Hollywood Takes An Economic Beating from COVID-19

Things degenerated fast in the entertainment industry after President Trump declared coronavirus a national emergency on March 13. That morning, for instance, a "mini-riot" erupted on the set of Judge Judy after producers demanded employees show up for work even though CBS brass had sent an email asking them to stay home. "It was quite a fiasco," says a staffer who witnessed the commotion. "People were screaming at each other." Three days later, Judge Judy became one of Hollywood's many shows to go on hiatus. A CBS spokesperson declined comment.

Days earlier, in what looked to be a joke, America's Got Talent judge Howie Mandel, a self-proclaimed germaphobe, had shown up for a taping wearing a full hazmat suit and gas mask. Since then, several celebrities like Tom Hanks and wife Rita Wilson have tested positive for coronavirus for real. (Hanks and Wilson are now recovering.) On March 19, a 61-year-old NBC News audio technician died after contracting COVID-19.

The entertainment industry has responded to the crisis by shutting down more than 80 percent of the nation's 6,000 movie theaters. The NBA, MLB and NHL have suspended or delayed their seasons. Theme parks have been shuttered, concerts canceled and Broadway shows suspended. Several films have delayed their openings worldwide and more than 100 TV shows have stopped making new episodes. The industry that thrived during the Great Depression by providing affordable entertainment to a weary nation is experiencing a crisis unlike any other in its history. The effects vary, but all of show business is feeling it.

The Hit to Hollywood. No one knows just how bad it ultimately will be, but coronavirus’ financial damage to showbiz has already been severe Photo Illustration by Gluekit

"Entertainment is one of the main industries that will be hit hardest because it involves mingling with lots of people," says economist Eileen Appelbaum, co-director of the Center for Economic and Policy Research, a Washington, D.C. think tank. "Companies will write-off late winter and early spring this year, and if coronavirus returns after the summer, it will be a financial disaster."

It has already been rough. The stock of movie exhibitors, for example, has gotten hammered. AMC Theatres is down about 50 percent on the year so far and shares of Cinemark USA are down about 70 percent. Shares of National CineMedia, a company responsible for putting commercials on movie screens, are off roughly 60 percent and shares of large-screen operator IMAX are down about 50 percent. Speaking mainly of exhibitors, analyst Michael Pachter of Wedbush Securities says, "We are now genuinely concerned, but there may be survivors." Pachter adds that AMC may not be one of them, saying he needs "more clarity" on the company's long-term health.

Write-offs at all types of entertainment companies are a given at this point, although just how large and for who remains to be seen. Analysts at PricewaterhouseCoopers project that for the first half of 2020, the entire media and entertainment sector will generate $2.32 trillion globally, up only 1 percent from the prior year. Meanwhile, S&P Global has downgraded the debt ratings of more than 20 entertainment companies, including AMC, Cinemark, Live Nation Entertainment, Disney and National Amusements, the parent of ViacomCBS. Some analysts are modeling a $10-billion hit to movie box offices, or about 24 percent of expected total annual revenue globally.

"It hasn't sunk in what the impact will be," says a well-placed movie industry insider. "Disney, in particular, has major concerns and theater owners are especially nervous. It's unprecedented—akin to 9/11. Home entertainment could thrive, but with production slowdowns there will be a pipeline problem." Tuna Amobi, an industry analyst at financial advisory firm CFRA says, "It's almost impossible to quantify the damage done to entertainment companies. It's too early."

"Theaters and theme parks are most vulnerable," Amobi says. "The impact will be extremely significant. The company with the biggest exposure to China is Disney because of its parks in Hong Kong and Shanghai." Disney, which also faces coronavirus fallout in its live event and cruise businesses, has seen the value of its stock drop by about half this year. Similarly, analyst Gregory Williams of financial advisory firm Cowen says he thinks theme parks will need years to recover and has knocked 31 percent off his profit estimates for NBCUniversal's parks division for fiscal 2020, 27 percent off for 2021 and 24 percent for 2022.

In the movie business, however, according to Wedbush's' Pachter, there will be "a catch-up effect" when it is safe again to mingle. "It's easy to push films back," he says, "but theme parks and live events are much more difficult." Some of the more high-profile releases which have been postponed include Universal's F9, the latest in its Fast and Furious franchise, which will now open in April 2021 instead of May 2020, and MGM's latest James Bond movie, NoTime to Die, which has been pushed back by seven months to November. Marvel's Black Widow had been scheduled to open in May but has been delayed indefinitely. Among the dozens of films that have temporarily shut down production are Disney's new versions of The Little Mermaid, Peter Pan and Home Alone and Universal's Jurassic World: Dominion.

Tom Hanks and Rita Wilson are recovering from COVID-19. Meanwhile, the next Fast and Furious movie and Black Widow have been delayed and Disney’s parks have closed. Photo Illustration by Gluekit

Some analysts warn that while studios that are part of big companies should weather the storm, smaller filmmakers are in danger of bankruptcy. Some have been quick to act. One small company, Veritas Arts—unusual because it not only produces movies but also owns theaters—announced on March 10 that it would sharply cut the number of screens its new film, Shooting Heroin, would appear on when it opens on April 3. Veritas also decided to make the movie available for home streaming at the same time it debuts. Since then, all of the major studios have done something similar for many of their films by "collapsing the windows," industry-speak for making films available online well before initially planned.

There have been some relative winners in all this, mainly in television. Netflix, for example, is seeing a surge in use that has strained its capacity. On March 19, CEO Reed Hastings said the company had "decided to begin reducing bit rates across all our streams in Europe for 30 days" at the request of European Commissioner Thierry Breton. Meanwhile, Christian streaming service VidAngel says its growth rate was surging 50 percent due to coronavirus even before making its programming free for an indefinite time "to help families out."

The coronavirus has also been good for TV news. The week after President Trump declared a national emergency, CNN tripled its primetime audience in the industry's most important demographic, ages 25–54, while MSNBC was up 56 percent. Fox News, still the most-watched of the three, posted an 89 percent climb, according to Nielsen Media Research.

Overall television advertising, however, is expected to take a hit, especially since major sporting events like the NCAA's men's basketball tournament have been delayed or canceled. NBCUniveral had expected to sell more than $1.2 billion in ads for the 2020 Olympics in Tokyo, which have been postponed until next year.

Advertising giant GroupM predicted back in December that the U.S. advertising market, which includes TV, digital, radio and more, would rise 4 percent in 2020 to about $254 billion. Now, however, Brian Wieser, the firm's global president of business intelligence, says it's "woefully optimistic" to rely on any pre-coronavirus economic forecasts. "The numbers will be lower, it's just a matter of by how much," he says. And some analysts worry that those lower numbers could become the new normal. On March 23, Doug Creutz of Cowen shaved an average of 20 percent from his earnings estimates for more than a half-dozen companies through 2022 because Creutz believes a coronavirus-sparked recession will represent "a permanent step-down in TV advertising."