The Walt Disney Company is massive, spanning across multiple industries and lines of business, from theme parks to motion pictures to home entertainment. In the past couple of weeks, the global health situation has caused Disney to make tough decisions that will surely have an effect on its bottom line in the coming fiscal year.
The Walt Disney Company currently has four primary business segments: Studio Entertainment, Media Networks, Direct-to-Consumer & International, and Parks, Experiences & Products. And most of them are completely under fire right now.
Studio Entertainment and Stage Shows
Studio Entertainment, according to The Walt Disney Company’s annual financial report, draws revenue from the “distribution of films in the theatrical, home entertainment and TV/SVOD markets, stage play ticket sales, music distribution and licensing of our intellectual property for use in live entertainment production.”
In short, Studio Entertainment encompasses Disney’s movies, theatrical productions, and music.
How Disney’s Theatrical Releases Have Been Impacted
Disney movies can make a crazy amount of money when they hit theaters. Frozen 2 late last year set records with an opening weekend of $127 million. So Disney likely had high hopes for their newest Disney/Pixar film, Onward, which was released on March 6. The timing of the global situation, however, was not in the movie’s favor.
Patronage at theaters was already declining in the wake of the current situation, leaving the film to make a disappointing $39 million opening weekend, compared to the $135 million that Disney fronted to make it. Soon after release, movie theaters across America and around the globe closed as a precaution to protect customers and employees. This leveled Disney’s potential box office earnings for Onward to virtually nothing.
To salvage a portion of that box office loss, Disney released Onward to digital download early on March 20. You can also catch Onward on the Disney+ streaming service starting on April 3.
Disney also released The Rise of Skywalker early across digital retailers, although that was by a much smaller time frame of only 4 days (released March 13 as opposed to March 17).
Time will tell how much money Disney is able to recoup through Digital Downloads and if this is a potentially viable option for future releases down the road.
How Have Yet to Be Released Films Been Impacted?
The global crisis also had a major impact on films yet to be released to theaters. The highly anticipated live-action remake of Mulan was set to open in theaters on March 27. This, along with many other non-Disney films, has had to push their release date back, and a new date has yet to be determined. Disney was banking on this film to be a massive box office hit, not only in the U.S. but in China as well.
The film’s production budget was reported to be approximately $200 million.
How Have Disney’s Stage Shows Been Impacted?
Disney is also seeing a significant loss of revenue in its stage show ticket sales. On March 12, all Broadway theatres closed for a month, signaling a massive loss of revenue to not only Disney and the theatre industry, but for the city of New York as well.
Disney currently has three productions running on Broadway: The Lion King, Aladdin, and Frozen, not to mention a large number of touring productions of Disney stage shows. To provide some context, during this calendar week last year, those three shows earned a combined total weekly gross of over $4.5 million.
While the financial hit taken from having Broadway go dark doesn’t even come close to the dollars being lost from elsewhere in the company, everything adds up.
Parks, Experiences & Products
Next, let’s talk about Parks, Experiences & Products. This business segment was the most profitable in 2019, earning a total revenue of over $26 billion. Overall, Parks, Experiences & Products revenue accounted for over a third of the company’s total revenue for 2019.
There are many streams of income for Disney under Parks, Experiences & Products. Their theme parks generate revenue from the sale of park tickets, hotel lodging, food and beverage, and merchandise. Beyond the theme parks, this segment also reports earnings from Disney Cruise Line and Disney Vacation Club.
So how has this affected Disney’s BIGGEST sector?
Disney’s historic action to close every single one of its theme parks worldwide is unprecedented. As of this writing, all six global parks are still closed. The first two parks that closed, Shanghai Disneyland and Hong Kong Disneyland, have been closed for almost two months at press time. If the Disney Parks are closed, that means little to no income for this branch of the Disney Company.
Without getting too deep in the numbers, let’s look at the big picture. Since this crisis began in January to mid-March, Disney has closed its gates on all six theme parks, including hotels and shopping districts (Disneytown and the Shanghai Disneyland Hotel reopened on March 9, 44 days after the closure of Shanghai Disneyland).
Due to these closures, Disney has eliminated any potential earnings from guests visiting the parks including food, merchandise, lodging, ticket sales, and more. Disney has also extended Annual Passes based on the number of days the parks have closed, signaling another, albeit smaller, loss of potential earnings.
Aside from consumer spending, there are questions about how the closures will affect construction on upcoming projects. Construction has been halted in the parks during their closures, throwing into question the completion dates of the worldwide Avengers Campus expansions, the EPCOT transformation, and the Star Wars: Galactic Starcruiser hotel in Disney World, among many other mega-projects set to open next year.
In the meantime, Disney can, however, earn revenue through future bookings of hotels or the online sale of future tickets, lodging, and Annual Passes. Though, unfortunately, booking a new vacation may not be at the front of many minds right now. And the potential ensuing recession following this crisis could stamp out massive profits for much longer for the Walt Disney Company when it comes to their theme parks.
Disney Cruise Line
Out of caution, Disney Cruise Line has suspended departures into mid-April as of this writing. There is a lot of uncertainty for how the cruise line industry will rebound after this crisis has ended, as several incidents related to the current situation were reported on cruise ships.
