It’s no secret that the coronavirus pandemic has hit the entire entertainment industry hard, from movie theaters to TV production to theme parks. Walt Disney in particular has endured blows across its many different businesses, given its leadership position at the box office, its vast media networks business, and of course, Disney parks and resorts across the world.
Disney detailed most of its financial woes during its fourth-quarter earnings report two weeks ago, with revenue down 23% from the prior year to $14.7 billion and the company swinging to a loss of $710 million (though notably beating Wall Street forecasts nevertheless). For the fiscal year, the ongoing COVID-19 crisis has had an adverse impact of $7.4 billion to the company, which operated at a net loss in fiscal 2020.
In its 10-K filing, released the afternoon before Thanksgiving, Disney laid out in stark detail the myriad ways the pandemic has taken a toll on the company.
Many of those impacts have already been well documented, such as the closure of Disneyland in Anaheim, Calif., since mid-March, and the limited closures (and reduced-capacity re-openings) of Walt Disney World, Disneyland Shanghai and other resorts. Disney’s fleet of cruise ships has been docked since late Q2, and retail stores were shuttered for months. Television and film production was at a standstill for much of this year. With movie theaters closed, the company has canceled theatrical releases and sent certain titles, like the live-action reboot of “Mulan,” straight to its Disney Plus streaming service instead.
Those mangled theatrical plans have resulted in hits to its ad sales and merchandising licensing business, said Disney in the SEC filing.
“COVID-19 impacts could also hasten the erosion of our historical sources of revenue at our Media Networks businesses,” said the company.
With many live sports canceled and TV production delayed, Disney’s TV networks — which include ABC and ESPN — have suffered decreased viewership and ad revenues, as well as “demands for affiliate fee reductions related to certain of our television networks.” The company continues to pay for certain sports rights, including events that are delayed or canceled. Pay-TV packages have experienced “accelerated decline” during the pandemic.
And even as TV and film production has slowly begun to pick back up, Disney has “incurred costs to implement health and safety measures and productions will generally take longer to complete.”
The impact of the crisis on consumers and business owners is also being felt, as people fall behind rent and begin to tighten their wallets.
“We have granted rent waivers to some of our tenants, and they have not paid rent while certain of our facilities have been closed,” reads the filing. “We have experienced increased returns and refunds and customer requests for payment deferrals. Collectively, our impacted businesses have historically been the source of the majority of our revenue.”
And getting theme parks back into gear does not guarantee attendance. Disney’s parks and resorts have seen lower demand since opening the gates again, said the company.
Disney expects the financial toll of the coronavirus pandemic to stretch out through its fiscal 2021, at the very least.
Like many corporate entities struggling to contain the impact of the pandemic on their balance sheets, Disney noted in its 10-K that among the financial impacts, its debt ratings have been cut — and may be further downgraded in the future — as a result. It may also have to engage in all manner of methods to reduce its cost, such as cutting back on film and TV content investments. In April, the company entered into an additional $5 billion credit agreement and noted during its Q4 earnings release that it would forego its semi-annual dividend for the back half of the year.
Still, despite all of that, investors appear relatively bullish on Disney, as the company emphasizes its streaming efforts and realigns its corporate structures to focus on a digital-first future. (See: Disney Plus’ whopping 73.3 million paying subscribers in its first year on the market.) Shares of the company are trading at pre-pandemic levels, and chief executive Bob Chapek expressed bullishness in the company’s Q4 earnings report.
“Even with the disruption caused by COVID-19, we’ve been able to effectively manage our businesses while also taking bold, deliberate steps to position our company for greater long-term growth,” he said.