Disney Warns of Ad Sales Impact, Disruption to Content Production Amid Virus Crisis

Disneyland March 13, 2020

The monorail passes an entrance gate to Disneyland on March 13, 2020 in Anaheim.

The Hollywood giant says it has also "experienced supply chain disruption" from social distancing and other efforts to contain the virus spread.

The Walt Disney Co. on Thursday pulled back the curtain a bit on the disruptions to its businesses from the coronavirus outbreak and measures to contain it.

"The impact of the novel coronavirus...and measures to prevent its spread are affecting our businesses in a number of ways," the Hollywood giant said in an regulatory filing with the Securities and Exchange Commission. "We have closed our theme parks; suspended our cruises and theatrical shows; delayed theatrical distribution of films both domestically and internationally."

The global media giant has been seen as especially vulnerable to the coronavirus outbreak owing to its theme park, film and media networks businesses, many of which need original content to drive customer growth. The company on Thursday didn't provide any estimates for the financial fallout, but for the first time cited "ad sales impacts."

The conglomerate, led by CEO Bob Chapek and executive chairman Bob Iger, also discussed the fallout from programming that is disappearing from its lineup as film and TV productions have been shut down and movie releases postponed. "There has been a disruption in creation and availability of content we rely on for our various distribution paths, including most significantly the cancellation of certain sports events and the shutting down of production of most film and television content," Disney said.

As the loss of pro and college sports costs TV outlets reduced viewership and ad revenues, ESPN will lose its coverage of NBA telecasts while the league is suspended.

Disney highlighted to investors that the impact of the virus outbreak on its revenue and earnings was difficult to predict amid a fluid situation and the impact across various business areas. The financial impact will hinge on the size of disruptions to its businesses and how long they last, along with "governmental regulations that might be imposed in response to the pandemic," Disney explained.

"Our businesses could also be impacted should the disruptions from COVID-19 lead to changes in consumer behavior," it continued in its SEC filing. "The COVID-19 impact on the capital markets could impact our cost of borrowing. There are certain limitations on our ability to mitigate the adverse financial impact of these items, including the fixed costs of our theme park business."

To reduce the impact of the COVID-19 virus, Disney this week said it would close all of its North American stores and the studio will also close Downtown Disney in Anaheim and Disney Springs in Orlando. Disney hotels in Walt Disney World and its Vero Beach Resort will also close by Friday.

Last week, Disney said all of its North American parks and Paris park would be closed until at least the end of the month. The nearly unprecedented move came as pressure on the national, state and local level was being applied to businesses to help fight against the spreading coronavirus.

Debt ratings agency Fitch Ratings on Wednesday put Disney on credit watch, with a negative outlook, over concerns about how the Hollywood company will weather the coronavirus outbreak in the near term. The agency said the virus outbreak will "materially weaken Disney's operating and credit profile over the near term (next two to three quarters)," but it expected the studio's businesses to "normalize gradually" in step with the return of economic activity as the coronavirus threat lessens.

Disney in its Thursday regulatory filing said the new COVID-19 virus challenges senior management in forecasting future revenues, "particularly over the near to medium term."

Disney management on its Feb. 4 earnings conference call, when it had closed its theme parks in Shanghai and Hong Kong, estimated a $280 million hit to operating income in its theme parks, experiences and products unit in the current quarter.