While these occurred on non-Disney cruises, it is likely that the cruise line industry as a whole will take some time to recover financially. And again, the economic impacts of the global crisis may affect guests’ decisions to spend on cruise vacations for months.
In the meantime, the Parks, Experiences & Products segment can continue to earn revenue through the online sale of merchandise, both through their owned-and-operated retail sites as well as third-party online retail sites.
Many online outlets, including shopDisney, have offered free shipping or heavy discounts to entice consumers to continue purchasing in this unique time. But even online retail is being hit hard by the global shipping crisis that began when China’s factories closed for an extended time period, according to CNBC and others.
Remember that Disney sources many products from Chinese factories, and they — like other online and brick-and-mortar retailers — are being affected. Items may not arrive on time, or may sell out before new shipments can be received.
While Chinese factories are beginning to come back online now, the current back-ups could seriously affect not only Spring and Summer merchandise, but also the highly lucrative back-to-school and holiday seasons. Shipping issues could have long-term affects on Disney’s merchandise sales both in-store and online.
According to Disney’s financial statements, their “Media Networks” segment encompasses “cable and broadcast television networks, television production and distribution operations, domestic television stations and radio networks and stations.” Most notably, Media Networks is the business segment that contains the ABC Television Group, the multiple Disney Channels, and ESPN.
You would think that with so many in the United States spending more time at home in the coming weeks and months, television would be a bright spot for Disney, but not so fast!
The sports industry has essentially ground to a halt due to the global crisis. The NBA and NHL suspended the rest of their seasons, March Madness was canceled, and MLB delayed spring training and the beginning of their regular season. In the coming weeks and months, there will be virtually no live major sports on television for fans to watch.
Unless you’re content getting a more unique sportsball fix from the likes of ESPN the Ocho (Seriously, you can go watch the World Championship for greased stair climbing or Tetris. It’s kind of incredible!), then your options are limited for the time being.
This is of particular concern to Disney because, with no live major sports to draw in viewers, many ESPN channels are forced to air repeats and filler content like Disney sports movies. With less compelling content, ad revenue will potentially suffer.
On a positive note, network television has actually seen a boost in light of everything. More people home means more people looking for an outlet like television. ABC saw a boost in viewership of around 10% in the past week. But it’s not all good for the major network.
Some major hits for the network, like Grey’s Anatomy or American Idol, were forced to shut down production early, cutting seasons and shows.
Disney Channel and their offshoots like Disney Junior or Disney XD have seen a HUGE increase in viewers. Not surprisingly, kids are home and can watch more tv! Disney Channel saw a 43% bump in viewers in the past week.
So while things may seem grim in other aspects of the Disney Company right now, at least kids are…watching TV?
Direct-to-Consumer & International
In 2018, Disney re-organized their business segments and introduced Direct-To-Consumer & International. Under this segment, Disney reports earnings on various streaming services, including Disney+, ESPN+, and Hulu.
While Disney+ has done relatively well since its launch late last year, it’s seeing a boom again now.
Streaming Is Thriving, But…
In terms of consumer spending, this could be a potential bright spot for The Walt Disney Company. More consumers are spending way more time at home — mostly mandated — and readily available entertainment is thriving. Over the past weekend alone, it was reported that Disney+ signups tripled compared to the weekend before!
Disney+ also launched in many European countries on March 24th, with over 5 million downloads of the app reported in the first day.
Disney has also made massive strides in making its Direct-to-Consumer products more appealing. In the last week, Disney released Frozen 2 to home streaming three months early, making it available on Disney+.
We previously mentioned Onward will be available on Disney+ soon as well. Whether for profit or as a gesture of goodwill, this new turn has been positively received by consumers.
…Significant Delays are Coming
But it’s not all sunshine when it comes to Disney+ for the Walt Disney Company. A number of highly anticipated projects may see delays in their launch on Disney+.
Production for Marvel’s The Falcon and the Winter Soldier was suspended in the wake of the coronavirus outbreak. Thankfully, Season 2 of The Mandalorian has already wrapped, so we probably won’t see any Baby Yoda delays!
It’s important to note that Direct-to-Consumer, likely due in part to its sheer newness, is the least profitable of the four business segments. In 2019 it accounted for just over 13% of the Company’s total revenue. It remains uncertain at this time how this segment will perform in the coming months. While it may perform well if consumer spending habits change, a delay in anticipated productions may have an adverse effect on revenue.
Some final thoughts…
After the crisis has subsided and normal business operations can resume, Disney will potentially brace for future financial hardships. If we are indeed headed towards a recession, consumer spending habits will follow suit, meaning less superfluous spending, i.e. vacations to Disney World, cruises, Christmas presents, and other unnecessary purchases.
We can only speculate as to how Disney should strategize in terms of minimizing expenses to offset the hit on their bottom line. We haven’t even begun to talk about the implications on Disney’s stock price and how that can have an impact on future earnings.
Disney is a far-reaching company and, unfortunately, right now they are operating with massive sections of the company unable to function properly. As we mentioned at the beginning, Disney is one of the biggest and most complex companies in the world, so recovering will likely require big and complex solutions; and more importantly: time.
How do you think this global crisis will impact The Walt Disney Company? Share your thoughts in the comments!