"Flying as Blind as Everyone Else": What Hollywood Earnings Season Won't Show

Warner Bros Lot North Hollywood April 2 2020

While most media and entertainment giants have withdrawn guidance, Wall Street tries to figure out what lost box office, TV advertising and delayed spending adds up to.

Going into first-quarter Hollywood earnings season, Wall Street analysts are looking for any signs to get a better handle on the coronavirus pandemic's financial fallout.

Cinemas in the U.S., U.K. and other major markets have been closed since mid-March, following China, the second-largest theatrical market in the world, setting up a box office hit starting late in the first quarter.

TV networks have been lacking sports events, which have been put on ice around the globe amid the virus crisis, as well as original content where productions have been shuttered, with advertising revenue hit by companies reducing marketing budgets. And The Walt Disney Co. and Comcast/NBCUniversal's theme parks have been closed.   

Sure, news networks and units, such as Fox Corp.'s Fox News, AT&T's WarnerMedia-owned CNN, NBCUniversal's MSNBC and ViacomCBS' CBS News, have seen ratings boosted by people stuck at home looking for the latest on the crisis. But with advertising hit hard by the pandemic, there is likely less opportunity to translate increased audiences into revenue. Streaming services, from Netflix to Disney's Disney+, have been seen as key near-term beneficiaries of "stay at home" orders that have folks yearning for some entertainment, but questions remain about how long consumers will be willing and able to pay for them.

What does the mix of lost box office, TV advertising and other revenue, potential cost savings from delayed spending and other factors add up to? 

"We don't think the first quarter will show much to extrapolate from, absent any current visibility on the potential duration of the COVID-19 outbreak and, eventually, the potential timeframe for a return to some semblance of normalcy," CFRA Research analyst Tuna Amobi tells THR. "At this point, however, it's reasonable to expect that the negative impact on entertainment companies could last for the better part of this year, and conceivably into next year, to varying degrees of severity depending on the mix and diversification of the underlying businesses for those companies."

Echoes former analyst Hal Vogel, CEO of Vogel Capital Management: "Most companies have almost no visibility on the first and second quarters, so I wouldn't count on them providing reliable guidance. They are flying as blind as everyone else."

Indeed, companies in various sectors have in recent weeks withdrawn their financial guidance for 2020 and said that the virus crisis' financial impact could be "material," without providing more specifics. Amobi expects little in terms of new detailed guidance this earnings season beyond maybe some companies offering "limited sensitivity analyses."

Cowen analyst Doug Creutz in a March 23 report outlined that the financial impact of the virus crisis was twofold: "First, the direct impact from anti-pandemic measures. This primarily impacts theme parks (Disney, Comcast), theatrical exhibition (Disney, ViacomCBS, Lionsgate, Comcast and AT&T)," he wrote. "Second, the impact from the recession that we believe the economy has already entered into. We expect this to primarily impact advertising (Disney, ViacomCBS, Fox, Discovery, AMC Networks, Comcast and AT&T) and theme parks, with some potential impact to consumer products (primarily Disney, with lesser exposure at ViacomCBS, Comcast and AT&T)."

BMO Capital Markets analyst Daniel Salmon in an April 17 report predicted a big advertising hit. "We hosted seven advertising check calls, and it's clear that trends are worse than expected," he wrote, but argued that the risk of increased pay TV losses due to the recession and rising unemployment will be a bigger factor hurting sector stocks given that cable network divisions are often the biggest profit centers at entertainment conglomerates. 

"The expectation for accelerated pay TV subscriber losses should weigh on valuation the most," he explained. "The combination of a recession and no live sports is very troubling for core pay TV subscriber trends." Morgan Stanley analyst Benjamin Swinburne in an April 16 report echoed that, arguing: "Increased pressure on consumer spending from a global recession could drive accelerated cord-cutting."

