New Disney CEO Takes On a Crisis Coming From Every Direction

(Bloomberg) -- Walt Disney Co. Executive Chairman Bob Iger began his memoir published last year with the sad tale of his trying to open the company’s new Shanghai theme park in 2016 while suddenly having to deal with a mass shooting in Orlando, Florida, and the unrelated death of a child at the company’s Walt Disney World resort nearby.

Iger and theme-park chief Bob Chapek huddled on how to handle the crisis. “We’re on it,” Chapek assured him.

“The bond you form in high-stress moments like this, when you’re sharing information that you can’t discuss with anyone else, is a powerful one,” Iger wrote.

Chapek, who took over from Iger as Disney’s chief executive officer last month, faces another set of formidable challenges today. The world’s largest entertainment company has been as hard hit as almost any business by the coronavirus sweeping the globe.

Disney’s theme parks worldwide are now closed or closing. The company’s cruise ships have suspended new departures. On Thursday, Disney postponed the opening of three of its upcoming films, including “Mulan,” the live-action update of the 1998 animated hit that was expected to be one of its biggest releases this year.

Meanwhile, Disney’s ESPN sports network is scrambling to find programming to fill time slots left open when the NBA and other leagues canceled their games. Disney employees in the U.S. are being told to work from home -- excluding some hotels and stores, which remain open. The company will keep paying workers, even those who don’t have anything to do.

Lower Outlook

S&P Global Ratings lowered its outlook for Disney’s credit rating to negative on Thursday, citing the virus. “While we are uncertain as to the long-term economic impact of this pandemic, we believe there is increased risk to our 2020 forecast,” the rating agency said in typical understatement.

It added that related earnings shortfalls could limit the company’s ability to reduce its debt, much of it taken on along with Disney’s $71 billion acquisition of Fox entertainment assets last year.

Disney’s shares have fallen so much since the virus crisis began -- 34% from the Feb. 21 close through Thursday -- that Apple Inc. might want to swoop in and buy the company, Rosenblatt Securities analyst Bernie McTernan said in a note Friday.

“The upside from acquiring Disney would be securing their content/streaming strategy and potential synergies from adding the emerging Disney ecosystem to the iOS platform,” McTernan said of Apple.

Disney shares bounced Friday along with the broader market, up 7.2% to $98.43 at 10:10 a.m. in New York.

Iger, who served as CEO for 15 years, handed the reins to Chapek in a surprise move on Feb. 26. Iger’s retirement had been expected for years, but the timing and the choice of successor still came as a shock. Under the company’s new chain of command, Iger planned to focus on the company’s creative content until his contract ends in December 2021. Chapek, a 27-year company veteran who also worked at the film studio, was to handle the nuts-and-bolts running of the company.

Laura Martin, a senior analyst at Needham & Co., said the pandemic has likely forced Iger into taking more of the day-to-day management role he had sought to give up.

Tag Team

Iger and Chapek co-hosted the company’s annual meeting with shareholders on Wednesday, with Iger opening the event with comments about the virus and Disney’s historical resilience in times of adversity. It was Iger whom California Governor Gavin Newsom spoke with about the Disneyland closures this week.

It may be a boon for Disney shareholders to have two leaders managing the fallout of the crisis, according to Martin.

“I don’t care what CEO it is, this is unprecedented,” she said in an interview. “Two heads are better than one.”

The company is trying to adjust to the new world order. ESPN is running its SportsCenter news and commentary shows all day and night, rather than games. Disney’s film studio, the industry’s leader last year, is looking at alternate dates later in the year for “Mulan,” “The New Mutants” and “Antlers,” a science-fiction horror film from its Searchlight division.

And some green shoots are forming. This week Disney reopened the hotel and shopping area outside the Shanghai park.

Still, the short term looks bleak.

‘Grinding Halt’

Without a multicharacter Avengers or Star Wars film, the studio already faced tough comparisons this year, in contrast with its stellar 2019, said Jeff Bock, a senior box-office analyst at Exhibitor Relations Inc. China’s movie theaters, which have been closed for weeks due to the virus, will see a backlog of films competing for screens and audiences when they reopen.

“This kind of puts everything to a grinding halt right now,” Bock said.

Needham’s Martin, in a note Friday, referred to the film backlog as just one of Disney’s many challenges in eventually bouncing back from the virus effects. She said theme-park demand won’t move to later in the year because the parks normally run at full capacity, and ESPN can’t make back its losses on canceled sports seasons.

Disney had already warned of a big hit to its theme parks due to the virus, including $175 million less in operating income in the current quarter because of the closures in Shanghai and Hong Kong.

Bernstein Research analyst Todd Juenger, in a research note this week, predicted a worst-case scenario where Disney’s worldwide parks were closed for two months. He said theme-park earnings before interest, taxes, depreciation and amortization could fall by as much as $2.9 billion this year.

Ironically, one bright spot for the company may be its direct-to-consumer business, with its Hulu and Disney+ streaming services, which Chief Financial Officer Christine McCarthy has said would lose $900 million in the quarter. They could see an uptick in viewing and subscriptions as consumers spend more time at home. The company is scheduled to launch its Disney+ service in Europe and India later this month.

Chapek, less than three weeks on the job, has already shown he can think on his feet. When an attendee at the annual meeting Wednesday suggested the stock’s recent decline -- it has fallen more than a third this year -- might be the result of the gay-pride events the company holds at its theme parks, the new CEO put that idea quickly to rest.

Disney’s drooping stock price, he said, “has nothing to do with the issue that you raise and might have more to do with coronavirus and the worldwide pandemic that we’re facing.”

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net;Kelly Gilblom in Los Angeles at kgilblom@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John J. Edwards III

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