $32bn (£22bn) in 2020, according to research group Omdia. Not even Bond could save the day. When the release of No Time to Die was rescheduled for a third time, both Cineworld (the UK’s largest chain) and AMC (owner of Odeon) had to secure financial lifelines from investors.
Film’s financial woes are in stark contrast to the fortunes of streaming giants, which flourished under lockdown. Many studios are now opting for digital-first releases (see Disney+’s Mulan), leaving theatre owners pondering whether it’s curtains for the big-screen exclusivity their business model relies upon.
As executives gather to discuss these topics (and more) at this month’s postponed Cannes festival, CAs in the industry also have unique insight into its challenges. Here, they tell CA magazine about tentpole titans, liquidity taskforces and making “everybody feel like a superhero”.
Act 1: In a galaxy far, far away...
What cinema was like before Covid-19…
Gattens: “Many people will tell you that cinema is dying. But the five years to March 2020 ranked among the busiest in Glasgow Film’s 82-year history. That year’s Oscar-winner Parasite broke all box-office records and our film festival had just recorded our best-ever admissions numbers. Such was the strength of our balance sheet at the time, we couldn’t have chosen a better moment for something that cataclysmic to happen! Also, don’t forget 2018 and 2019 saw the highest attendance levels for British cinemas in 50 years.”
Cornwell: “2019 was a record-breaking year for Vue. We had 95 million admissions, our revenue was over £850m, our EBITDA £140m. We were on a roll, then our Italian operations closed in February because of a new pandemic…”
Act 2: The day after tomorrow
UK cinemas all shuttered up in March 2020. Then remained closed for most of the next 14 months…
Cornwell: “In mid-March our European cinemas closed. We reopened gradually over summer and were fully open in time for Tenet. We could’ve opened some sites earlier but a weak film slate means low admissions and it was better to be closed receiving furlough and minimising costs. In October, when lockdown restarted, Vue went into hibernation mode before reopening in May.”
Gattens: “Glasgow Film was closed for a grand sum of 54 weeks. We reopened for nine weeks in late August but social distancing meant we could only sell one in seven seats.”
Cree: “When the first lockdown hit, we stopped all production and worked mainly on archive projects and commercials and music. Work picked up in the summer and Cinelab enjoyed our best ever Q4 in 2020. Music videos have grown exponentially; as artists are unable to tour, they’ve been shooting videos to ensure they retain their fanbase. However, feature films remain subdued because major studios have held back from green-lighting features.”
Act 3: CAs to the rescue
It was time for CAs to prove their worth…
Cornwell: “In March 2020, I immediately set up a ‘liquidity taskforce’, naming it because I wanted everybody to feel as if they were a superhero.
“When no money is coming in, the first thing you do is stem unnecessary costs and expenses. We stopped all non-essential capex and opex, while everybody voluntarily agreed to take pay cuts. Vue also accessed government support schemes for payroll, tax and business rates.
“Despite these measures, there was still significant cash-burn because there were many fixed costs not covered by pandemic legislation. Negotiation became important. When managing liquidity, the key is getting discounts wherever you can, rather than kicking the can down the road trying to defer. We opened talks with all our suppliers: landlords, film studios and food and beverage providers. No stone was left unturned.
“The biggest cost in the cinema business is rent. We negotiated with every landlord for rent relief. Because many Vue cinemas are in larger developments with other retailers, we’re an anchor tenant driving footfall. Landlords want us to be healthy, enabling us to have significant amounts waived by some landlords, while others agreed to deferrals of payments. I also raised an extra financial line of £150m, which, combined with the payroll support schemes, helped us to avoid pandemic-related redundancies.”
Gattens: “Having a financially aware team helps. At Glasgow Film, I’ve always tried to ensure each person – whether they’re selling tickets in the box office or producing the monthly brochure – thinks about what they can do to improve our financial performance or get bums on seats.”
Cree: “Forecasting took on even greater importance. Our stakeholders were hungry for information, meaning we prepared and collated different forecast scenarios. This had to be done for our bankers, landlords and shareholders too. Finance was pivotal during this time… The amount of reading and research I did took me right back to my ICAS exams!”
Act 4: Action!
Blockbusters are such huge profit generators that the film industry nicknames them “tentpoles”, because their success drives ancillary revenues and they support the production ecosystem. This summer, executives will be hoping their tentpoles, such as long-running franchise Fast & Furious 9 and Marvel’s Scarlett Johansson-starring Black Widow, do their job…
Cornwell: “Blockbusters are key drivers to the multiplex business and we’re fortunate there’s a wealth of tentpoles in the pipeline. As for the rest of our schedule, it’s looking crowded: we’ve effectively got three years’ worth of production to show over the next 18 months.”
Act 5: Streaming: Hero or villain?
The cinema closures combined with lockdown boredom mean today’s consumers are equally comfortable watching new releases at home as they are in theatres. It’s fuelled a record year for streaming: Netflix passed 200 million worldwide subscribers, while Disney+, launched in November 2019, hit 100 million this March. For Hollywood studios, digital-only releases are cheaper as no cut is paid to cinemas. Could the tradition of big-screen exclusivity for new films be coming to an end?
Cornwell: “To say streaming is the death of cinema is nonsense. Historically, the likes of DVD, Blu-ray and VHS were all lucrative income for studios, but that’s now been decimated. Because of this, theatrical is more important to studios than ever before, as it gives titles exposure and significant box-office dollars. There’ll always be an exclusive theatrical window for releases, but premium video on demand – whereby people pay £20 to sit in their house to watch a movie – may reduce this window.”
Gattens: “The invention of microwaves or Uber Eats hasn’t killed restaurants. It’s the same with streaming; it complements cinemas rather than being a competitor. Some of the heaviest Netflix users are also the biggest cinemagoers too.”
Cree: “Movie releases still generate a great deal of publicity, which helps downstream sales, including streaming platforms. Streaming has also helped long-form production. As subscriptions increased significantly under Covid, it’s driven demand for more content.”
Act 6: The phantom menaces?
Social distancing in cinemas and Brexit-related woes look set to continue. But a new £300m studio in Dagenham suggests the UK will remain a production hub for Hollywood (production spend on film and TV in the UK reached £3.1bn in 2018).
Cornwell: “Under social distancing, we won’t sell as many tickets on Friday evenings as we once did. But people’s working habits are changing; we’re seeing people attending at times of the week that have historically been less busy.”
Cree: “Tax credits have helped to make the British film industry among the best in the world. The demand for studio space also demonstrates the regard for UK talent. But there’s also the B-word [Brexit]. It’s important not to lose sight of the impact that customs checks and other restrictions are having, even with productions that are shooting in Northern Ireland. Global projects are hampered if crews can’t move around with their equipment.”
Act 7: No time to die
Why predictions of cinema’s death could be greatly exaggerated
Cornwell: “People want to treat themselves to seeing films on the big screen. They’ve watched everything on TV in their lounge over the last year; now they want to see films properly.”
Gattens: “When distancing forces you to sell just 60 tickets for a venue holding 390 seats, it’s demoralising. But it’d be even more dispiriting to shut the cinema again… We’ve been riding this out and if it takes us to the end of 2022 to get there, we’ll do it. We love cinema because it’s the most accessible platform and immersive art form. We love it because it takes us out of our world and into somebody else’s.”