Disney is widely seen as most hit by the virus pandemic given its operations cover so many different segments. UBS analyst John Hodulik, meanwhile, downgraded his rating on Disney shares from "buy" to "neutral" on Monday, highlighting in his report "The Eye of the Storm" that the COVID-19 outbreak "is impacting every major segment at the company." Echoed Creutz: "In the near-term, Disney is taking by far the biggest earnings hit due to their park exposure." 

Creutz, like others on the Street, has also cut his earnings estimates for the entertainment giants he covers beyond the next few quarters, in his case through 2022 due to the longer-term fallout from the pandemic and the recession, as well as potential changes in consumer behavior that they may cause.

Balance sheets and liquidity amid the crisis will also be in focus on earnings calls. Many sector giants have lined up new debt or other funding in recent weeks to prepare for the worst amid the virus crisis.  

"In my view, the major clue as to what's happening will appear in the first-quarter balance sheets and cash-flow statements," Vogel tells THR. "My guess is that these will be horrible and suggest that the companies will need to borrow much more … and that the financial risks are amplified even if there's a turnaround and economic opening by the third quarter."

So with the quarterly earnings parade about to kick off, here is a look at analysts' latest expectations for key Hollywood giants' earnings impact from the virus crisis in the first quarter and beyond.


Telecom giant AT&T opens the latest earnings season for entertainment companies Wednesday. It has reacted to the virus pandemic by canceling a planned $4 billion stock buyback deal and getting a $5.5 billion loan to strengthen its balance sheet given its high debt load.

It has highlighted "the strength and relevance of our core subscription businesses," but also echoed other sector giants in saying the virus crisis' impact could be "material." It has also said that "sizing our operations to economic activity will provide cash from operations that will support network investments, dividend payments and debt retirement, as well as the ability to invest in business opportunities that arise as the economies recover." Observers took that comment to mean potential layoffs.

Creutz in a recent report mentioned that only 19.4 percent of revenue at AT&T entertainment arm WarnerMedia is exposed to the pandemic and a recession, while Hodulik highlighted that WarnerMedia only accounts for about 15 percent of the company's total earnings before interest, taxes, depreciation and amortization.

Management is expected to tout CNN's importance for consumers trying to navigate life amid COVID-19, while the cancellation of March Madness will be among the factors affecting its latest quarterly results.

Creutz mentioned that the sports impact could end up being positive for earnings for now, though. "In the immediate term, we expect the lack of live sports on TV to be neutral to modestly positive for the profitability of sports-exposed networks. While the associated advertising will be lost, so will the sports right costs … During the 2011 NBA lockout, then-Time Warner management indicated the stoppage would be neutral to Turner's results, as lost advertising was roughly commensurate with lost sports rights costs."

Hodulik sees more virus crisis fallout after the first quarter, estimating about $250 million in lost ad revenue in the second quarter due to cancellation of the NCAA basketball tournament and the NBA suspension. He also took down his longer-term financial forecasts for AT&T, writing: "We are lowering our 2020-2021 estimates to reflect lower advertising, affiliate and box office in WarnerMedia, lower video adds in entertainment, lower … revenues in business solutions and lower service revenues in wireless."

For the first quarter, meanwhile, Hodulik expects WarnerMedia revenue to fall 4.5 percent from the year-ago period to $8 billion, while he sees its EBITDA dropping 17.2 percent to $1.98 billion.


Cable giant Comcast will report its first-quarter results April 30, and the story could be complex given its cable systems have benefited from increased broadband usage due to stay-at-home orders and there were early signs of increased pay TV usage, offset by potentially higher pay TV subscriber losses down the line.

At entertainment arm NBCUniversal, the theme parks business has been affected significantly by closures, the film unit by cinema shutdowns and the networks business by mixed trends, including MSNBC and CNBC ratings gains and advertising challenges. Creutz has pegged NBCU's pandemic and recession exposure at 48.8 percent of total revenue.

