"Disaster" or Green Shoots Amid the Pandemic? What to Expect From Hollywood Earnings Season

Hollywood Sign

Latest quarterly figures will be "a disaster for all," says Hal Vogel, CEO of Vogel Capital Management and a former entertainment industry analyst.

Expect a mix of lower financials across the board due to the novel coronavirus pandemic and signs of slow improvements in the hard-hit TV advertising business when Hollywood giants report their latest quarterly earnings starting on Thursday.

First-quarter results took a hit in March from the pandemic. But the second quarter kicked off with the virus crisis in full swing, meaning the latest earnings reports will include a full three months of the virus crisis. Cinemas in the U.S. and other major markets mostly remained closed from April through June, and most original content productions stayed shuttered, while some sports events have returned, such as NASCAR, the PGA Tour and European soccer.

TV advertising revenue cratered in April, but started a slight bounceback in May and June, industry executives said at a recent investor conference. "We are becoming increasingly confident that the second quarter will prove to be the bottom for advertising trends," Evercore ISI analyst Vijay Jayant wrote in a July 7 report. Analysts will look for management teams to confirm that and maybe even provide some color on latest trends.

Pay TV subscriber losses have shown signs of accelerating, while streaming services, from Netflix to Disney's Disney+, have continued to be seen as key near-term beneficiaries of "stay at home" orders, but the question now is how long long consumers will be willing and able to pay for them.

Most companies, amid the pandemic, withdrew their financial guidance for 2020, saying that the virus crisis' financial impact could be "material." But management teams have not provided much in terms of near-term specifics.

Sector stocks bounced back in the second quarter as part of broader stock market gains, but finished the first half down more than the overall market as measured by the S&P 500 stock index.

"U.S. media stocks rebounded sharply during the second quarter (median return: 23 percent) in an equity market which favored cyclicals and COVID-19 recovery stories," said Jayant. "Amid clear signs that the economic outlook is improving globally investor focus from here will center on the shape of the recovery and whether some recent (cautious) optimism in the advertising market proves sustainable or fleeting."

He forecasts a 30 percent drop in the U.S. TV advertising market in the second quarter after a 3 percent fall in the first. Jayant is predicting a reduced decline of 20 percent in the just-started third quarter though, followed by a 10 percent decrease in the fourth quarter.

In terms of cord-cutting, Jayant wrote that he expects that "trends modestly worsened sequentially in the second quarter" with a loss of 2.5 million traditional pay TV subscribers after a 1.9 million decline in the first quarter "due to both economic
pressures and a lack of promotional offers for video products."

Looking at costs, "given the delay in sports programming this year, media companies will not amortize rights expenses until the content returns, suggesting that while advertising results will likely bottom in the second quarter, margins may look
better than feared," Jayant suggested.  

Overall, Wall Street analysts predict that the mix of lost box office, lower TV advertising and other revenue, partially offset by potential cost savings from delayed production, sports and other spending will add up to lower quarterly financials across the industry for the second quarter. 

Hal Vogel, CEO of Vogel Capital Management and a former entertainment industry analyst, tells THR that he expects the quarterly figures to be "a disaster for all." He then expects a "better" third quarter, "but no earnings visibility until next year."

Balance sheets and liquidity are also likely to get more attention on earnings conference calls given that many companies have raised new debt. "With financial results over the next quarter or two likely de-risked to some extent, we prefer companies with strong balance sheets and good visibility towards growth drivers over a multiyear timeframe," said Jayant. 

Beyond that, all eyes will be on the success of recently launched streaming services. Plus, look for analysts to quiz management teams about their latest expectations about the reopening of cinemas and theme parks.

Here is THR's closer look at the quarterly earnings season schedule and what analysts expect from key Hollywood giants' earnings reports and calls.


Telecom giant AT&T will report its second-quarter results early on Thursday, kicking off earnings season for Hollywood conglomerates.

