1.

Introduction:

Financial Times on October 4, 2020 reported that the second biggest cinema operator of
world namely Cineworld’s is going to close its sites in US and UK. The reason behind such closure
is global pandemic which hit the global economy at large. The only thing which seemed to be right
during this epidemic was “isolation”. Moreover, Prasad et al. (2015) theorized that natural disasters
significantly disrupt the global supply chains due to which global enterprises adversely effects.
Environmental disasters like floods, earthquakes and epidemics adversely affects economic
activities in the globe (Asgary et al., 2020). In the way this global pandemic has break the supply
and demand chains for Cineworld’s in the market due to which its losses it scopes of work and
prosperity and decided to close its function. Keeping in view the above scenario the objective of
the essay is to:
 Analyze the Cineworld’s decision to close its sites.
 Analyze the impact of Coronavirus pandemic on Cineworld’s decision?
 Analyze economic cost of this coronavirus pandemic on Cineworld’s business.
 Analyze the impact of Cineworld’s decision on theater industry and livelihood of its staff.

2. Company Overview:

The Cine-UK business was first originated in 1995 with a motive to work for the development
of Cineworld in order to make it largest multiplex cinema across the globe. This British cinema
company have 9,518 screens in 790 cities in 10 countries of world. There are currently 75 operating
sites of this group. Cineworld generated revenue of £285.3 million in 2007 having 45 million
admissions. It is the second largest cinema in world worth £348 million annual revenue. The vision
of the company is to provide people with an environment which compel them to visit again the
place. Cineworld has certain set of strategic objectives ranging from improving the scheduling of
film to converting it digitally in order to attract more of its customers and generates revenues in
the highly competitive atmosphere. The strategies followed by Cineworld in this regard are stated
as follow:

 Escalate per customer spending

 Generating more revenues
  Expanding their business by opening more cinemas

Besides having a strong portfolio Cineworld decided to close its 543 majestic theaters in United
States and United Kingdom it decided to close 128 cinemas temporally. Generally it is found that
organizations found it hard to make fast and good decisions under the challenging situations. By
following these situations sometimes organizations has to go through the most complicated
decisions called “big-bets” which are regarded as unfamiliar or high-stake decisions where
organization must take such steps which can either make it or break it under uncertain
circumstances. On March 17, 2020 due to corona virus pandemic Cineworld decided to close some
of its site on temporary basis but later the Cineworld decided to close all its screens in US and UK
because the pandemic arrived at such a devastating speed that the big-bet decisions became
paralyzed. By observing these situations it seems viable for Cineworld to adopt the policy of “take
a breath” which means that there is need to step back as anticipation or prioritization seems
impossible for them. By following the other trends under the span of pandemic other organizations
like National Basketball Association took a decision to close its season following which other sport
took the same decision. Similarly Apple Company was first one to close its most of the stores. At
the same time Emirates suspended most of flights and so on. Hence air suspensions, trade,
communication, and transportation restrictions effects the supply chains of the businesses in the
way their cost patterns and production process get effected. Following this scenario, the
Cineworld’s decision to temporally close all US and UK based screens make sense on one hand
while on the other hand if one can consider the job loss pertaining to this pandemic due to which
many suffered financially this decision does make sense only when Cineworld issued alternative
sets of policy for its employs as its UK based site is creating employment for 5500 people.

Since the emergence of corona virus pandemic, business sentiment and domestic economies
are getting depressed. It hit the economies to the extent that it causes higher levels of
unemployment and lower levels of income which caused far-ranging consequences for many
economies. According to Asian Development Bank (ADB), this pandemic will affect the global
Gross Domestic Product (GDP) by 2.3% - 4.8% in year 2020. Furthermore, United Nations
conference on trade and development (UNCTAD) predicted that foreign direct investment (FDI)
in the globe will shrink from 5% to 15%. Moreover, International Labor Organization (ILO)
predicted the loss of jobs for 25million peoples in the globe, additionally this report compiled the
results which are stating that the lockdowns in globe due to coronavirus pandemic is affecting
81percent of global workers i.e., 2.7 billion workers in the globe. Studies carried out by Frutos et
al. (2020) suggests that the outbreak of COVID-19 will last for a whole year following by other
pandemics in near future. In the way Harvard school on health stated that the waves of this
pandemic will remain till 2022 and its adverse effects can only ignore through isolation. Further,
since the pandemic hits the world government advised people to lessen their social contact without
imposing any restrictions on commercial activities till mid-March during this course of time the
decrease in the retailer’s revenues are attributed to volunteer social distancing of consumers. These
situations if imposed in case of Cineworld than one may come to know that due to social distancing
there occur a fall in movie demand which causes a sharp decline in the sales of tickets at the same
the distributors of upcoming movies delays the films which decreases the revenues of Cineworld.