Analysts have continued to revisit their forecasts ahead of the earnings report. "We are now taking a more conservative approach to advertising and parks trends in the second quarter and beyond, push out Olympics to 2021" and include other tweaks, Hodulik wrote in a Monday report that updated changes he had previously made.

For the first quarter, his earnings and revenue estimates hardly changed though from his previous reductions. He now still expects NBCU's EBITDA to drop 22.4 percent from the first quarter of 2019 to $1.81 billion on an 8.1 percent revenue decline to $7.64 billion.

Hodulik cut his second-quarter profit and revenue estimates for NBCU by 9.7 percent and 18.5 percent, though, followed by third-quarter cuts of 33.7 percent and 18.9 percent.

Hollywood will be curious to hear whether Comcast chairman and CEO Brian Roberts or NBCU CEO Jeff Shell, who in late March tested positive for the novel coronavirus, will on the earnings call discuss the entertainment firm's controversial decision to break the theatrical window amid the pandemic. The company in mid-March decided that its movies will be made available on a wide variety of on-demand services for a 48-hour rental period at a suggested retail price of $19.99 in the U.S. and an equivalent price in international markets. 

The studio said it was is hoping to provide options for consumers who cannot or should not go to cinemas. In addition to DreamWorks Animation's Trolls World Tour, which had been set to open in theaters April 10 in North America, NBCUniversal has also made movies previously in theatrical release available on demand, including Universal's The Hunt and The Invisible Man, as well as Focus Features' Emma.

Also expect commentary on the Tokyo Summer Olympics' push into 2021. Hodulik said that means a postponement of $1.6 billion-plus in revenue and an earnings hit of about $200 million.

Plus, management is expected to reiterate its confidence in the soft launch of streaming service Peacock, which won't benefit from the planned Olympics-promoted wider launch this summer.

Walt Disney

Disney has seen more earnings revisions from analysts amid the pandemic than other Hollywood powerhouses.

Creutz on March 23 cut his current-year operating income estimate by 43.8 percent and revenue forecast by 13.8 percent. But about the most recent quarter, which was Disney's fiscal second quarter?

Needham analyst Laura Martin on March 13 cut her earnings per share estimate by 14 percent to $1.20 and her revenue forecast by 7.6 percent to $19.7 billion. 

For Disney's Parks, Experiences and Consumer Products segment, Martin cut her quarterly EBITDA estimate by 14 percent to $1.63 billion given the firm's Asian parks shut earlier in the year. For the cable networks unit, she reduced her estimate by 10 percent to $1.38 billion, while her filmed entertainment unit estimate went down 11 percent to $613 million.

"So far, Disney has postponed Mulan from March 27, The New Mutants from April 3 and Antlers from April 17," the analyst wrote back then, before more films followed. Hodulik estimates box office to have fallen 37 percent in the most recent quarter "and expect it to be zero in [the current quarter] and down 50 percent" next quarter. "That said, we expect content cost amortization will also be pushed out unless content becomes available on SVOD platforms or in the home entertainment window." 

Hodulik on Monday forecast Disney would overall report quarterly revenue of $17.3 billion, up 16 percent from the year-ago period, with EBITDA down 22.1 percent to $3.31 billion.

One positive that new Disney CEO Bob Chapek, in his first earnings conference call in charge, and his team are expected to highlight is the rise of streaming services. "The COVID-19 outbreak and 'work-from-home' mandates have driven demand for direct-to-consumer services," wrote Hodulik. "Disney+'s 50 million subs announced in early April were much better than expected." 

Fox Corp.

Fox CEO and executive chairman Lachlan Murdoch and his team will provide their earnings update May 6 for the company comprising the Fox News Channel, Fox Sports and Fox Entertainment, as well as local TV stations.

Creutz has calculated that 44.4 percent of the company's revenue comes from businesses hit by the pandemic or recession given that it has no film and theme parks units, focusing the impact on TV advertising and affiliate revenue as far as pay TV subscriber trends worsen.

Meanwhile, Fox News has benefited from audiences flocking to news channels and websites, but Fox Sports has had to deal with the lockdown of live sports. 

