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  • Written by Rick Ellis

What Impact Could A Coronavirus Pandemic Have On Disney & Other Media Companies?


When you are discussing the Coronavirus (COVID-19) and the impact it might have on the United States, a lot of what you are doing is speculating. But it's possible to piece together reasonably informed speculation. There is a historical precedent for a possible pandemic such as COVID-19. You can look at the impact it's had in countries that have growing infection rates and make assumptions about what that might look like here. And when that is the starting point, it's possible to make some reasonable assumptions about the impact a widespread outbreak would have on the American entertainment industry.

Right now, the only confirmed cases in the United States of COVID-19 come from people who visited China. But two spouses of those visitors have been infected, as well as a group of tourists who were trapped on a cruise ship. The United States has so far not seen patients who were infected in social settings. But when the CDC gave a briefing on Tuesday about the outbreak, they warned that it is almost certainly likely to change.

That doesn't mean that COVID-19 would spread to every community. But there only have to be a couple of random outbreaks in the U.S. before its effect on the economy would be felt in everyone's everyday lives. No one is going to want to take the chance of becoming infected and that will mean a drastic change in everyone's day-to-day lives.

So what will the effect be on some of America's major media companies if that happens? As in any economic crisis, not every impact can be predicted. But let's just take a look at the impact a full-scale COVID-19 outbreak in the United States might have on the Walt Disney Company, one of the world's biggest media companies.

Disney has already paid an economic price due to the spread of COVID-19. It closed Shanghai Disneyland and Hong Kong Disneyland earlier in the month and the company said last week those closures would cut revenue about $175 million in the current quarter. Even worse, with COVID-19 now slowly spreading into Europe, it's certainly possible we'll see Disneyland Paris close as well. It would be a similar situation for Disney World and Disneyland if COVID-19 expands into the United States.

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Another division of Disney likely to see substantial revenue disruptions in a pandemic is Disney Signature Experiences. A substantial worldwide COVID-19 outbreak would make things difficult for Disney's four cruise ships & lead to disruptions in its Adventures by Disney and Disney Vacation Club Management Corporation businesses. Without knowing the scale of the outbreak, it's impossible to quantify the economic impact. But any widespread fear of interacting with other people is going to make any business reliant on group experiences problematic until there is a vaccine and a perception the danger has passed.

The impact on Disney's motion picture business could be substantial. The shuttering of the production for the latest "Mission Impossible" movie is a reminder that a widespread reluctance during an outbreak to be around the general public makes much of the day-to-day business of the movie industry very difficult. Ongoing productions can be suspended and each of those suspensions will have an economic cost. Delays will push back release dates, leading to increased financing costs and scheduling conflicts with upcoming productions. And there is an entire studio infrastructure that depends on face-to-face interaction. It's not at all clear anyone has a clear sense of what will happen. But the impact will be massive.

You would also see a similar impact on the TV production side. An outbreak in Canada would severely limit productions in places such as Vancouver. And if there are any serious health concerns in Southern California, it's likely all the ongoing productions would have to shut down or severely limit cast and crew interactions.

There are also many other possible economic challenges for Disney amid a COVID-19 outbreak, although it's impossible to quantify them until we know the scope of the spread. Retail business will be impacted on some level, which will have a direct impact on the bottom line of the Disney-branded retail stores. 

That impact on the country's retail business might also spread to the television advertising business. A shutdown of movie theaters will strip away their need for advertising in the short-term. And overall ad buys could slump if the spread reaches a pandemic level and impacts the retail sector severely.

Disney also has a substantial merchandising business and that division could be hit from several directions. A slump in retail sales would have a direct impact. But the ongoing spread of COVID-19 in China and other parts of Asia could have a severe impact on Disney's supply chain. In a world where most products and supplies are manufactured and shipped "just in time," even the smallest supply chain disruption could lead to shortages and increased costs.

These are just some of the major impacts the continuing spread of COVID-19 across the world could have on the bottom line of the Walt Disney Company. And it would be a similar economic bloodbath to the revenue of nearly every media company. Imagine the impact on Comcast if the Summer Olympics are canceled or AMC Theaters if movie-going becomes too risky in Europe or the United States.

None of this is a prediction of what will happen. But whether you are an investor or just concerned with the economic health of America's entertainment industry, these are all things to worry about as you follow the slow growth of COVID-19 across the globe.

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