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Could Disney Be In Real Trouble Further Down The Road?

Perhaps you already know that Bob Iger announced his (most likely temporary) return as quasi CEO of Disney last Sunday, he’s taking over again from Bob Chapek so he can steer Disney through very stormy waters. But Bob Iger’s return is not what I want to focus on. I want to talk about Disney’s current situation and how and if it might affect their future. So please click through for a discussion! 

Hello there, I’m back!

First, a few basic numbers. Disney is in debt. Very much so, Disney had close to $50 billion in debt in December 2019. This is not really a huge problem when the company itself it worth a lot more and income is generated. And of course Disney itself is worth a lot more than it has in debt, so everything is fine, more or less. Even if some of that market cap was destroyed in the past few weeks – the company is now worth almost $70 billion less (or roughly 27%) than before.

Disney’s three main pillars are media networks (think ESPN, ABC etc), theme parks / cruise ships and finally the movie studio business.

In 2019 operating income from media networks was $7.5 billion. Theme parks and cruises brought in $6.8 billion (and most of the total revenue) and the movie studios $2.7 billion. That was in a year with Avengers Endgame. So 2020 was always going to be much worse for studio entertainment, no matter what.

But now ESPN can at best show some esports, which will result in lower advertising revenue, because all major sports events are either canceled or delayed for the time being. TV shows and movies have halted production, so even other networks such as ABC will feel the pain. And movie releases have been pushed back to fall/winter 2020 or even 2021.

The theme park and cruise ships deparment has been shuttered entirely. And since there are no new movie releases and (almost) no open movie theaters, revenue from studio entertainment will be close to zero as well. Sure, there is Disney+ and it’s shaping to be a success story, but it will take years and years and even more years before Disney+ will be profitable, as of now it’s a sinkhole, Disney+ costs money.

Disney has approx. 223,000 employees, quite a few of them have been furloughed, basically almost all theme park employees. While Disney won’t say how many workers are furloughed, approx 30,000 employees in Anaheim and another 43,000 in Orlando are definitely furloughed, that will save the company some money, but still, expenses are high and according to analysts Disney is losing approx. $30 million – each day. Or about one billion dollars each month. Disney’s cash reserves are rather limited, in December 2019 Disney had approx. $6.5 billion cash on hand. Therefore, Disney raised an additional $6 billion in debts in early March, you have to pay the bills somehow.

The real question is when theme parks and cruise ships will operate again. Studio entertainment is also an issue, but since it only contributes a moderate sum (more or less) when compared to media networks and theme parks, Disney could certainly weather delayed movie releases, but with theme parks closed, cruise ships docked and much lower ad revenue on their media networks, Disney could face serious issues if the current situation is not resolved soon.

Which is certainly the reason Bob Iger felt the need to take over the helm again.

Disney acquired Fox for more than $71 billion in 2019. The question is if Disney may feel the need to downsize again if the current crisis is not resolved any time soon. Because no company in the world can afford to lose ca. $1 billion per month for long.

And even if the US decides to re-open things soon, that doesn’t mean other countries will do the same and tourists from abroad may still not come for months and months, cruise ships may also not be allowed to operate elsewere and if cinemas will re-open any time soon in the foreign markets is also very unsure. 2020 will be a really terrible year for Disney.

So the big question is if Iger may feel the need to sell some assets. To downsize the company again to a more manageable size. Could Lucasfilm be a candidate here? Maybe even Marvel studios? Does Disney really need to operate cruise ships? What about Fox? That would be an enormous disaster after paying more than $71 billion for it. The next question is what other studio or company may even be willing to buy parts of Disney?

Of course Disney could just hold on to things and hope to weather the current crisis and wait for better days. But what will be when theme parks will have to be shuttered throughout the summer? Or will have to do without foreign tourists? What about all those people out of a job who will not even think about going to Disneyland or Disneyworld for the time being?

What impact will it have on future projects like the Star Wars hotel? Or expensive Disney+ shows? Could that somehow affect both the Cassian Andor and Kenobi show (as well as some Marvel shows). Because that’s a lot of money that Disney may not have anymore, at least for now.

So maybe selling some assets or canceling / downsizing a few projects will become unavoidable further down the road. It’s certainly commendable that Bob Iger is on the bridge again, but his job is very different now than it was just two months ago.

And while some fans may fantasize about George Lucas buying back his company for much less than he sold it for, I think that’s extremely unlikely to happen, as in “not at all”. Unless Disney really needs cash and can’t raise any more debts.

So what do you think could or might happen? Would Disney sell some of their assets? Will they have to sell some of their assets, whether they like it or not? Or will they weather the crisis with things returning to normal over the summer, with no changes to the company at all?

I think that at least the entertainment landscape may be changed, with digital becoming even more important much sooner than many would have anticipated. And maybe it’s time to think about movies that cost 300 million dollars to make. Is that really necessary?

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