Hodulik has reduced his earnings estimate for what is Fox's fiscal third quarter by 2.8 percent and revenue by 0.6 percent, while he expects a bigger hit in the current quarter, for which he has cut his forecasts by 8.3 percent and 2.6 percent, respectively. He expects quarterly revenue to grow 20.1 percent over the year-ago period instead of his previous 20.9 percent forecast, with an earnings drop of 5.7 percent instead of 3.0 percent.

"We now expect steeper U.S. advertising declines in 2020 with a more gradual recovery in 2021," the analyst wrote, explaining that he was "assuming most of the core advertising pressure falls through to the bottom line.”

He also explained his longer-term changes this way: "Lowering estimates mainly for weaker core advertising assumptions. Now showing 10-15 percent core advertising declines for calendar year 2020 and weaker calendar year 2021 versus 2019." 


On May 7, ViacomCBS, led by CEO Bob Bakish, will provide its latest earnings update. Creutz has noted that 41.8 percent of ViacomCBS' revenue comes from businesses hit by the pandemic or recession.

"The timing of the COVID-19 outbreak couldn't be worse, with March Madness one of the first major sporting events to be canceled — an estimated $300 million revenue hit in the first quarter alone," Wolfe Research analyst John Janedis said in an April 15 report about the fallout at CBS.

Hodulik has cut his first-quarter EBITDA expectation by 12.2 percent to $1.34 billion, a 34.7 percent decline from the year-ago period instead of his original estimate for a drop of 25.6 percent. He took his revenue estimate down 2.1 percent to $6.48 billion, a drop of 8.7 percent from the same quarter of 2019 instead of his originally targeted 6.8 percent decline.

Janedis now forecasts first-quarter earnings from continuing operations of $570 million, operating earnings of $1.03 billion, 7 percent below the Wall Street consensus of $1.11 billion, on revenue of $6.56 billion, 3 percent below the Wall Street consensus of $6.74 billion. 

Analysts expect most of the further financial impact to materialize in the coming quarters. 

In the film unit, Sonic the Hedgehog was one key success in the first quarter. Hodulik has left his Paramount unit estimates for the first quarter steady at EBITDA of $48 million on $761 million in revenue. He dropped his second-quarter earnings forecast by 4.3 percent and his revenue estimate by 2.8 percent though, with his third-quarter projections coming down by 70 percent and 7.8 percent, respectively.

Paramount's future performance will depend on when cinemas and film and TV productions reopen. "At this point, we thought it prudent to zero out theatrical revenue in both the second and third quarters, moderate our fourth-quarter and first-quarter 2021 theatrical revenue (-50 percent from flat), and pull back on home video revenues in the fourth quarter of 2020 and first quarter of 2021 as there are no new titles to sell (-50 percent from -5 percent)," Janedis said. "Overall, our 2020 film revenue drops 14 percent to $2.7 billion from $3.2 billion, and operating income before depreciation and amortization to -$180 million from $157 million, and our 2021 revenue drops 5 percent to $3.2 billion from $3.4 billion, and OIBDA to $86 million from $181 million."

Meanwhile, Janedis has cut his ad assumptions across the CBS broadcast network to a 17 percent decline in its core business in the second and third quarters, versus his prior estimate for a 2 percent gain. "Overall, our core broadcast advertising goes to -13 percent from +2 percent in 2020, and then bounces back to +13 percent in 2021, helped in part by the return of March Madness," he wrote. "We expect most of the hit to cable advertising to come in the second and third quarters (we're now -20 percent and -10 percent, respectively, versus our prior +3 percent)."

ViacomCBS recently shored up its balance sheet by raising $2.5 billion in debt and reiterated that it would end 2020 with about 16 million U.S. paying streaming subscribers and about 30 million active monthly users of its Pluto TV unit. And expect management to discuss the recently closed acquisition of a 49 percent stake in Miramax.