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Is 2021 a "Lost Year" for Disney?

Brady MacDonald of the Orange County Register recently wrote a column in which he quoted analysts from Deutsche Bank talking about 2021 being a "lost year" for Disney Parks and Experiences, similar to 2020 as a result of the COVID-19 pandemic while extolling the benefits of Disney+ as a cash generator for company.

Will it be?

The answer is a maybe, but that's dependent on factors that are both tied and not tied to COVID-19.

Factors Tied to COVID-19

The biggest factors are clearly tied to COVID-19 and what happens to cases, government response to those cases, the global economy issues related to COVID-19, and when a vaccine will be available and widely distributed.

While future case counts are uncertain, they are predicted to climb in North America and Europe over the winter months which will slow down domestic travel in the United States and continue to restrict travel from abroad. International parks will also feel the effects of this as travel for non-essential purposes continues to remain low/non-existent.

This will continue to be the case, with the obvious effects on the economy and its impact on consumer disposable income until there is a vaccine. Even after a vaccine, there needs to be widespread vaccination (we're not sure how anti-vaxxer concerns will be addressed) before many restrictions are lifted entirely.

Non-COVID Factors

There are also several factors that are not related to COVID-19.

For instance, we will start to see new attractions open up in parks. With the France expansion at EPCOT, Avengers Campus at California, Fantasyland expansion in Tokyo and other projects under construction in parks around the world, you will see small, short-term lifts in attendance as people travel to see the new attractions.

Pricing reductions on tickets, rooms, and airfare will also help encourage those who can travel to do so, as long as people continue to feel safe on resort property and can safely get there. Interesting dining options at reasonable prices will also keep local guests on property longer and paying for meals instead of going home to make dinner themselves.

Will it result in huge crowds? No, but there will a be more consistent guest traffic.

That said, pricing is going to be a key factor. Reduced hours, limited offerings, park reservation requirements, and high prices are barriers to park attendance to all but local guests. People are not going to travel to Orlando from Texas or Anaheim from Oklahoma, or London to Paris, if there isn't much new to do, while limited offerings at full cost or near full cost remains the same.

Disney+ is A Source, Not THE Source of Revenue

Relying on Disney+ for profits will not be a sustainable way forward in the short-term, since streaming services don’t operate on a model of instant profitability.

New content that people are willing to put money down for is costly to produce with no guarantee of a return on investment. Combine this with the potential for shutdowns and the need to have film locations comply with public health guidance is also going to pose challenges, risks, and increased costs to create new content.

The Mulan risk does not seem to be paying off and that is no surprise to many since it would require over 8 million subscribers to pay to watch the movie for it just to break even (read the Variety article here).

Although we're still not 100% sure, Mulan seems to have netted $33.5 million USD over its first weekend on Disney+ (see the Screen Rant article here), with low theater ticket sales ($6 million USD) in other markets (see the Deadline article here), and even in the lucrative mainland China market, it has only sold about 2.1 million yuan ($307 000 USD) in day one presales and an estimated opening day box office of 2.3 million yuan ($336 000 USD), according to numbers quoted in a South China Morning Post article.

Even though it's clear Mulan was not intended for a Disney+ release, it shows the costs of trying to produce content for a streaming service and the risks associated with failure. Very few people will sign-up to Disney+ for documentaries and low-budget content; they want big budget productions like the Mandalorian, which will not offer the return on investment needed in the short-term, particularly if it flops.

The Road Ahead

COVID-19 is a disrupter to their business (much like every other business). For a company so dependent on a travel division to fund its other divisions, Disney will need to be more agile, tactical, and more customer-centric than it has been since Michael Eisner. Building out a better non-parks retail experience and logistics supply chain, continuing to build on their streaming service in a scalable manner, and making good decisions based on what consumers want in their studio and park offerings will go a long way in helping to solve the problem of fewer people needing to spend more money to keep them afloat.

A more customer-centric, value-for-money, long-term sustainable direction is what Disney (and for that matter Universal, Six Flags, and other similar businesses) need to navigate if they want to sustain and improve upon their operations into 2021 and beyond.

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