Disney may face much more than a lost sum­mer

The com­pany with a make-no-waves mes­sage is scram­bling not only for rev­enue but for rel­e­vance in a dras­ti­cally changed so­cial cli­mate

The Washington Post Sunday - - POLITICS & THE NATION - BY STEVEN ZEITCHIK steven.zeitchik@wash­post.com Ben Strauss con­trib­uted to this re­port.

Disney, the quintessen­tially Amer­i­can en­ter­tain­ment com­pany, has long owned July 4.

As the na­tion cel­e­brated its in­de­pen­dence last year, the firm was be­hind three of the coun­try’s top five movies, in­clud­ing new in­stall­ments of the Spi­der-Man and Toy Story fran­chises; dom­i­nated cable rat­ings with ten­nis and a hot dog-eat­ing con­test; and drew large crowds to its new Star Wars: Galaxy’s Edge theme ar­eas in Or­lando and Ana­heim. The day af­ter the week­end, it at­tracted nearly 6 mil­lion Amer­i­cans to watch a base­ball home-run derby.

This year, none of that will hap­pen ex­cept for a scaled-back hot dog con­test.

The de­but of “Hamil­ton” on Disney Plus this week­end is bring­ing the com­pany a much­needed win, as many ex­ist­ing and new sub­scribers are tun­ing in for the Broad­way mu­si­cal about the roil­ing early days of the repub­lic then jump­ing on so­cial me­dia to talk about it. Sev­eral of the show’s stars were trend­ing as of Fri­day af­ter­noon, and the tele­cast of the Lin-Manuel Mi­randa mu­si­cal has earned strong re­views.

Yet the fer­vor over the show, which Disney ac­quired in Fe­bru­ary, con­ceals a much deeper and more com­plex set of chal­lenges. With ev­ery pass­ing day of coro­n­avirus un­cer­tainty and so­cial up­heaval, Disney finds it­self scram­bling not only for rev­enue but for rel­e­vance.

The re­sults for Disney’s fis­cal third quar­ter, which ended Tues­day, are ex­pected to be dis­mal, with rev­enue mas­sively down com­pared with 2019’s $20.3 bil­lion. But a grow­ing num­ber of voices are start­ing to ask whether a more fun­da­men­tal change is brew­ing, a change that will af­fect them be­yond one bad quar­ter. They’re won­der­ing whether a com­pany built heav­ily on a foun­da­tion of in-per­son gath­er­ings, and on the ped­dling of an in­of­fen­sive utopia that largely ex­ists out­side racial iden­tity, can be ef­fec­tive in a pro­longed pe­riod of iso­la­tion and ful­mi­na­tion.

“What Disney has to do is fig­ure out how to make it­self mat­ter, how to get in front of au­di­ences in very dif­fer­ent ways than it has in the past,” said Car­men Hig­gin­botham, a pro­fes­sor at the Univer­sity of Vir­ginia who is one of the coun­try’s lead­ing ex­perts on Disney and pop­u­lar cul­ture. “Be­cause the pre­vi­ous rules — of gath­er­ing a lot of peo­ple in one place, of just rid­ing safely down the mid­dle of Amer­i­can so­ci­ety — won’t ap­ply for the next 12 months. And maybe a lot longer.”

Sim­i­lar com­ments were made by nine en­ter­tain­ment in­dus­try ex­perts in­ter­viewed by The Wash­ing­ton Post, from Hollywood man­agers to Wall Street an­a­lysts. Disney, they said loudly if not al­ways pub­licly, needs not just a new set of dates to re­open its busi­nesses but a new set of prin­ci­ples to guide its mis­sion.

For much of the Amer­i­can post­war pe­riod, Disney has been an en­ter­tain­ment refuge — a place to which peo­ple have re­treated for a safe sanc­tu­ary of reli­able en­ter­tain­ment. Af­ter the Viet­nam War, veter­ans came to its parks to re­as­sure them­selves that life was worth liv­ing.

That has in­ten­si­fied in Hollywood’s cur­rent era of fran­chises and name brands. Nearly ev­ery ma­jor mo­ment on the Amer­i­can en­ter­tain­ment cal­en­dar is de­fined by a Disney prod­uct — from the Pixar re­lease in the fall to the win­ter break trip to Dis­ney­land, from the ma­jor Marvel movie in the spring to ESPN’s evenings of “Sun­day Night Base­ball” in the sum­mer.

The ab­sences this year will be jar­ring for Amer­i­can con­sumers, who will sud­denly feel a large part of their en­ter­tain­ment sum­mer gone af­ter en­dur­ing a sim­i­lar empti­ness this spring. Josh Spiegel, a writer and fre­quent chron­i­cler of Disney, likened it in an in­ter­view to “a limb be­ing cut off, or an en­tire food group be­ing re­moved.”

One manager of well-known film writ­ers and direc­tors, who spoke on the con­di­tion of anonymity so as not to jeop­ar­dize re­la­tions with the com­pany, noted how the depth of the ab­sence is be­ing felt in Hollywood.

