COVID-19 rewrites the Disney playbook
Executives scramble to address prolonged crisis, forcing realignment
July was supposed to be the month when the Walt Disney Co. would stop sheltering in place and start operating in a post-COVID-19 world. But for the company that just months ago was the envy of Hollywood, few things are going according to plan.
Theatres that were supposed to reopen this past weekend are staying shut, delaying Disney’s big summer movie “Mulan” a second time. A reopening of Disneyland on July17 — the day of the Anaheim, Calif., park’s 65th anniversary, with T-shirts and pins manufactured to commemorate the event — is postponed indefinitely. Walt Disney World in Orlando opened to the general public July 11, the same day Florida set a record for the most new coronavirus cases in any state since the pandemic began. ESPN remains stuck without its usual sports-heavy diet.
Disney, with its five-year strategy plans and stable of brands including Pixar, Marvel, Star Wars and ESPN, was widely thought to be built to withstand any economic calamity. The 2019 acquisition of the entertainment assets of 21st Century Fox for $71.3 billion (U.S.) was seen as the final piece of the puzzle, bringing “The Simpsons,” Hulu and “Avatar” into the fold. Now the franchise machine that connected its holdings — turning a movie into toys, theme-park rides, TV shows and on and on — has made it more vulnerable than any rival to the disruptions of COVID-19.
One bright spot is its streaming service Disney+, which has seen its paid subscriber base soar to more than 50 million since its November launch. Even that faces headwinds as production shutdowns limit new programming.
Disney executives are scrambling to address what is looking to be a prolonged crisis on many fronts, forcing a realignment of priorities that could have lasting impacts.
Many of the company’s plans to reopen have been subject to decisions by lawmakers, employees and consumers — as well as the trajectory of the virus itself — casting uncertainty on a business model that was once almost totally under the company’s control.
Disney stock has fallen more than 18 per cent in the past six months, dipping below $100 for the first time since June 2018. Shares closed Friday at just under $119.
Its streaming operation — already called the future of the business by executives — has proved indispensable as stayat-home orders keep people inside. Some movies once destined for the big screen are skipping the theatres and filling the programming hole at Disney+. A recent analyst report from Goldman Sachs projected Disney+ would have 150 million subscribers by 2025, putting it closer to streaming heavyweights Netflix Inc. and Amazon Prime.
Profitability at Disney’s domestic parks may not reach pre-pandemic levels until that same year, according to an analyst report from Cowen released last week. Disney’s parks division, once its fastest-growing, has gone from turning people away on busy days to hoping they’ll show up at all.
Other studios face similar challenges, in part because they have replicated Disney’s success to varying degrees in connecting a character or series across multiple divisions. AT&T Inc.’s Warner Bros. has postponed the release of a summer sequel to “Wonder Woman” until later this year, a delay that affects the lineup of DC Comics movies in the years to come.
Comcast Corp.’s Universal Pictures had to close some of its theme parks, and the virus has raised questions about whether crowds will turn up for its forthcoming Beijing-based theme park, built to compete with Disney’s operation in Shanghai, planned for 2021. Disney has notched some wins by seizing new opportunities. The National Basketball Association is attempting to resume its season on the Walt Disney World campus — a return to play negotiated personally by executive chair Robert Iger to help jump-start ESPN. The channel’s ratings have plummeted since March and the loss of ad dollars is projected to be severe, devastating one of Disney’s most reliable revenue streams.
To fill the void left by sports, ESPN executives moved up the 10-part Michael Jordan documentary “The Last Dance” to April from summer, and it won blockbuster ratings.
More creatively, twice in July the channel aired a 2018 concert by the Eagles. Anchor Chris Berman, who hosted the classic-rock telecast, said in a statement that “sports and music have long been at the top of the list for being able to bring all types together.” Both telecasts averaged less than one million viewers — paltry ratings in normal times, but decent for ESPN in the COVID-19 era.
