Disney is starting to recover from COVID-19, but it won’t be able to “jam people on pricing” at its theme parks anytime soon, hurting revenue, and may opt to “kill” the theatrical run of Mulan, according to Wall Street analyst Michael Nathanson.
The MoffettNathanson partner joined colleagues Craig Moffett and Nick Del Deo for a conference call about the pandemic’s impact on media, telecom and tech companies. A replay of the call was released Friday.
Mulan, a big-budget, live-action remake of Disney’s animated film, is a looming issue for the company, which took in $13 billion in global box office in 2019. If the film collects even 50% of the $1 billion many recent Disney tentpoles have, “it will be a freakin’ home run,” Nathanson said.
A longtime Disney bull, Nathanson recently downgraded its shares due to the pandemic, which has hit parks, theatrical films, production, TV advertising and ESPN, which has lacked live sports programming.
Currently slated for a theatrical debut on July 24, Mulan depends on a majority of theaters being open and moviegoers feeling reassured about buying tickets. Top circuits AMC and Cinemark hope to reopen in about a month and are eyeing the planned release of Tenet on July 17 as the kickoff to their pandemic-altered summer season. San Francisco is the latest major-market question mark, joining Chicago, New York and LA given government action and the state of the virus there. Many overseas territories are seeing significant openings, even in once-hobbled countries like Italy and Spain.
Exhibitors and Disney alike have held firm that they are moving forward with the July plan, but Nathanson isn’t sure the studio will follow through. Beyond the viability of theaters, he said, the company would have to “un-furlough a lot of their employees” in distribution and marketing. “I don’t think it’s a given that Mulan‘s going to be released as we think.”
Having already been postponed from a planned release in March, and with other titles pushed out of 2020 and into 2021, Mulan could go out via premium video on demand. It could then accelerate its release to Disney+ by Labor Day, Nathanson speculated. He referenced Trolls World Tour, the Universal release that skipped theaters this spring but still yielded a decent return for the studio given its marketing spend, fast-food tie-ins and higher profile as a family-friendly sequel. The economics of a bigger movie like Mulan are different, of course, but Nathanson’s main point was that there is a recent major-studio PVOD precedent.
Also, Disney has other considerations. A streaming-focused release “could give Disney a bit of a boost and limit churn” on Disney+, Nathanson said.
In terms of share price, “the story about Disney+ and Hulu has given the stock a bit of support,” Nathanson said. “If they do kill Mulan, that could help the narrative. In a perverse way, that could be better for Disney stock in a long run than having Mulan go to theaters.”
As far as the parks unit, Nathanson said the firm’s financial models assume that they will operate at 25% of their usual capacity for the rest of 2020, as is currently the case in Shanghai. In 2021, the estimate moves up to 50% and then to 75% in 2022.
“Until you have a vaccine, you’re going to have the parks run very cautiously,” the analyst said. The gloomy economic outlook, especially in terms of unemployment and consumer spending, means the dynamic at the theme parks will be dramatically different over the next three years. “Disney had really been able to use flex pricing and act like Uber and jam people on pricing and raise prices when demand was spiking,” Nathanson said.
Flex Passes, an offering introduced last year that has provided more consistent parks revenue, have not been allowed in Shanghai, Nathanson noted. Individual tickets and reservations have to be made.
Moffett, who covers Comcast, said similar questions are confronting the owner of Universal theme parks. “Are people going to be willing to go back to the parks or not?” he said. “Some will and some won’t.”
Admissions tell only part of the story, Nathanson said. The real question is about what prices customers are charged and how much they are spending on lodging, merchandise and food during their visits. The usual full-tilt Disney consumer pitch in parks has had to be dialed back several notches. “Pricing is a key lever here and it takes a while to come back,” he said.
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