Disney and other entertainment giants could suffer a “devastating impact” on their businesses, Greenberg Glusker attorney Sky Moore says
Hollywood is already feeling the impact of the coronavirus (code name: COVID-19) as the disease spreads from its epicenter in Wuhan, China — and bracing for some potentially serious hits to revenues from box office and theme parks as well as disruptions of overseas film and TV production.
“It could have a rather devastating impact on companies, and not just because of the film industry, but for the companies operating theme parks as well,” Sky Moore, a partner at the law firm Greenberg Glusker, said. “The last thing people are going to want to do is go to a theme park, and the second to last thing they’re going to want to do is go to the movies.”
In fact, some Hollywood companies have already begun to take a hit. Disney, which closed its theme parks in Hong Kong and Shanghai last month, announced Thursday that Tokyo Disney would shutter as well for at least two weeks. In its earnings call earlier this month, the company said the closure of the two Chinese sites alone would cost the company at least $175 million. “The precise magnitude of the financial impact is highly dependent on the duration of the closures and how quickly we can resume normal operations,” Disney CFO Christine McCarthy told analysts.
And with movie theaters in China closed for at least a month, that fast-growing cinema market has already taken a big hit. During Imax’s fourth quarter earnings call with investors on Feb. 19, CEO Rich Gelfond warned analysts that the coronavirus would hurt revenue for the current quarter (though he didn’t offer any specific projections). The majority of Imax’s screens are located outside North America, and 2019 was the first year Imax’s box office in China ($365.8 million) surpassed U.S. box office ($363.1 million). Imax’s box office in the rest of the world, not including China, was $379.6 million.
“We’ve clearly faced headwinds in China early this year due to the coronavirus,” said Gelfond, who described the outbreak as “a serious short-term challenge” and “a rare, out-of-the-ordinary event that will ultimately pass.” However, he noted that Imax’s Hong Kong theaters rebounded after the SARS outbreak in 2003 shut down much of that territory’s film industry for several months.
But the impact could become more severe as the pandemic continues — and spreads to other territories worldwide. On Friday, CBS suspended production on the next season of its globe-hopping reality series “The Amazing Race.” And earlier this week, Paramount Pictures abruptly scuttled a planned Italy shoot for next summer’s Tom Cruise action film “Mission: Impossible 7” and delayed the China release of its hit video game adaptation “Sonic the Hedgehog.” Altogether, Hollywood studios could easily be looking at hundreds of millions of dollars in lost ticket sales in China this quarter.
“We’re already seeing (coronavirus) manifest itself in terms of theaters in China and the halting of production of ‘Mission Impossible,'” said Paul Hardart, a former Warner Bros. executive and current head of the Entertainment, Media and Technology program at NYU. “Fear of being in public spaces will most likely impact the exhibition business, live entertainment venues and Broadway, as well as theme parks and other travel-related businesses.”
There are still a lot of unknowns in terms of how much damage the coronavirus might inflict on the entertainment industry. Analysts say it simply depends on how long the outbreak continues and how severe an impact it has on populations. Hollywood companies are hoping that it will be a short-term problem.
“If people fear getting sick, they’re going to stay away from places that put them in close proximity to strangers. It is a major concern, and will likely cause a mild panic for a few weeks, but that could stretch into months if the number of cases balloons,” Wedbush global theater analyst Michael Pachter told TheWrap.
Ross Gerber, CEO of media investment firm Gerber Kawasaki, said he’s confident that the virus won’t hit the U.S. in such a disruptive way — though that won’t stop people from being fearful when so much is unknown and the potential risks are so high. “It’s too early to say, ‘Oh, this is going to have a major impact on Hollywood, sporting events, concerts and other things like that,” Gerber said. “I don’t want to downplay the short term, because yeah, it sucks. The stock market has reacted negatively, as it should.”
So far, there are early signs that a vaccine could be found sooner rather than later. On Thursday, Israeli scientists said they could have a coronavirus vaccine ready within a few weeks. Labs in the United States, meanwhile, have already sent potential vaccines to the government for testing. However, vaccines typically have a long testing period and it could take a year or longer until one is deemed safe.
“Really there’s nothing you can do — pray,” Moore said of how Hollywood can prepare itself. “Pray that they’re able to find a vaccine. And there’s always hope that it dies out in the summer.”