Disney Eyeing Possible Fiscal ‘Black Tuesday’

Among media companies navigating the coronavirus, few are more in the fiscal crosshairs of the pandemic than The Walt Disney Co.

When the Mouse House and new CEO Bob Chapek disclose second-quarter fiscal results on May 5, scuttlebutt suggests a sobering fiscal reality underscoring the impact COVID-19 has had on the brand’s amusement parks, movie studio, cruise ships and consumer products — all of which have been shut down worldwide for almost a third of the fiscal quarter due to government mandates in place to stop the spread of the virus.

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Disney last month cut executive pay and reportedly furloughed about 100,000 workers, many of whom worked at Disney’s shuttered Parks and Resorts, which include six amusement parks and cruise lines, and accounts for about 33% of Disney’s total revenue — a financial nightmare that continues to consume a third of the current Q3 period.

Disney’s studio business, which accounted for more than 40% of the global box office in 2019, has been shuttered since March. The studio has delayed  launching tentpole titles such as Mulan and Black Widow, while releasing other titles to the upstart (and lone bright spot) Disney+ SVOD platform.

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Disney, unlike Universal Pictures, is not in favor of bypassing the traditional theatrical window for premium VOD — even in a pandemic and despite Universal generating a record $100 million in PVOD revenue for animated release Trolls World Tour.

Analyst firm Lightshed Partners contends Disney would have to raise the price of Disney+ from $6.99 to upwards of $20 month to recoup the theatrical losses.

“How long can Disney wait or do you have to just acknowledge that film profitability will fall dramatically until consumers are comfortable again [frequenting movie theaters]?,” analysts Rich Greenfield, Brandon Ross and Mark Kelley collectively wrote in a note last month.

The analysts contend Disney is looking a minimum 30% drop, or $3 billion decline, in studio revenue this year — a figure that could top 50% if production and exhibition channels remain closed.

For the flagship ESPN pay-TV platform, with no live sports to broadcast or stream, subscriptions are expected to fall. Dish Network CEO Charlie Ergen is demanding ESPN reimburse it and other pay-TV distributors for the lack of content, among other issues. The executive cited legal “Force Majeure” (“unforeseeable circumstances that prevent someone from fulfilling a contract”) to get out of Dish’s ESPN retransmission contract.

“U.S. multichannel video subscribers effectively paid ESPN $650 million in April to watch one original series (Chicago Bulls/Michael Jordan documentary ‘The Last Dance’) with literally no live sports on TV or for their talk show hosts to even talk about,” Greenfield wrote.

Longtime Disney bull Michael Nathanson downgraded Disney shares from buy to neutral, citing “significant and unrivaled earnings risk for the foreseeable future.”

Meanwhile, other analysts suggest the virus is just a temporary obstacle. Alexia Quadrani, analyst with J.P. Morgan, early last month said the virus represented a short-term issue for Disney that could be negated by the brand’s skyrocketing appeal in direct-to-consumer streaming video.

“We are impressed with Disney’s ability to balance growth in its traditional businesses with investment in an incredibly successful streaming service,” Quadrani wrote on April 2 — before Disney began furloughing staff and cutting executive pay.

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