One year ago, Bob Iger and Walt Disney Co. launched their flagship streaming service Disney+ with the intent of building a modern entertainment company that could dominate the fast-changing industry well into the future.
Then the rest of Mickey’s universe went dark.
For much of the last year, the Burbank colossus has faced the biggest challenge of its nearly 100-year history. The COVID-19 pandemic closed its parks, halted its cruise lines, delayed its movies, stopped its productions and canceled live sports. Tens of thousands of employees were laid off, mostly at Disneyland Resort and Walt Disney World, but also at retail stores, ESPN and its movies business.
The company posted a net loss of $2.8 billion for the 2020 fiscal year, plummeting from a profit of $10.4 billion a year earlier, Disney said in an earnings report Thursday.
Since the coronavirus hit, Disney has accelerated its efforts to focus its business on streaming, which has been a bright spot during the pandemic. Last month, Disney Chief Executive Bob Chapek, who replaced Iger in February, embarked on a major corporate restructuring to further prioritize creating content for its direct-to-consumer outlets, including Disney+, Hulu and ESPN+.
The gamble on streaming has paid off in a big way so far. Disney+, which costs $7 a month on its own and $13 a month when bundled with Hulu and ESPN+, hit 73.7 million subscribers as of Oct. 3, up from about 60 million three months ago, the company said.
Hit shows including “The Mandalorian,” set in the “Star Wars” universe, have helped propel Disney to the front of the pack in the industrywide race to challenge Netflix for online video dominance. Hulu now has 36.6 million subscribers, while ESPN+ tallies 10.3 million, Disney said.
“One year ago today we launched Disney+, and it has quickly exceeded our highest expectations,” Chapek said in a call with analysts.
As the Mandalorian, the bounty hunter from Disney+’s popular show, would say: “This is the way.”
Streaming leader Netflix has about 195 million global subscribers. AT&T recently said its new service HBO Max has seen 8.6 million activations since its May premiere, bringing HBO and HBO Max to a combined 38 million U.S. subscribers. NBCUniversal has said 22 million people have signed up for Peacock, which has a free ad-based tier, as well as a subscription level.
The effect of COVID-19 on Disney’s other businesses has been stark.
Revenue for the fiscal year, which ended in early October, was $65.4 billion, down 6% from last year. The pandemic led to a $7.4-billion reduction in operating income during the year, the company said.
The segment that faced the most hardship in 2020 was, unsurprisingly, parks, experiences and products. Disney reported an $81 million operating loss for the year, compared with $6.76 billion in operating income in 2019.
Disney’s parks business has begun to sporadically emerge from the pandemic. Walt Disney World reopened in Florida this summer with strict capacity limits, though attendance has lagged. Disneyland in Anaheim has been kept closed because of state restrictions on theme parks, despite pressure from Disney, other operators and Orange County officials on Gov. Gavin Newsom to allow theme parks to resume business. Disneyland is not expected to open until the end of the first fiscal quarter, which ends in December.
“We believe state leadership should look objectively at what we’ve achieved successfully at our parks around the world, all based on science, as opposed to setting an arbitrary standard that is precluding our cast members from getting back to work while decimating small businesses in the local community,” Chapek said.
In September, Disney said it would lay off 28,000 people from its parks and experiences division.
Internationally, Disneyland Paris, which had reopened, was forced to shut down again last month as France instituted another lockdown. Hong Kong Disneyland had to close again in July before reopening in September.
Disney also reported fourth-quarter earnings that significantly beat analyst expectations.
The company posted a loss of $710 million, or 20 cents a share, during the quarter, compared with a profit of $777 million a year earlier. Revenue fell 23% to $14.7 billion, compared with $19.1 billion in the fourth quarter of fiscal 2019.
Analysts polled by FactSet had estimated a loss of 71 cents a share on revenue of $14.15 billion. The company had better-than-expected quarterly results in its media networks, parks and direct-to-consumer and international segments.
Disney shares, which closed Thursday down 1.7% to $135.52, jumped about 6% in after-hours trading following the earnings release.
The company’s media networks segment — which includes ESPN, ABC, Freeform and other channels — grew operating income 5% to $1.9 billion in the quarter. ABC benefitted from lower programming costs and higher affiliate revenue, as well as an extra week in the quarter.
Parks, experiences and products swung to a quarterly loss of $1.1 billion.
With a lack of new theatrical film releases, the company’s movie studio saw revenues fall 52% to $1.6 billion, while operating income plunged 61% to $419 million.
Disney’s movie studio had to delay some major films, including “Black Widow” and “West Side Story” and sent others straight to Disney+ (“Soul” and “Mulan”).
Disney released its “Mulan” remake for a $30 video-on-demand purchase through Disney+ in September. Though Disney did not disclose sales figures for the big-budget title, Chapek said he was “very pleased” with the results and that there’s “going to be a role” for the strategy in the future.
While Disney+ has posted strong results so far, analysts say the service needs more content to keep subscribers interested.
To that end, Disney recently premiered the second season of “The Mandalorian” and said Thursday its Marvel series “WandaVision” will debut in January. Creating more programming — a challenge during the pandemic — will be key as annual subscription plans for Disney+ begin to expire.
“When we look at something like Disney+, there’s not a whole lot of content beyond the kids content to keep people coming back,” said Eric Haggstrom, an analyst with EMarketer. “They really do need to invest in more content to drive consistent viewership and reduce churn.”
In its recent reorganization, Disney created three entertainment units for its key movie brands, television studios (general entertainment) and sports, along with a separate division in charge of distribution and the operations of streaming services and TV channels.
In a sign of hope for the industry, Pfizer this week said early analysis of trials suggested its vaccine candidate is 90% effective against the disease. The announcement boosted shares of Disney and other entertainment companies, though the general population isn’t expected to have access to coronavirus vaccines until spring.