While film and TV production is mostly shut down, Disney’s television studios are aggressively making deals for new shows for its own outlets, ABC and Disney+, as well as for rivals Netflix and HBO Max. Disney’s many animated shows are still in production, including “The Simpsons” and new programs such as “Central Park” for Apple’s TV+ service. ABC scored in the ratings with “The Disney Family Singalong” featuring Disney stars and other celebrities. The biggest programming decision was also orchestrated by Mr. Iger: To move a 2021 theatrical release of the Broadway hit “Hamilton” to Disney+ over the July 4 weekend, a premiere that Disney employees and analysts say led to a significant uptick in new subscribers.
It also proved how vital new shows can be on services where a majority of programming are library titles, said Jon Kamen, chief executive of RadicalMedia, which helped produce the filmed version. “Hamilton” on Disney+, Mr. Kamen said, “is a case in point of the benefit of fresh content and an ability to bring an audience to something they haven’t seen before.”
Meanwhile, the traditional movie division is essentially shut down while theatres remain closed and production is stalled. When it came time to decide whether to postpone the summer release of “Mulan” for a second time from July 24 to later in the summer, division emerged among Disney executives.
Some executives who set release dates argued to push ahead, saying Disney is an industry leader that should usher moviegoers back into theatres if they were indeed going to reopen. Another camp cautioned against releasing too early even if theatres were open, saying “Mulan” was a $200-million investment — and the likely diminished box office wasn’t worth a symbolic victory.
Ultimately, New York Gov. Andrew Cuomo announced he wouldn’t allow theatres to reopen in early July anyway, and with that market taken off the table, Disney’s plans were thrown into flux again. “Mulan” is now scheduled for release in the U.S. on Aug. 21, though many theatre exhibitors think it’s likely Disney will have to postpone it yet again.
The company has been costcutting to stanch the precipitous drop in revenue brought on by the pandemic. Furloughed employees across all divisions wait to hear if they’ll be called back, and people familiar with Disney operations estimate the company will have to eliminate thousands of jobs if the shutdown continues, with the theme parks and Imagineering research and development divisions considered likely to be among the hardest hit. Many of those still working have seen their salaries slashed. New chief It has all added up to a baptism by fire for Bob Chapek, the former theme parks chief who was tapped to succeed Mr. Iger as chief executive less than three weeks before theatres and theme parks closed.
The question of who would succeed Mr. Iger had loomed over the company for years. Mr. Iger’s reluctance to resolve the matter was considered by some shareholders and employees to be a key liability during his tenure atop Disney — one that he wanted resolved before the Disney board’s annual meeting on March 11, according to people familiar with the matter. Mr. Chapek was named CEO on Feb. 25, reporting to the Disney board and Mr. Iger, who became executive chair.
In recent months, the “two Bobs,” as Disney workers call them, have split duties. Mr. Chapek has handled strategy and business operations, including personnel issues such as reassignments and promotions, and kept a close eye on the parks, the division he once ran, according to people familiar with the company.
Mr. Iger has leveraged his years in the industry and status as one of the few celebrity CEOs of American business to personally negotiate some of Disney’s most high-profile deals on the creative side. Mr. Iger led conversations with Chris Paul, the Oklahoma City Thunder point guard and head of the NBA players’ union, over getting the league onto the Disney World campus.
He convinced the reluctant producers of “Hamilton” to put the filmed version of their musical to Disney+. He also handled talks with Beyoncé to produce a Disney+ special titled “Black Is King,” to air later this summer and was instrumental in signing quarterback-turnedactivist Colin Kaepernick to an overall deal to develop content at Disney, including ESPN.
Disney+ is expected to remain crucial for the company, especially as the service rises in popularity with stay-at-home orders stretching on or going back into effect.
“Disney+ will become profitable in fiscal 2021, two years faster than consensus,” said Goldman Sachs analyst Brett Feldman in a recent report. “As Disney+ approaches Netflixlike scale, it will approach Netflix-like economics.”
