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Movie theaters have continued to struggle post-COVID, as many consumers have gotten used to streaming movies at home and can now only go out to the theater to watch big-budget action movies. This problem in the movie industry has spread to another area: movie screen advertising.
This segment is dominated by National CineMedia Inc., which is essentially an agency that sells ads, distributes them to theaters, and then takes a share of the revenue. The company provides pre-film shows in 57 flagship and national theater circuits with 21,000 screens operated by more than 1,700 theaters and are all of the top 50 designated market areas, or DMAs, as identified by Nielsen.
But not only is National CineMedia Inc. struggling with advertising sales due to lower ticket sales, some of its biggest creditors are not paying their bills on time, including Cineworld Group PLC, owner of Regal Cinemas, which filed for bankruptcy 11 for bankruptcy.
Ironically, Regal owned a 23.6% stake in the company as of last November. However, given that its parent company, Cineworld Group PLC, is in Chapter 11 proceedings, it has little control over which bills will be paid until a bankruptcy judge approves the reorganization plan.
Although the theater owners have a majority stake in the company, it is public and trades under NCMI. It fell 26.2%, or 4 cents, to close at 10 cents a share today on expectations that it too will have to file for Chapter 11. It has hired the law firm Latham & Watkins LLP as restructuring counsel, while its operating subsidiary, National CineMedia LLC. (of which National CineMedia Inc. owns 48% of the shares) hired the powerful law firm Paul Weiss Rifkind Wharton & Garrison LLP. Consulting firm FTI has been hired as restructuring advisor, while Lazard Ltd. is their investment banker.
The best the company can probably hope for at this point is that the senior lenders will get a stake in the company while all existing shareholders are wiped out.
National CineMedia has yet to report its earnings for the fourth quarter of 2022. Although the company has seen significant improvement in the first three quarters of 2022 compared to 2021, they are still losing a lot of money. That, combined with the fact that it has problems with overdue receivables, has put the company in a liquidity crunch.
Revenue for the first three quarters of 2022 increased 208.2% to $157.5 million from $51.1 million in the first three quarters of 2021. Operating results improved, but there was still an operating loss of $21.2 million for the nine months ended September 29, 2022, compared to $76.6 million for the nine months ended September 20, 2021.
Adjusted OIBDA (operating income before depreciation and amortization, a measure many media companies use to measure profitability) for the first nine months ended September 29, 2022 was $15.2 million for the nine months ended September 20, 2021 from negative $43.1 million.
The company provided guidance for the fourth quarter of 2022, saying it expects total revenue in the range of $85 million to $95 million, compared to the fourth quarter of 2021, when it generated $63.5 million. Adjusted OIBDA is expected to be between $32 million and $42 million for Q4 2022, compared to $18.4 million for Q4 2021.