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(CNN) – Crowded theme parks. Theaters packed with bustling Marvel and Star Wars fans. Bustling hotels, cruises, and retail stores. No media company seems more vulnerable to social distancing than Disney.
Over the past century, Disney has built an expanding empire focused on entertaining large crowds in dense spaces. But after one of its best years in 2019, including the unprecedented release of “Avengers: Endgame” and the launch of new Star Wars lands at its theme parks, the pandemic stopped Disney in a matter of days.
Executives like CEO Bob Iger and new CEO Bob Chapek are dealing with the health and economic crisis. However, as they grapple with the immediate blow to earnings, the long-term question remains as to whether Disney’s assets, which have turned into sudden liabilities due to the virus, could shed light on the end of the tunnel.
‘It has gone from big to good to bad to worse’
“What concerns everyone is that we don’t know when things will return to normal. We also don’t know if behaviors will change in the future,” Michael Nathanson, a media analyst and founding partner of MoffettNathanson, told CNN. Deal. “Will people be reluctant to go to the parks? Will people want to sit in the theater with strangers for fear of contracting the virus? That is what the market is fighting when it comes to Disney.”
The pandemic has especially affected Disney. Its parks and resorts have closed around the world, top movies like “Mulan” and “Black Widow” are delayed, and one of its largest media networks, ESPN, is struggling to fill its broadcast time due to the lack of sports.
This has led Disney to lay off thousands of employees, Standard & Poors to downgrade the company’s credit rating, and its shares to fall 27% to date. Disney did not comment on this story.
The company will report its earnings after Tuesday’s bell, and investors are eager to find out to what extent the pandemic has affected Disney’s business.
“Since companies cannot operate, Disney will be decimated in 2020 for free cash flow and profitability,” added Nathanson. “It has gone from good to good to bad to worse.”
However, Disney is still Disney, a company with a beloved brand and a series of franchises that remain the envy of the industry. As consumers face the psychological effects of being locked up for so long, will there be long-term pent-up demand for Disney’s crowd-based entertainment experiences?
Or will consumer habits change forever?
‘Nobody is suddenly bored with Disney’
“Disney’s ability to thrive in so many applications (television, comics, movies, parks, books, ice shows, video games) is encouraging,” Matthew Ball, a former Amazon Studios executive, told CNN Business. “Most companies don’t have the intellectual property, let alone the culture or skill set, that Disney has when it comes to discovering how to delight customers in new ways and through new products in a post-COVID world “
Ball added that “no one is suddenly bored by Disney” and that before the coronavirus, “no media company was more beloved.”
Suzanne Scott, an assistant professor at the University of Texas Moody College of Communication, echoed this point and told CNN Business that Disney fans are “incredibly loyal to the brand.” She does not believe that this crisis will change that.
“We associate Disney with the family, which is at the forefront of everyone’s mind right now,” he said. Scott emphasized that people will long for community events and experiences once it is safe to meet together collectively. “
Robert Niles, publisher of ThemeParkInsider.com, believes that Disney parks and resorts will face the biggest challenges in terms of reopening, and that those challenges are unlikely to be resolved anytime soon. However, he added that Disney has spent years and billions to position itself as “a lifestyle brand, not just an entertainment company or a vacation destination.”
That bond with consumers gives Disney “a tremendous advantage over its competition when requests to stay home are raised,” he said.
“Millions of Disney fans are sitting at home right now, watching Disney +, wearing Disney-branded clothing, reading Disney books, and listening to Disney music,” Niles told CNN Business. “Although people have had to stay away from theaters and theme parks, they have never had to stay away from Disney.”
While 2020 seems destined to be a disaster for Disney, there is one bright spot for the company: Disney +.
In just five months, the company’s fledgling streaming service accumulated 50 million paid subscribers worldwide, a number it originally projected would take nearly four years to reach. Even Netflix CEO Reed Hastings praised the launch of Disney + during his own company’s recent earnings call, saying, “I’ve never seen such a good headline run learning the new way and mastering it.”
Trip Miller, a Disney investor and managing partner in the hedge fund Gullane Capital, believes that Disney + is vital to the company at this time. And that’s not just because it’s the future of Disney. He believes the streaming platform keeps the company in the hearts, minds, and living rooms of consumers.
“If there is a silver lining to Disney in this terrible crisis, it is that it has pushed more people to consume the company’s content even faster than anyone expected,” he said. “Can you imagine if this was two years ago and they didn’t have Disney +?”
Towards the unknown
While Disney + appears to be way ahead of schedule, with so many parts of the company idle or limping, it’s not enough to make up for setbacks.
Ball noted that Disney is an “incredibly diversified media company” and that it is generally “an advantage in times of crisis, providing stability and limiting overall exposure.”
“But COVID-19 is affecting almost every element of Disney,” he added. “The only exception is really their streaming services, Hulu and Disney +, but none are profitable yet.”
Given its strong stable of pop culture properties, Disney has the brand, assets, and consumer loyalty to recover from the coronavirus. But no one knows how long the recovery will take and what permanent financial damage is being done to Disney in the process.
So, for the first time in decades, the company is heading into an unknown future, one that no amount of Disney magic can solve right now.
“If things went back to normal, Disney’s rise would probably be equal to its fall,” said Nathanson. “But people just don’t know when it will come.”
This story was first published on CNN.com, “Disney faces an unknown future as coronavirus hampers its media empire”
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