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Adam Patel: Adventure Capitalist

Since the 2020 stock market crash, there's been a lot of talk about Cineworld. It came to the attention of traders after falling to 20p. And at 20p I couldn't ignore it. I did buy - and made £1500 in a morning. If only that happened every day!

Here's what I wouldn't consider Cineworld a long term investment:

I think cinema is under threat. I can completely envision a future, not too far from now, when cinemas become part of history.

Streaming Platforms

Streaming platforms have changed everything. Since Netflix and Amazon started making their own content, you no longer need to go to a cinema to see a new movie with huge A-list stars. You can watch it at home.

Most audience grabbers at cinemas over the past 10 years have been made by one company - Marvel, a subsidiary of Disney. And earlier this year, Disney launched its own streaming platform.

So the three biggest content producers all have direct to consumer marketing models. Even the most optimistic outlook for cinemas then, is that they are left extremely vulnerable.

I would need to see some really clever and progressive strategic planning from cinema chains to explain how they're going to sell tickets. And as yet, I haven't seen it.

Movies Don't Matter Anymore

When I was growing up, I loved going to the video shop! Movies were considerably better than TV. Movies had production value, movie stars and great storytelling. But two things happened that changed this:

The financial crisis of 2008 made everything in finance harder. It was harder to get a mortgage. It was also harder for films to get finance. And investors started demanding more of a guarantee that films would make a profit.

Pre-financial crisis, there were three major budget levels of movies. There was the high budget summer blockbusters. There were the low budget movies. And then, there were the mid-budget movies. At the time, most original one-off movies fell into this category.

Of course, original movies were always a bit of an unknown. Production starts two or more years before opening weekend, so nobody can really know what the world will have the taste for when the movie opens.

In order to create this guarantee that investors were asking for, producers stopped focusing on star-power to pull audiences and started to focus instead on something much more predictable: intellectual property. It all became about stories and intellectual property with existing audiences.

This meant that it was worth investing heavily on a project that already had an audience - like a book or comic book adaptation - but the mid-level budget movies almost completely disappeared. For a while there were nearly none of them - until Netflix started making them again for their own platform.

The second nail in the coffin of cinema was the reinvigoration of television. Since Season 1 of '24', the long-form series format brought the world's best storytelling out of the cinemas and back to television. '24', 'Lost', 'Desperate Housewives', 'Breaking Bad'. It's all TV.

Cheap Tech

Finally, cheap technology has made it affordable to recreate the cinema experience at home. Large screen LCD televisions mean the big screen experience is no longer only available at your local cinema. And you get a more comfortable chair and you're closer to your own fridge so you don't have to pay extortionate rates for popcorn and Coke.

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So, all things considered, I would not consider Cineworld a good long term investment now or ever. I fully expect they'll go bust at some point in the next 5-10 years, if not this year.

Why I Wouldn’t Invest in Cineworld Now Or Ever

Posted on Tuesday, July 14th, 2020

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Since the 2020 stock market crash, there’s been a lot of talk about Cineworld. It came to the attention of traders after falling to 20p. And at 20p I couldn’t ignore it. I did buy – and made £1500 in a morning. If only that happened every day!

Here’s what I wouldn’t consider Cineworld a long term investment:

I think cinema is under threat. I can completely envision a future, not too far from now, when cinemas become part of history.

Streaming Platforms

Streaming platforms have changed everything. Since Netflix and Amazon started making their own content, you no longer need to go to a cinema to see a new movie with huge A-list stars. You can watch it at home.

Most audience grabbers at cinemas over the past 10 years have been made by one company – Marvel, a subsidiary of Disney. And earlier this year, Disney launched its own streaming platform.

So the three biggest content producers all have direct to consumer marketing models. Even the most optimistic outlook for cinemas then, is that they are left extremely vulnerable.

I would need to see some really clever and progressive strategic planning from cinema chains to explain how they’re going to sell tickets. And as yet, I haven’t seen it.

Movies Don’t Matter Anymore

When I was growing up, I loved going to the video shop! Movies were considerably better than TV. Movies had production value, movie stars and great storytelling. But two things happened that changed this:

The financial crisis of 2008 made everything in finance harder. It was harder to get a mortgage. It was also harder for films to get finance. And investors started demanding more of a guarantee that films would make a profit.

Pre-financial crisis, there were three major budget levels of movies. There was the high budget summer blockbusters. There were the low budget movies. And then, there were the mid-budget movies. At the time, most original one-off movies fell into this category.

Of course, original movies were always a bit of an unknown. Production starts two or more years before opening weekend, so nobody can really know what the world will have the taste for when the movie opens.

In order to create this guarantee that investors were asking for, producers stopped focusing on star-power to pull audiences and started to focus instead on something much more predictable: intellectual property. It all became about stories and intellectual property with existing audiences.

This meant that it was worth investing heavily on a project that already had an audience – like a book or comic book adaptation – but the mid-level budget movies almost completely disappeared. For a while there were nearly none of them – until Netflix started making them again for their own platform.

The second nail in the coffin of cinema was the reinvigoration of television. Since Season 1 of ’24’, the long-form series format brought the world’s best storytelling out of the cinemas and back to television. ’24’, ‘Lost’, ‘Desperate Housewives’, ‘Breaking Bad’. It’s all TV.

Cheap Tech

Finally, cheap technology has made it affordable to recreate the cinema experience at home. Large screen LCD televisions mean the big screen experience is no longer only available at your local cinema. And you get a more comfortable chair and you’re closer to your own fridge so you don’t have to pay extortionate rates for popcorn and Coke.

###

So, all things considered, I would not consider Cineworld a good long term investment now or ever. I fully expect they’ll go bust at some point in the next 5-10 years, if not this year.

About Adam

I am not a day trader. I generally hold positions for between a few weeks and several years and any opinions I share have this sort of time scale in mind.

Nothing on this blog should be considered to be anything more than entertainment. It is certainly not to be considered to be financial advice.