“When you see how empty the land­scape is, it hits you how much of what’s miss­ing usu­ally be­longs to Disney,” the manager said. “And then ask your­self: ‘What hap­pens if it stays empty?’ ”

There is, first, the eco­nomic im­pact. Disney’s fis­cal fourth quar­ter — the July to Septem­ber pe­riod — last year gen­er­ated more than $19 bil­lion in rev­enue. Its stu­dio spun off more than $3 bil­lion of that money, theme parks pro­duced $6.7 bil­lion, and its TV di­vi­sion brought in $6.5 bil­lion. (The re­main­ing dol­lars came from mer­chan­dis­ing.)

The num­bers this sum­mer will be a frac­tion of that. The com­pany has three movies set for the quar­ter, all in the back half: the twicede­layed “Mu­lan,” now set for Aug. 21, and new in­stall­ments in the X-Men and Kins­g­man se­ries in the weeks fol­low­ing. Even if they can re­main on the cal­en­dar, many U.S. movie the­aters may not be open, and it’s un­clear whether con­sumers will come if they are. Cal­i­for­nia Gov. Gavin New­som (D) on Wed­nes­day or­dered the few movie the­aters that had opened to close for three weeks amid a surge in coro­n­avirus cases.

TV net­works, mean­while, are in a sim­i­larly bad place. While ABC has had mod­est suc­cess so far this sum­mer with game shows like “Don’t,” shot be­fore the pan­demic, ABC’s fall sea­son is part of the in­dus­try-wide dis­ar­ray that has taken hold with­out the abil­ity to safely shoot new episodes. ABC just an­nounced this week which pi­lots it will shoot for the fall, say­ing only that it has the “in­tent to shoot the pi­lots once production can safely be­gin.” That process would nor­mally have been com­pleted in the spring, the shows would have been or­dered in May and production on the se­ries would have started this month.

With­out those fall shows, view­er­ship and advertisin­g rev­enue is likely to take a ma­jor hit. The com­pany is ex­pected to get a boost with “Hamil­ton” sign-ups, but an­a­lysts are skep­ti­cal a slew of $7 monthly sub­scrip­tions can make up the short­fall.

And ESPN will fi­nally re­turn to live team sports, but with much un­cer­tainty. How play­ers and fans will re­act to a base­ball sea­son barely one-third its nor­mal length af­ter months of la­bor un­rest is un­clear. So too is an NBA restart, which is sched­uled to fea­ture as many as four tele­vised games daily but faces ques­tions over whether ath­letes will re­turn or can stay healthy. Disney will at least col­lect some money from play­ers stay­ing at its ESPN com­plex in Or­lando.

A cor­po­rate spokesman for Disney de­clined to com­ment for this story.

Wall Street has not yet shown it­self to be too con­cerned, with the stock price roughly flat to where it was in mid-March, when shut­downs be­gan. But many ex­perts call this a false pos­i­tive be­cause Disney has yet to re­veal earn­ings from most of the shut­down pe­riod.

One of the di­vi­sions hit hard­est will be theme parks. Disney will see in­ter­na­tional rev­enue this sum­mer as Asian parks are open at lim­ited ca­pac­ity and its Paris venue is set to open later this month. But re­open­ings in Cal­i­for­nia, the site of its flag­ship Dis­ney­land, have been put on hold in­def­i­nitely as New­som has re­frained from of­fer­ing guide­lines on a re­open­ing and 17,000 union mem­bers protested an ear­lier plan to re­open in July.

And while Florida of­fi­cials say they are con­tin­u­ing to give their bless­ing to the open­ing of Disney World and other Or­lando-area parks in mid-July de­spite a surge of cases in the state, how many guests will fly in to visit them is un­cer­tain. Nearly 18,000 cast mem­bers have signed their own pe­ti­tion ask­ing Disney to de­lay the open­ing.

“At this time there are no plans to re­visit the re­open­ing plans,” even as the state records its worst in­fec­tion lev­els yet, Kelly Finkel­stein, a spokesper­son for Mayor Jerry Dem­ings of Florida’s Orange County, said. A spokes­woman for Disney’s theme park di­vi­sion said the open­ings in Florida re­main on track.

But some ex­perts ask whether is­sues like re­open­ing dates and im­me­di­ate fi­nan­cial im­pact miss a larger point, say­ing the world has changed so dra­mat­i­cally that Disney’s all-in bet on in-per­son gath­er­ings is fun­da­men­tally flawed. With cases prob­a­bly com­ing in waves around the coun­try for the fore­see­able fu­ture, they say the an­swer is not as sim­ple as wait­ing out the bad news. A more bedrock shift needs to hap­pen.

“This is about Disney need­ing to find a new way to do busi­ness that doesn’t re­quire a lot of peo­ple to be in one place,” said Greif & Co.’s Lloyd Greif, a Los An­ge­les­based in­vest­ment banker who closely tracks Disney. “They need to be mak­ing those con­tin­gency plans right now.”

