U.K.-based Cineworld (CNWGY 5.78%) is poised to become North America's largest movie theater operator as it acquires Canada's Cineplex (CPXG.F 0.74%) in a reported $1.6 billion deal, escalating the movie screen arms race that began in earnest in 2012 when China's Dalian Wanda Group purchased AMC Entertainment (AMC 1.92%).
There are relatively few theater chains that remain independent globally, as Cineworld owns Regal, Cinema City, Yes Planet, Picture House, and its namesake theater chain, while Dalian Wanda owns AMC, Carmike, Odeon, UCI Cinemas, Nordic, and Hoyts. Together they operate over 21,000 screens across more than 1,800 theaters.
While Dalian Wanda is still the biggest worldwide, Cineworld has taken the crown in North America.
A blockbuster acquisition
The consolidation that continues in the industry indicates the operators see plenty of opportunity for additional growth despite Hollywood's softer domestic performance this year.
However, Walt Disney is having a record-smashing year in 2019, with six movies generating over $1 billion at the box office. No studio has ever put up so many blockbusters in a single year, and with eight billion-dollar films this year in total, 2019 is officially one for the record books.
Cineworld CEO Mooky Greidinger said in a statement, "The acquisition of Cineplex strengthens our belief in the theatrical business, one of the most affordable out-of-home forms of entertainment."
Even so, total box office receipts are running about 6% below last year's all-time high of $11.8 billion, despite average movie ticket prices having risen to an all-time high of $9.26 in the second quarter. Prices, though, fell back 4% to an average of $8.93 in the third quarter.
While the debut of Disney's Star Wars: The Rise of Skywalker will undoubtedly help narrow the gap between this year's box office and last year's record, it won't be able to make up the full difference.
New competitive threats
The theater operators don't seem to mind, either. They believe Hollywood has found a formula that allows it to generate tens of billions of dollars annually, making theater investments in accommodations and food worthwhile, as well as acquiring more chains. Sequels, superheroes, and remakes continue to prove popular with audiences, as they represent nine of the 10 highest-grossing films this year.
Yet the constant retreads have also forced chain operators to develop new methods of luring viewers in. From dine-in theaters to lounge chair seating and movie subscription services, theaters need gimmicks to fend off the rising encroachment of streaming video and on-demand movies to keep consumers spending their discretionary entertainment dollars with them.
Although Netflix has led the pace of change, numerous competitors now populate the scene. As it has become more responsible for developing its own original content, the video streaming service is beginning to show an increasing number of its films in theaters first.
A tight grip on Canada
With the acquisition, Cineworld will become the dominant chain operator in Canada as Cineplex has an approximate 75% share there. But its box office is much more muted than in the U.S., generating receipts of $770 million last year.
Still, Cineworld doesn't foresee any antitrust issues with the purchase, since it currently has no presence north of the border. The U.S. is its main area of operation through Regal with 555 theaters, according to its website, representing over 7,200 screens. Cineplex will add 1,695 screens at 165 theaters.
But it will have to deal with declining attendance, which has fallen from around 77 million visitors in 2015 to 69 million last year.
Ripples to follow the wave
With a few independent chains remaining featuring hundreds of theaters and thousands of screens each, there are still more opportunities for further consolidation. Cineworld may be on top now in North America, but don't be surprised if Dalian Wanda responds in kind by snapping up a number of these smaller outfits.