Disney Suffers Tough Quarterly Earnings Due to Theme Park Closures

Brent Lang
·5-min read

The Walt Disney Company was brutalized by the coronavirus pandemic, which shuttered its parks and delayed the release of its films, setbacks that nearly sliced its revenues in half during its most recent fiscal quarter. And yet the big takeaway will not be the lackluster results, but the company’s bold decision to upend the way it will premiere “Mulan.” By announcing that it will debut the film on Disney Plus, the company shifted the attention away from its earnings and toward its streaming service at a time when that has been the rare bright spot for Disney.

Aside from that flurry of excitement, the numbers were sobering and demonstrated once again the financial carnage wrought by COVID-19. Revenues fell 40% to $11.7 billion, while diluted earnings per share for the quarter decreased 94% to 8 cents, falling from $1.34 in the prior-year period. Those revenues missed expectations, even if the adjusted profit was a pleasant surprise for investors. Wall Street had projected revenues of $12.39 billion on adjusted losses per share of 63 cents. The collapse of the theme park business was largely to blame, resulting in a $3.5 billion hit to operating income and a loss of $2 billion.

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The rough financial report happened to coincide with one of the most challenging periods in the entertainment giant’s decades-long history. Few media companies have been as hard hit by coronavirus as Disney, which relies heavily on live events and experiences to pad its bottom line. Those activities have grown dangerous in the wake of the highly infectious disease.

The coronavirus pandemic has also brought Disney’s theatrical film business to a standstill. Upcoming blockbusters such as “Black Widow” and “The Eternals” have been pushed back by months and may not hit theaters until after the virus dies down. Disney announced that it will debut “Mulan,” its live-action remake of its animated favorite, on Disney Plus for $29.99 per rental. That cost is on top of the price of a subscription. The decision is a blow to cinemas, which had hoped the film would attract customers when theater marquees turn back on.

“We’re looking at ‘Mulan’ as a one-off as opposed to trying to say there’s some new business-windowing model,” Disney CEO Bob Chapek said on a call with investors, “That said, we find it very interesting to take a new offering to consumers at a $29.99 price point and learn from it.”

Even as its theatrical business struggles, Disney has begun slowly reopening its parks in Florida, Paris and Tokyo, although social-distancing requirements has limited the number of guests. The company’s Disneyland Park in California, where cases are surging, remains closed indefinitely.

That’s not the only drag on Disney’s core businesses. Film and television production has been shut down, forcing several of its shows and movies to be postponed. Moreover, sports teams have only just started to play again, depriving ESPN of core programming and leading to a drop in advertising.

Disney has taken a massive $4.9 billion write-down on the value of its international channels, reflecting the COVID-19 slowdown in advertising and the global shift away from linear viewing to streaming platforms. Disney inherited more than 200 channels around the world through its purchase of 21st Century Fox. The company also recorded $94 million in severance charges in relation to restructuring at the channels.

Disney Plus, the streaming service the company launched in November, has been one bright spot. A filmed version of “Hamilton” and Beyonce’s “Black Is King” led to a spike in subscribers when they premiered in July. The company touted its 57.5 million subscribers for Disney Plus, and said that across its streaming services, which include Hulu and ESPN Plus, it reached more than 100 million paid subscribers.

As part of that effort, Disney also told investors on an earnings call that it planned to launch an international direct-to-consumer service under the Star brand that it bought from 21st Century Fox as part of that 2019 mega-merger.

These were the green shoots that Disney’s executive team chose to emphasize during a rough period for its various divisions. Disney’s film income dropped 55% to $1.7 billion and segment operating income fell 16% to $668 million. That’s not unexpected, given that the studio released no films theatrically compared to the prior-year period, which saw the release of such hits as “Avengers: Endgame” and “Aladdin.”

The company’s cable arm saw revenues for the quarter fall 10% to $4 billion, while operating income increased 50% to $2.5 billion. The rise in operating income was due to lower programing and production costs at ESPN, which, after all, had very little content it needed to produce, given the sports shutdown.

Broadcasting revenues for the quarter increased 12% to $2.5 billion and operating income increased 55% to $477 million. Savings on the production front helped offset declines in advertising.

Operating losses increased at Disney’s direct-to-consumer and international segment, rising from $562 million to $706 million. Revenues increased 2% to $4 billion as Disney Plus and other brands continued to add customers.

Shares of Disney were up more than 5% at over $123, driven largely by the news of “Mulan’s” digital debut.

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