The com­pany thus far has made very few in­vest­ments in vir­tual re­al­ity, gam­ing and com­pa­nies cen­tered on home-based en­ter­tain­ment. While global ri­vals like Chi­nese gi­ant Ten­cent have made ma­jor in­vest­ments in live-streaming since the pan­demic be­gan, Disney has largely stayed out of the game, in­stead putting its hope in the idea that peo­ple soon will feel com­fort­able re­turn­ing to public spa­ces. In their public com­ments, ex­ec­u­tives have em­pha­sized not a vir­tual pivot but the com­pany’s value upon a re­turn to public gath­er­ings.

We “be­lieve peo­ple will re­sume fa­mil­iar ac­tiv­i­ties once this cri­sis ends,” Ex­ec­u­tive Chair­man Bob Iger said dur­ing an an­a­lyst con­fer­ence call in May. “They miss do­ing the things they en­joy, things that make them feel happy and con­nected with fam­ily and friends, whether it’s go­ing to movie the­aters to see our films, or vis­it­ing our theme parks around the world, or watch­ing live sports on ESPN.”

Greif noted this is a prob­lem, with the com­pany wait­ing on a vac­cine it can’t cre­ate and a con­sumer psy­chol­ogy it can’t con­trol. Disney Plus, he said, rep­re­sents a pos­i­tive step, but is not on the cut­ting edge and has no ex­pec­ta­tion of prof­itabil­ity un­til at least 2023.

The Hollywood manager noted that, at the very least, Disney should go on a buy­ing spree of ex­ist­ing shows and con­tent to feed Disney Plus. The firm bought rights to “Hamil­ton” for $75 mil­lion shortly be­fore the pan­demic but has not made many sim­i­lar ac­qui­si­tions since it be­gan.

Equally crit­i­cal, some ex­perts say, Disney must con­tend with a so­cial cli­mate very dif­fer­ent from just sev­eral months ago. The world­wide Black Lives Mat­ter protests that sprang up in the wake of the killing of Ge­orge Floyd in the cus­tody of Min­neapo­lis po­lice have in­fused many Amer­i­cans with a sense of anger and so­cial jus­tice in­com­pat­i­ble with Disney’s make-no-waves mes­sage of har­mony.

“Since the time of Walt, the Disney cor­po­ra­tion has been about safety and con­stancy,” Hig­gin­botham said. “But how do you main­tain that when Amer­i­can cul­ture feels un­moored?”

The com­pany, she said, “can’t go on just mak­ing a lot of Marvel movies — even our whole idea of su­per­hero­ism has changed.” She said she was pes­simistic the shift could hap­pen in a whole­sale man­ner. “They don’t pivot; that’s not what they’ve been about as a cor­po­ra­tion since the be­gin­ning.”

What Disney might do, she said, was make very small changes — “the kind that seem rad­i­cal for them but in­nocu­ous for ev­ery­one else, the kind that put them just barely on the right side of his­tory.”

The clash be­tween the so­cial jus­tice mo­ment and Disney in­cre­men­tal­ism could come to a head on the bas­ket­ball court. The NBA has ap­par­ently given per­mis­sion for play­ers to put so­cial mes­sages on their jer­seys.

But it’s un­clear how much com­men­ta­tors on ESPN, which will air the games, will en­gage with the sub­ject. The net­work has put al­most no po­lit­i­cal re­stric­tions on per­son­al­i­ties since the protests, but those are not game sit­u­a­tions. In re­cent years, ESPN dis­cour­aged pol­i­tics and sports, fa­mously buy­ing out former an­chor Jemele Hill af­ter the two came into con­flict over her po­lit­i­cal out­spo­ken­ness.

Disney has long been an out­fit fu­eled by nos­tal­gia. That would seem to of­fer an ad­van­tage dur­ing a pause; there are, af­ter all, many old movies to re-watch.

But Disney’s lit­tle secret is that such nos­tal­gia can­not stand on its own — it needs to be con­tin­u­ally fed and re­in­forced. New Star Wars of­fer­ings drive long­ing for the ’70s, a “Beauty and the Beast” re­make pow­ers nos­tal­gia for the 1990s, Marvel movies draft off pleas­ant feel­ings of a child­hood of comic books (and, 12 years into their run, of them­selves). Disney is a con­stant in­ter­play be­tween past and present, a con­tin­u­ous bi­cy­cle chain be­tween the pieces we once loved and the cur­rent re­leases we run out to see to re­mind us of them.

And that chain has now been sev­ered.

“What Disney re­ally needs to do, what they rely on, is cre­at­ing new nos­tal­gia; they can’t just let the old kind stand for it­self,” Spiegel said. “Be­cause, at some point, the umpteenth time you re-watch ‘Frozen’ is the last time you watch ‘Frozen.’ ”

DISNEY PLUS/AS­SO­CI­ATED PRESS

From left, Daveed Diggs, Okieri­ete Onaodowan, Lin-Manuel Mi­randa, Les­lie Odom Jr. and An­thony Ramos in the Disney Plus filmed ver­sion of the Broad­way smash “Hamil­ton.”

KY­ODO NEWS/AS­SO­CI­ATED PRESS

A vis­i­tor takes a selfie with a sim­i­larly masked com­pan­ion at Tokyo Dis­ney­land last week. The park was open af­ter four months of a shut­down. It’s far from the only coro­n­avirus hit Disney has taken.

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