Beyond a highly anticipated update on the early subscriber momentum of the HBO Max streaming service and possible color on the success of the premium VOD release of Scoob!, Wall Street will look for early signs of whether cord cutting has accelerated amid the pandemic as many have predicted.

"COVID impacted first-quarter results, but we expect the full effect to be felt during the second quarter," AT&T CFO John Stephens had said about what to expect from Thursday's figures when he spoke on the most recent earnings conference call.

On the positive side, expect a shoutout for CNN amid increased interest in news and color commentary on HBO Max. But TV advertising revenue will show a major hit due to the pandemic in the latest quarter, and the film unit results will also show the pain of the virus crisis.  

Bernstein analyst Peter Supino in a recent report shared this warning: "We expect concerns around cash flow to continue to rise based on our view of relentless video sub losses, the advertising collapse, and film production/cinematic shutdowns."

John Stankey, the former WarnerMedia CEO who recently became CEO of AT&T, had said this on the first-quarter earnings call about the film business: "The theatrical business is obviously a stressed business right now, and theaters are closed. It’s hard to generate revenue, and don’t expect that’s going to be a snapback. I think that’s going to be something that we are going to have to watch the formation of consumer confidence."


Cable giant Comcast, whose stock various analysts have chimed in on in recent weeks, will report its second-quarter results on July 30, with a potential update on the early uptake of the Peacock streaming service.

At NBCUniversal, much focus will be on advertising trends. After all, Comcast CFO Mike Cavanagh had warned on the first-quarter earnings call that "we anticipate advertising revenue will materially weaken from the first quarter due to the continued postponement of sports." How big the hit will be compared to fears will affect investors' reaction. 

"We trim estimates as we work in more near-term downside to Sky and fine-tune NBCU and Peacock assumptions," Macquarie Capital analyst Tim Nollen wrote in a recent report. "Comcast will see more revenue pressure than peers due to sharp drops in its media networks, where we expect advertising -30 percent at NBCU and -60 percent at Sky (lack of English Premier League soccer), and with parks and cinemas closed." He added that their reopening "would help the third quarter a lot."

Nollen expects NBCU revenue for the latest quarter to have fallen 31 percent to $5.7 billion, with earnings before interest, taxes, depreciation and amortization down more than 50 percent to $1.09 billion.

Also watch out for potential latest comments from management on Universal's premium VOD and traditional film release strategy following its dispute with exhibitors over the digital release of Trolls World Tour, as well as the outlook for theme parks. 

Walt Disney

Disney is widely seen as the entertainment giant hit across more businesses – from film and TV networks to theme parks – than peers amid the pandemic. But one of the key figures that Wall Street will no doubt spend much time analyzing when the sector giant reports its quarterly results on Aug. 4 is the latest subscriber data for the Disney+ streaming service.

"Data from SensorTower shows that Disney+ was downloaded nearly 30 million times on mobile and tablet devices during the second calendar quarter, and we believe this reading supports our prior forecast of 24.4 million net subscriber additions in the quarter," Jayant wrote in his earnings preview. That would mean Disney+ reached 57.9 million subscribers at the end of June. In early April, Disney had said the service had reached 50 million paid subscribers.

Nollen expects Disney's direct-to-consumer and international unit to be the only division to record a revenue growth for the latest quarter, while he sees theme parks revenue falling more than 75 percent.

Meanwhile, quarterly TV advertising revenue trends will remain "challenged, particularly in the absence of live sports," Jayant warned. "After management stated during the company’s May earnings call that ESPN advertising was pacing significantly below last year’s trend, we see little reason to think momentum meaningfully improved during the quarter as sports remained off the air. Our sense is that upfront cancellations for Disney remained in the 15 percent-20 percent range throughout the June quarter."

Nollen expects Disney's quarterly revenue to fall 38 percent overall, with the operating results from all its segments adding up to a $144 million loss, compared with a year-ago profit of nearly $4.0 billion. 

