The share price of Cineworld, the U.K.’s second largest loop, tumbled on Wednesday on news that ITV’s cinema commercials subsidiary Carlton Screen Advertising is renegotiating its advertising sales contract
Cineworld’s share price fell 20.35% to £1.33 ($2.66) by close of trade in London after CSA cited “a general slowdown of traditional U.K. advertising revenues” for its decision.
The contract between Cineworld and CSA — which controls 75% of the cinema advertising market — expires January 2011. The next payment under the contract, for the six months to June 2008, is due Dec. 23.
Cineworld has agreed in principle to accept payment on a month by month basis while negotiations continue, but does not rule out legal action “if CSA fails to fulfil its obligations under the contract.”
CSA said in a statement: “Our contract with Cineworld is based on a long-term growth forecast of U.K. advertising revenues. However, due to a general slowdown of traditional U.K. advertising revenues, our forecasts have proven to be too optimistic. Therefore, we have approached Cineworld to propose an amendment.”
The chain, which has 758 screens at 73 cinemas, stressed that this year’s financial results will be unaffected. But analysts predict this will dent Cineworld’s revenues next year.
Sources suggest the CSA is seeking similar amendments with other exhib chains.