In September, the company posted a $1.6bn pre-tax loss for the first six months of the year,
during which time its net debt rose to $8.2bn. Following chart represent the performance of
Cineworld under Regal brand:

The operating site of US shut down on March 17, 2020 which remained closed till Jane 30,
2020. This causes 68.3% decrease in the admissions and 72.2% losses were incurred in the box
office revenue. Company incurred a loss of 69.2% in retail revenue which stems from the lower
number of admissions in the following year.

UK and Ireland Revenue:

 In UK site were close on March 18, 2020 and in Ireland all site were closed on March 17,
2020. This cause 59.1% fall in admissions and 60.4% fall in box office revenue. Decreased number
of admissions results to decrease the retail revenue to 61.7%. Other income faces a fall of 61.5%
during the following period. There occur 34% decrease in the sales due to which box office
incurred losses of 52 million dollars. As compared to this the sales in 2019 were 94 million dollars
which shows a larger gap between the revenues of years 2019 and 2020. Due to this loss key
distributors delayed their movies which lowers the quality of existing movies in the market. The
economic downturn of the Cineworld urge it to close its screen in US and UK. It can be analyzed
by using the model of aggregate supply and aggregate demand. As this event is of unusual nature
therefore the shifts occur which differ from those occur under the span of classical recession.
Consider the figure:
 The figure roughly depicts the downturn faced by Cineworld in 2020. At the start of March
due to adverse impacts of pandemic government had to announce the closure of many places like
restaurants, shops, stores, theater etc. to lessen the risks of disease. In the regard Cineworld’s
decide to close on March 7, 2020, at the same time people voluntarily avoid the businesses that
were open. Such situations uphold the velocity of money: i.e., circulation of dollar stopped. In case
of Cineworld it was observed that the demand for the Cineworld’s admissions lowers down at each
price level which shifts the aggregate demand curve to the left and thus many of the Cineworld’s
seats remain unsold. On the other hand, in case of aggregate supply it was observed that many of
the UK and US based distributors announced delays in the release of their upcoming films hence
the Cineworld’s supply fall. The LRAS curve generally depicts the goods and services produced
in the long run. Hence, the demand for Cineworld’s seats fall into the market. In figure the
backward shift of supply curve depicts the recession which occurs due to fall in demand and supply
chains. As stated by United Nations Development Programmed (UNDP) that year 2020 is the year
of recession due to the prevailing pandemic. The figure depicts that this pandemic shifts the
equilibrium of Cineworld’s from point A to B due to which the industry incur $1.6bn pre-tax loss.
Due to this unwanted situation it becomes inappropriate for company to operating further in the
market. While focusing on the managerial economics the better decision a firm can make is
maintain its equilibrium levels, because these are the points which determine the prices of the
product. Under the prevailing devastation when Cineworld’s was unable to set prices which
incurred further costs over the company the decision of the closure was reliable to the extent of
firm but if one follow the pattern of sustainable economic growth it is necessary for the Cineworld
to take those decisions which neither destroy the company itself nor of its employees. One of the
most important step under such circumstance will be to revise the existing policy and develop a
new policy plan which can consider each and every possible outcome i.e. design such policies by
which nobody can suffer however as the pandemic largely affect the social gatherings and urges
for social distancing under such cases the economic policies seems failed as nobody know how
will this pandemic last. Additionally there occur a sudden recession and health crisis due to which
the economy’s potential to produce goods and services diminishes.

Conclusion

The concluding remarks demonstrate that due to corona virus pandemic almost all enterprises in
the world are facing severe issues. The issues facing by business firms are mainly financial issues,
supply and demand chain disruptions and issues of reduction in their sales and profits. To
overcome such issues many of the firms decided to shut down their activities temporally, down
the number of their employees etc. The decision of closure seems viable because under the course
of pandemic as literature depict that most of the world’s enterprises don’t have any plan of action
to tackle the situation due to which they face lag in the demand and supply due to which the market
equilibrium does not remain constant due to which company has to incur the losses.
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