By Erich Schwartzel
Walt Disney Co.'s Disney+ streaming service turned one year old
on Thursday. The company spent the birthday as it has the past
several months in a Covid-19 world: Counting on the service for
hope during an otherwise dreadful time.
Disney posted its second consecutive quarterly loss on Thursday,
as the effects of the pandemic continued to ravage core businesses
like theme parks and movie distribution that aren't expected to
return to normal in the foreseeable future.
But the quarantine life has accelerated a pivot in the way
Disney casts itself to Wall Street, and increasingly how investors
see the world's largest entertainment company. With movie theaters
closed and TV production stalled, Disney's streaming efforts have
become the focus -- and promise -- of a company otherwise marked by
layoffs and unprecedented losses. On Thursday, the streaming
business delivered.
Subscriptions to Disney+ hit 73.7 million as of Oct. 3, the
company said, up from more than 60 million reported in August.
"The real bright spot has been our direct-to-consumer business,"
said Disney Chief Executive Bob Chapek, referring to the division
that includes the company's streaming operations.
Analysts and investors have accepted that Disney faces some
bruising quarters before it returns to full operations, putting an
even brighter spotlight on Disney+ and prompting some on Wall
Street to treat the company less like an entertainment stock and
more like a tech one. That has helped Disney shares weather
quarterly reports that would have seemed unlikely -- if not
impossible -- at the company a year ago. When the company reported
a nearly $5 billion loss for the three months ended June 27, it was
the first quarterly loss since 2001.
Still, the three months ended Oct. 3 deprived Disney of critical
summer months of tourism and moviegoing. Operating income in the
company's studio-entertainment division fell 61% as thousands of
theaters remain closed.
The theme-park business was even more severely hit. Disney said
it estimated the spread of Covid-19 had caused a $2.4 billion hit
to its parks division.
On Thursday, Mr. Chapek reiterated to investors that the company
has operations up and running to the extent possible. Dozens of
scripted and unscripted shows are in production, and major
divisions such as Marvel Studios and Lucasfilm have cameras
rolling. Animators are drawing from home.
Disney+ subscriptions once caused Disney shares to rise; now
news of a possible Covid-19 vaccine is lifting shares. When Pfizer
Inc. and BioNTech SE announced promising results of a vaccine in
development, Disney shares returned to levels not seen since
February, before the company's studio and theme park divisions were
hit by closures. Shares rose 5.8% in after-hours trading on
Thursday in response to Disney's better-than-expected streaming
figures and a narrower loss than analysts anticipated.
At Disney and other major Hollywood studios, the pandemic has
accelerated a shift toward streaming and direct-to-consumer
services that count on subscriptions, rather than box-office
grosses, to boost the bottom line. Major releases such as Pixar
Entertainment's forthcoming "Soul" are skipping a theatrical
release and premiering on Disney+, an approach Mr. Chapek said the
company will continue to take as theaters remain closed.
"We've got something here," he said. That may be welcome news
for investors with an eye on Disney's streaming future, but a
landscape in which more big-budget Disney releases skip a
theatrical release is likely to cause considerable anxiety among
exhibitors who have come to rely on the studio's box-office
grosses.
Disney plans to forgo its January 2021 dividend and instead
invest those funds in its direct-to-consumer division, the company
said Thursday, a reallocation that activist investor Daniel Loeb
recently advocated.
Disney's sports-oriented ESPN+ streaming service registered 10.3
million subscribers at the end of the quarter, and its Hulu service
had 36.6 million subscribers. Of the three, Disney+ continues to
yield the lowest average monthly revenue per paid subscriber, at
$4.52, owing in part to a $6.99 monthly subscription fee that is
lower than most competitors.
Behind the scenes, Disney has reorganized its corporate
structure to make streaming an even bigger priority than it was
before the pandemic closed movie theaters. Under a plan unveiled
last month, Disney created programming divisions for movies,
general entertainment and sports. Executives in charge of
greenlighting movies and TV shows will be centralized in a
distribution arm that determines where a given project premieres --
on a streaming service, a TV network or in movie theaters.
The rearrangement followed similar organizational shifts at
rivals like Comcast Corp.'s NBCUniversal and AT&T Inc.'s
WarnerMedia.
Disney, like much of Hollywood, is stuck in a waiting game.
Movie theaters likely won't be operating at pre-pandemic levels
until an effective Covid-19 vaccine is widely available. Rising
case counts across the country threaten another round of shutdowns
that could affect theme-park attendance.
For Disney's fourth quarter, the bad news of the pandemic was
compounded as would-be financial saviors failed to deliver.
A live-action reboot of "Mulan," produced in hopes of scoring a
big payday from Chinese theaters, instead alienated audiences there
who critiqued its take on their country's history and grossed a
paltry $40.7 million in China. Elsewhere in the world the movie
went straight to Disney+; the company hasn't said how many
subscribers opted to pay an extra $30 for the movie.
Hopes that Disneyland, in California, would join Disney World,
in Orlando, Fla., in reopening at limited capacity were dashed when
California officials said the coronavirus remains too out of
control to justify letting visitors return.
Ratings for the NBA Finals fell compared with recent years,
denting the company's ESPN network.
The past several months have seen Disney take drastic measures
to stanch revenue declines. Earlier this month, Disney's ESPN cut
about 10% of its workforce -- or about 500 jobs -- through layoffs
and attrition.
That was minimal compared with the job cuts announced in late
September, when the company laid off approximately 28,000 workers
from its domestic theme parks. These employees had been furloughed
since April, collecting health benefits but not paychecks. The job
losses could mount, since Disney World continues to operate at
partial capacity and Disneyland remains closed.
Disney executives have taken a publicly aggressive approach to
lobbying to reopen Disneyland, a departure for a company that
usually tries to steer clear of controversy. The park has been
closed since March, and the company has accused California Gov.
Gavin Newsom of requiring overly strict guidelines to reopen.
"We're extremely disappointed," Mr. Chapek said.
Disney expected Disneyland to remain closed through the current
quarter, said Disney finance chief Christine McCarthy.
In Orlando, it is a different story, she added. Disney World
hotels are nearly fully booked, even as the park operates at
reduced capacity, she said.
--Allison Prang contributed to this article.
Write to Erich Schwartzel at erich.schwartzel@wsj.com
(END) Dow Jones Newswires
November 12, 2020 18:21 ET (23:21 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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