Disney is facing the biggest challenge of their existence
COVID-19 has upended a lot of lives, and even the magical world of Disney cannot escape this global pandemic. The Walt Disney Company has a broad portfolio of core business units, but without the ability of large groups of people to assemble, a large chunk of this portfolio is choking. All five theme parks and the fleet of cruise liners, representing $26.2 billion in sales, are on hold. Worldwide closure of movie theatres has halted all live-action film production representing another $1.54 billion. And if that were not enough, the suspension of sports has put pressure on Disney’s ESPN, eroding some of the $24.8 billion in TV revenue (1). The Disney experience relies on people coming together, but without that underlying premise, the current model is breaking.
These changes could be long term, or worse, permanent
A blip in time, a terrible storm to weather out. As countries begin to lift their stay-at-home orders, Disney could wake from the nightmare. But even with the quarantine lifted, the damage could be long term. Will people be willing to cram into parks, stadiums, or movie theatres again? Will it be business as usual? The inertia of a gutted service industry might second guess this assumption. This, compounded by the hit to disposable incomes, might dampen a rapid recovery. With a sputtering economy and a timeline affixed to a vaccine at a minimum, Disney might want to plan for more than just a storm.
The digital lifeline of Disney+
Just before the outbreak, Disney made what many referred to as a “bet the company” pivot. Former CEO Bob Iger called it the “biggest initiative in his 45-year tenure” (3). In 2019, Disney entered the highly competitive, digital space of streaming. With industry titans like Netflix, HBO, Hulu (majority Disney owned), and Amazon, this dive into the digital fray was a high-risk gambit. They packed a powerful punch, however, with brands such as Marvel, Star Wars, National Geographic, Pixar, and Disney Classic. The early signs showed promise, with Disney+ acquiring 28.6 million users in three months, an astounding number for a market entrant (4).
The timing of this digital pivot could not have been more fortuitous, parrying the blow of COVID-19 on other business units. With people forced on couches, returns from streaming TV jumped 32% during the week of March 16 (5). Streaming is one of the few industries to be on the right side of the crisis, and Disney+ entered in the nick of time.
Is this pivot enough?
Surveys suggest that average customers will pay for three to five streaming services (6). Though this reflects a natural multihoming space, there is room for Disney+ to hold on and take a bite out of the massive pie. This comes at a cost however, with a $740 million quarterly loss used to propel Disney+ onto the streaming podium (7). And this doesn’t answer the problem of empty parks, cruise liners, and theaters. Is it enough for Disney to be just another streaming service, or can they keep the Disney magic alive in another way?
Double down on Digital
Think forward, reason back; nothing could be more critical during a Black Swan event. If the days of large crowds are over, or these crowds only return with a trickle, then Disney needs to rethink its asset-heavy model, especially if pandemics happen several times in a lifetime.
Disney has an edge though.
Unlike Netflix, Amazon, or other streaming services that rely on producing entertainment at volume to stay competitive, Disney has built a kingdom. Rather than a collection of linear, mutually exclusive narratives, they can harness the alternate realities that have been cultivated over decades. Theme parks were the original immersive experience, so why not leverage that edge and make it a digital one. One that includes the sights, the sounds, the emotion, and the magic. Google and Facebook are moving quickly into this space, and Disney might need to follow suit. It’s Virtual Reality, and it’s making enormous strides in bringing the most faraway experiences right to your home.
Getting a consistent forecast for the Virtual Reality market is a futile exercise given the wide range of estimates and CAGRs, but this is proof of a blue sky opportunity. Facebook made a $2 billion acquisition of Oculus in 2014 (8), and Google’s Magic Leap has been valued at $3.7 billion (9). Disney has made a half-hearted attempt to capture its theme park experience with Virtual Disney World and its 46,000 subscribers, but a YouTube channel won’t cut it (10).
Let’s also be upfront that spending more money and incurring more risk while bottom lines are enduring the coronavirus crunch will be a tough sell, especially on the heels of the previous “bet the company” gamble on Disney+. But if the crowds truly are a limiting factor, they may have no choice.
Implementation is also a sticking point. Buy, build, or partner? If Disney is confident in their edge and confident that VR can capture those Marvel, Star Wars and Mickey Mouse moments, building in-house could make them leaders in the home entertainment market. The other two options, however, could help speed up the move and dilute the risk, but Disney would have to share its lovable brands.
When life gives you lemons, make lemonade. When a lethal virus tethers people to their homes, bring the experience to them. Disney might have a chance to wait and see if COVID-19 has indeed rewritten the script completely. In the meantime, however, it will need to start planning, and thinking very big. Because if those wild projections turn out to be true, there will be a race to own the couch experience, and Disney better make sure there is room on it for Mickey.
- MarketWatch, “Disney+ may be the only plus for Disney as coronavirus slams other businesses”, Jon Swartz, April 2020. https://www.marketwatch.com/story/disney-in-the-age-of-covid-19-for-now-disney-may-be-the-only-plus-2020-04-07
- Image taken from: https://www.dadsguidetowdw.com/crowds.html
- MSN, “Disney is betting everything on its Disney+ streaming service”, Adam Epstein, Nov 2019. https://www.msn.com/en-us/money/companies/disney-is-betting-everything-on-its-disney-streaming-service/ar-BBWqLL5?getstaticpage=true&automatedTracking=staticview&parent-title=don%E2%80%99t-be-fooled-how-to-spot-a-real-1970-chevelle-ss&parent-ns=ar&parent-content-id=BBBHt4J
- The New York Times, “Disney Plus Racks up 28.6 Million Subscribers”, Brooks Barnes, Feb 2020. https://www.nytimes.com/2020/02/04/business/media/disney-earnings.html
- MarketWatch, “Netflix may have edge on competition as coronavirus keeps people looking for new shows”, Jon Swartz, April 2020. https://www.marketwatch.com/story/netflix-in-the-age-of-covid-19-streaming-pioneer-may-have-new-edge-on-competition-2020-04-07
- Bloomberg Green, “What the Streaming Wars Mean for the Future of TV”, Lucas Shaw, Nov 2019. https://www.bloomberg.com/news/articles/2019-11-30/what-the-streaming-wars-mean-for-the-future-of-tv-quicktake
- The New York Times, “Disney’s Ambitious Streaming Plans Take Big Bite Out of Profits”, Brooks Barnes, Nov 2019. https://www.nytimes.com/2019/11/07/business/disney-stock-earnings.html
- The Motley Fool, “Facebook Wants to Boost Its Virtual Reality Business With Big Deals”, Leo Sun, Jul 2019. https://www.fool.com/investing/2019/07/11/facebook-wants-boost-vr-business-with-deal.aspx
- Business Insider, “One of the Most Valuable Startups in the World Has Yet to Reveal Its Product”, Matt Weinberger, Dec 2015. https://www.inc.com/business-insider/google-backed-startup-magic-leap-raises-287-million.html
- USA Today, “Coronavirus: Disney is closed, but you can still experience your favorite rides virtually”, Morgan Hines, Mar 2020. https://www.usatoday.com/story/travel/news/2020/03/28/covid-19-disney-closed-experience-your-favorite-rides-virtually/2932473001/
- Image taken from: https://www.themeparktourist.com/features/20180107/33572/best-attraction-walt-disney-world-isnt-one-you-think
- Tital image taken from: https://www.fool.com/investing/2020/04/18/what-does-a-recession-mean-for-disney.aspx