Will a reopened U.S. economy prove a minus for Disney+?
This is the core question facing Walt Disney Co. before its second-quarter earnings report Thursday, which should offer Wall Street fresh insight on how the world’s largest entertainment company is faring, as its biggest markets emerge from quarantine.
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For the past 14 months, stay-at-home orders and closed entertainment venues lifted Disney’s streaming services to new heights. Disney+ in March passed the 100 million subscriber mark after just 16 months of operation, cementing its status as the most successful streaming entrant since Netflix Inc. defined the field years ago.
But last month, Netflix reported slower-than-expected growth in subscribers, as consumers headed out of the house—a vulnerability facing Disney as well. The company has provided some notable signs that the dampening effects of the Covid-19 era are fading. Disneyland in Southern California has been reopened at reduced capacity since last month. And "Cruella," a delayed movie starring Emma Stone as the dog-hating villain of "101 Dalmatians," is scheduled to hit theaters on May 28.
Disney’s quarterly earnings have lately provided a glimpse of a company at a crossroads. Covid-19 immediately shut down two of its core businesses—parks and movies—but also accelerated focus and investment toward streaming services seen by Wall Street as critical to its post-pandemic future. Good news about its streaming growth kept the stock price soaring despite steep losses seen in other divisions. However, summer travel and pent-up demand for live events could depress sign-ups at Disney+ and its other services in the months ahead.
Disney shares plummeted to their lowest point since 2014 when the pandemic hit in March 2020 but had rebounded to record highs a year later. Shares have been on a slight downward trend since then, hovering around $180.
In February, Disney eked out a quarterly profit after two quarters of losses. The second-quarter earnings, which cover roughly the first three months of the year, are likely to reflect continued disruption in parks and studio entertainment.
Walt Disney World in Orlando and other parks around the world were open for the quarter, though at reduced capacity, and a majority of U.S. theaters weren’t operating until the last few weeks of March. Disney’s only major theatrical release so far this year, "Raya and the Last Dragon," made $44 million after opening in early March. In normal times, Disney animated releases typically gross more than $150 million at the domestic box office.
Instead, the most popular Disney products from the quarter were streaming shows on Disney+ like "WandaVision." It brought new fans into the Marvel fold and benefited from Friday night premieres with little outside competition like happy hours or live music. Disney typically updates streaming subscriber figures during quarterly earnings calls, which should give some indication of whether the superhero show’s popularity translated into subscriber growth.
Netflix shares are down more than 12% since disclosing on its earnings call last month that the reopening was leading to a slowdown in sign-ups. "There’s a boost in engagement that you get when people are in a lockdown situation," Netflix operations chief Gregory Peters said at an investor event in March.
At Disney, the streaming service has also become a key piece of its theatrical strategy. The company has two major releases on the docket for this summer: "Cruella" and "Black Widow," starring Scarlett Johansson as the Marvel superhero.
Both movies will be released on the big screen but also offered for home viewing on Disney+ for an additional $30. That hybrid-fee model isn’t the only one Disney is exploring for its coming slate, which is expected to have some movies that premiere theatrically and others that premiere on Disney+ for no additional charge and with no theatrical footprint.