While the only original show to generate big buzz has been the Star Wars spinoff “The Mandalorian,” repeats of “The Simpsons” are performing very well on the service, according to a person familiar with the matter. In addition, subscriber turnover for the service is very low, the person said, a key metric for measuring the success of high-profile premieres like “Hamilton.”
Disney+ also changed chiefs in the middle of the pandemic. Kevin Mayer, who oversaw the building and launch of Disney+, left to become chief executive of TikTok in part after growing disillusioned when he was passed over for the CEO job, according to a person familiar with the matter.
Now in charge is Disney veteran Rebecca Campbell, whose background has been in local TV and, more recently, theme parks. In attempting to reopen its domestic theme parks, Disney has run into division within its ranks. The Actors’ Equity Association, which represents about 750 performers who work in shows like the “Indiana Jones Epic Stunt Spectacular!” at Walt Disney World, has called on the company to test workers coming into the Orlando park.
The union released a statement calling on Disney to test all Equity members on June 25, saying they cannot socially distance when someone is applying makeup or performing with others on stage. The day after its statement, Disney rescinded the callback work orders it had put out to 200 Equity members at the park, said Brandon Lorenz, the association’s spokesperson. A person familiar with Disney parks said the company doesn’t think it’s feasible to test workers en masse.
At Disneyland, a consortium of unions sent a letter to California Gov. Gavin Newsom asking him to force Disney to delay the Anaheim park’s reopening, saying it was unsafe to proceed, and a caravan protest popped up on a recent weekend afternoon. Disney has said it cannot reopen Disneyland without updated guidelines from the governor’s office.
A spokesperson for Gov. Newsom said: “The state and our public health experts continue to be in contact with the company and their workers — as well as other theme parks in the state — as we track and combat the spread of the virus.”
The current surge in U.S. cases is also keeping movie theatres closed for the foreseeable future, with some industry executives predicting that all major studio offerings will need to be bumped to 2021.
Behind the scenes, the company has been weighing in on theatres’ reopening plans. When Adam Aron, AMC Entertainment’s chief executive, last month said that his chain wouldn’t require moviegoers to wear masks when it reopened, Disney was among the studios to privately urge he change the policy, according to people familiar with the matter. Disney, along with other studios, didn’t want to be dragged into a socialmedia maelstrom that had formed over Mr. Aron’s remarks, especially since the company was mandating masks at its theme parks.
AMC, the world’s largest theatre operator, announced the next day that masks would be required when its auditoriums reopen.
Meanwhile, movies that were supposed to be plugged into the franchise machine, like “Black Widow,” starring Scarlett Johansson as a Soviet assassin, have been caught in the crosshairs.
The Marvel Studios superhero movie was scheduled to begin showing in more than 4,000 theatres on May 1, with action figures of its main characters landing on store shelves before the planned premiere.
Three months later, its characters — including some seen on the big screen for the first time — were to be featured at the Avengers Campus attraction opening at Disneyland on July 18, the latest brand incorporation designed to boost attendance at the park. Then the Marvel series of interconnected movies would continue with the November 2020 release of “The Eternals,” which would have its own set of toys and tieins, while sequels to “Thor,” “Black Panther” and “Captain Marvel” waited in the wings for 2021 and 2022.
“Black Widow” has been delayed until November and all Marvel movies have been bumped back. Construction on that Avengers attraction has stalled indefinitely.
No one was able to stop the toy shipments from arriving to stores as originally scheduled. Black Widow figurines from the new movie have been on sale since January at Target and other big-box retailers, where they’ll likely sit for months, waiting for the movie to open. Several doll-sized versions of Ms. Johansson were on sale at a Target in Los Angeles this week. One was discounted at 50 per cent off.
Profitability at Disney’s domestic parks may not reach pre-pandemic levels until 2025