Beyond the financial figures, analysts will also be keen on an update from Disney CEO Bob Chapek, on his second earnings call, about the theme parks business, which he knows so well. "While we assume contribution dollars associated with park re-openings will be positive, the parks division remains a long way from breakeven," Jayant wrote.

Fox Corp.

Fox CEO and executive chairman Lachlan Murdoch and his team will provide their earnings update on the same afternoon as Disney.

Jayant sees three positives going into the latest quarterly update. "Fox News averaged 3.6 million primetime viewers during the second quarter, plus 50 percent year-over-year and plus 6 percent from impressive first-quarter levels," he wrote. Also, "early indications show strong advertiser demand for sports inventory." For example, during the quarter NASCAR returned to "huge" ratings, the analyst noted. "The first telecast in May was the most-watched NASCAR race in more than three years." He said this "should bode well for the upcoming MLB season." The third positive for Fox is that its sports schedule typically does not ramp up until later in the year "given an MLB telecast schedule which is weighted to the fall and an overall sports rights portfolio headlined by the NFL."

However, Jayant also noted three negatives. First, "advertising monetization remains challenging" despite the ratings strength at Fox News given "a soft advertising market combined with significant ‘pre-emptions’." In addition, the upfront advertising outlook remains "uncertain," he noted. 

The final negative is that Fox's station portfolio is "weighted to blue states with later reopening timelines," Jayant said. "Fox’s local advertising trends could lag pure-play station groups in the near-term."

Nollen expects all the quarter's trends to add up to a 5.7 percent revenue drop to $2.4 billion, with operating income before depreciation and amortization falling 16 percent to $599 million and net income declining 28 percent to $325 million.

Nollen in mid-June upgraded his rating on the stock of Fox to "neutral" and boosted his price target by $9 to $31, citing improving advertising trends that led him to increase his financial estimates, among other things. "The ad market is looking better than previously expected, and a return of live sports along with political ad spend in the second half of the calendar year would boost Fox," he wrote in a report. "A recovery in valuation stability post the COVID crash gives us the opportunity to reassess our view on Fox shares based on our sum of the parts analysis."  


CEO Bob Bakish and his team are gearing up for their latest report on Aug. 6. With several analysts having in recent months turned more positive on the company's outlook, it will be interesting to see what the latest earnings update changes in Wall Street's views.

The company's TV networks business was, like the whole sector, hit by advertising declines due to the virus pandemic, but Bakish has signaled some green shoots. "During the second quarter, the company saw [advertising] spending begin to return in May and again in June, and solid scatter market trends likely bode well for the balance of the year," said Jayant.

But the timing of the pandemic was a particular hit for the Paramount studio as several high-profile releases had to delay their box office debuts.

Wall Street will also be curious about the firm's streaming subscriber trends. "Compared with several other digital media
platforms, which have seen clear positive impacts on subscriber growth in the current environment, ViacomCBS made no changes to full-year direct-to-consumer subscriber forecasts on the first-quarter earnings call," noted Jayant. And with Paramount movies and TV shows licensed to NBCUniversal streamer Peacock, the analyst said "we wonder whether this announcement similarly signals that growth has started to slow for Viacom’s subscription platforms."

Nollen forecasts that film unit revenue will fall 38 percent for the second quarter and TV entertainment will record a 22 percent decline, while cable networks could post a 4 percent increase thanks to a big content licensing increase that he sees more than offsetting a 20 percent ad decrease.

This would leave total ViacomCBS revenue down about 12 percent in the quarter, estimates Nollen, while its adjusted operating earnings before interest, depreciation and amortization will drop 24 percent to $1.2 billion. The analyst sees adjusted net income cut roughly in half to $450 million.

Nollen also believes management could provide an update on planned asset sales. "Efforts to sell non-core assets are re-engaging after the shutdown, notably the Black Rock headquarters building in Manhattan (we previously referred to a $810 million value before tax for this, which could equate to a gain of 92 cents per share) and the divestiture of Simon & Schuster, which could fetch a value of north of $1 billion," he said.