We’re living in interesting times with the global crisis going on, and that means that Disney has had quite the situation to contend with from a business perspective.
With the closures of Disney theme parks around the world, the suspension of movie production and theatrical releases, and the cancellation of hundreds of sports games, Disney has seen an earnings dip. Analysts and executives have had mixed opinions on how long this period will last and some analysts are trying to predict a worst-case scenario. What could that outcome mean for the Walt Disney Company financials?
Keep in mind, this article and the possible financial outcome in it are based on a WORST CASE SCENARIO, not a projection. We’re talking about if everything that COULD go wrong, DID go wrong — which might not happen. Many of these situations could be mitigated and Disney is already working toward solutions.
If the parks don’t reopen until 2021 and then operate at significantly lowered capacity…
As we said, analysts have various predictions for a reopening of the theme parks. The latest projection so far has come from USB analyst John Hodulik, who predicts that January 2021 could be a possible opening date for the domestic parks and that crowds are unlikely to return until there is a vaccine made readily available.
He’s not the only one who expects some difficulty in the climb back to pre-crisis crowd levels. Wells Fargo analyst Steven Cahall predicts that the parks could operate at 50% capacity through fiscal 2021, and take a full two years to return to previous attendance numbers. If these worst-case predictions proved true, it could mean significant losses for the company — much bigger than they’ve already seen this year.
To illustrate this, we’ll compare the numbers from Disney’s super successful 2019 earnings to the potential numbers if the theme parks have such a dramatic loss in revenues. In 2019, Parks, Experiences, and Products had an operating income of $6.75 billion. Should the parks not reopen for the rest of 2020, operating incomes will be approximately $5 billion less than they were last year. Whew.
Now we CAN note that at least ONE Disney theme park is definitely going to operate before 2021 — Disneyland Shanghai opened at less than 30% capacity on May 11th. So, Disney is working in the direction of opening the parks to help mitigate these losses.
Beyond that, operating at 50% capacity for 2021 could cut operating income in half, which is major for a company of Disney’s size. Especially when Disney was anticipating celebrating Disney World’s 50th Anniversary in 2021, opening several new attractions, and hitting record numbers of guests and profits.
In the circumstances of a worst-case scenario, the theme parks could potentially see budget cuts, employment cuts, and abandoned projects.
If movie theaters don’t open for a long time…
As you’ve probably seen, the theme parks aren’t the only sector under Disney that is suffering. Filming is also halted and a bunch of theatrical releases have been delayed…so theaters, even if they’re allowed to open in some states, remain closed since there simply aren’t any new movies to show.
Of course, the box office tends to rake in billions for Disney, so how could the rest of 2020 look without it?
According to Variety, Disney brought home $11.1 billion from the box office in 2019. So, if there IS no box office through the end of the year, this could slash earnings significantly. It’s possible that Walt Disney Studios would not be quite as affected as the theme parks since they can use alternate solutions like digital releases, but they’d still be looking at a potentially multi-billion dollar loss.
There is still a possibility of seeing theatrical releases rebound slightly this year. AMC Theatres noted that they intend to remain closed until studios start to release new movies, but this summer will bring Warner Bros. Christopher Nolan film Tenet on July 17th as well as Disney’s Mulan on July 24th, which could give theaters the chance to reopen and see a profit for the first time in months. Time will tell how the public responds to new films in a theater setting following the closures.
LOTS of big money films have delayed releases already in an attempt to salvage their projected earnings. Mulan, Jungle Cruise, and the Avengers spinoff, Black Widow, among others, have been pushed back later this year and well into the next, which could have a big effect on 2020 numbers.
Beyond theatrical releases, Disney faces a struggle in resuming or starting new projects. Hollywood professionals expect that larger projects (like Disney’s big tentpole films) will be the last to return to operations as the industry establishes health and safety standards that could limit production capabilities.
This means the next big Disney films might not able ABLE to be filmed for an undetermined period of time, which could greatly affect every step in a film’s life cycle from production to distribution to digital releases and more.
If sporting events and regular filming don’t resume until 2021…
Finally, we have to mention another one of Disney’s biggest earnings sectors in 2019 — broadcasting. Last year, the company brought in $7.5 billion in operating income from its media networks. But these networks are not immune to the effects of the global health crisis.
Some organizations like the National Hockey League are still very much in a wait-and-see state, having paused their 2019-2020 season due to the crisis. According to ESPN, the NHL is trying to determine if the current season could be salvaged later in the year, as well as how that could potentially affect the 2020-2021 season. They’re at the mercy of federal and state restrictions and haven’t been able to formulate a clear plan yet. Regardless, they’ve noted it seems likely that if play was to resume, fans would not be allowed to spectate in the stands.
Other sports like Major League Baseball have begun proposing how to try and salvage the current season. According to ESPN, the MLB is proposing an 82 game season (half of what a normal season looks like) that would start in July. They’re also proposing no fans are allowed in the stands at the games, but they could still be broadcast.
If sports were to resume, even without fans in the stands, ESPN, one of Disney’s biggest earners, could see a potentially huge benefit. ESPN has already lost millions of dollars this year from the cancellation of sports seasons, per the LA Times. The company was able to net an 11% uptick in primetime viewership in April — but will those numbers be sustainable? If sports DO begin to resume, this could be a much-needed shot in the arm for Disney’s broadcasting sector.
Disney is also limited by the film industry shutdown in creating new content for channels such as ABC, Disney Channel, and FX.
If things continue without improvement through the end of 2020 (according to health officials, that’s still possible), Disney won’t be able to release the typical amount or quality of content for ESPN and its other channels. This could mean potentially even more losses in this sector.
What would this all mean for Disney?
So, the worst-case scenario would mean that Disney’s operating income could drop from $15 billion in 2019 to approximately $9 billion or lower for 2020. The predicted uptick in 2021 would likely not be enough to return the company to its pre-crisis position, at least not for a while.
This could leave new CEO Bob Chapek in charge of handling one of the biggest financial dips the company has seen since the 1980s. Disney has enjoyed a position as one of the top 100 most profitable companies in the world (according to Forbes, they’re sitting at #70 right now). Keep in mind while this could potentially affect that standing, many other companies around the world are in similar situations as Disney during this crisis.
It’s possible that Disney wouldn’t have the capital to take risks anymore. With the cushion gone, projects could potentially be put on hold or other cuts could be made in various sectors of the business.
Aspects of the company could even be sold to maintain advantageous marketing positions though, at this time, Disney hasn’t revealed any plans regarding the long-term financial future of the company.
We gotta remind ya again though, this is the WORST case scenario, and Disney is already doing what they can to prevent these things from happening. Remember, we also have a best-case scenario to hope for, and in the words of Executive Chairman Bob Iger, the Disney team is one of optimists, so it seems Disney is looking for a future that’s a whole lot better than worst-case.
Does the financial side of the closures surprise you? Tell us in the comments!