Disney’s streaming plans deals further blow to Cineworld and cinema stocks

• Disney announces plan to reorganise its media and entertainment business and make its streaming services like Disney+ a greater priority
• News deals a further blow to cinema stocks that have failed to recover since reopening thanks to a weak film slate, with Disney and other major studios delaying the release of new blockbuster titles or releasing them on streaming sites instead
• Stocks like Cineworld and AMC have enough cash to survive into 2021, but the news from Disney poses a further threat to their ability to recover
• Disney is thought to be evaluating all spending, including dividends, as it looks to increase the amount it spends on content

Disney prioritises content for streaming service Disney+

Disney has announced it will accelerate its push into streaming to capitalise on the success of Disney+, which has been the one bright spot of the business during the pandemic.

Disney’s theme parks, cruise ships and retail outlets have all suffered heavily during the pandemic, which has weighed on results. Revenue collapsed 42% in the third quarter to 27 June, with every single division reporting a decline apart from its direct-to-consumer division that houses Disney+ and its other streaming services like Hulu and ESPN+.

The coronavirus pandemic has hit Disney’s overall business, but it has driven consumers to its streaming services, with Disney reported to have 100 million paid subscribers across all of its services at the end of August, with over half signed up to Disney+.

Disney announced it is reorganising its media and entertainment business that will see it produce more content for its streaming services, and centralise its content distribution, giving the division full control over its streaming services and the responsibility of making it profitable.

Its streaming services are the fastest-growing part of the business, with revenue having more than doubled in the first nine months of the financial year, but it is still in the red.

Disney intends to continue producing content for television (TV) and other traditional outlets but said the ‘primary focus’ will be producing content, spanning its major blockbuster film franchises, TV series and sports programming, for its streaming services.

‘Managing content creation distinct from distribution will allow us to be more effective and nimbler in making the content consumers want most, delivered in the way they prefer to consume it. Our creative teams will concentrate on what they do best — making world-class, franchise-based content — while our newly centralised global distribution team will focus on delivering and monetising that content in the most optimal way across all platforms, including Disney+, Hulu, ESPN+ and the coming Star international streaming service,’ said chief executive Bob Chapek.

Disney has promoted the former president of its consumer products, games and publishing, Kareem Daniel, to lead the new media and entertainment division, which has been implemented with immediate effect. Disney has said it will hold a virtual investor day on 10 December, when it will outline more details about its plans. That will follow its next set of quarterly results that are expected to be released in November.

Disney deals another blow to cinema stocks

The news will not be well received by the cinemas that rely on the likes of Disney to produce the films they need to get customers through the door. Disney and other major studios have already delayed the release of new blockbuster titles because theatres in some major markets – like New York and California in the US – remain closed.

Film studios have become accustomed to releasing new blockbuster film titles at the same time in different countries to streamline marketing activities and combat the threat of piracy. The fact theatres have reopened in some major markets but remain closed in others has made this difficult for studios, prompting them to delay the release of new titles.

Several titles, including the new James Bond film and Wonder Woman 1984, have been delayed, while Disney has already pushed some releases, like Mulan, that were earmarked for the cinema to its streaming service.

The film slate is so weak that Cineworld said it was temporarily closing all of its 536 Regal theatres in the US and 127 Cineworld and Picturehouse theatres in the UK from Thursday 8 October. ‘As major US markets, mainly New York, remained closed and without guidance on reopening timing, studios have been reluctant to release their pipeline of new films,’ said Cineworld.

Read more: Where next for Cineworld as it closes theatres again?

Other theatres are trying to weather the storm without closing. AMC, the largest cinema chain outside of China, has reopened 520 of its 600 US theatres and said it intends to stay open, while Cinemark has also said it plans to remain open even if there is a lack of blockbuster films on the way.

Will films do as well on streaming service as they do on the big screen?

Disney, Universal (owned by Comcast) and other studios have decided to release titles on streaming services this year as a result of the pandemic, but it is not clear how they have performed. Cineworld, AMC and the rest of the cinema industry are adamant streaming services can not replace the big screen.

Cineworld has said watching a movie on the big screen compared to watching it at home on a TV or a mobile device is largely the same as how dining out at a restaurant and ordering a takeaway are very different consumer experiences.

Universal decided to release Trolls World Tour on streaming sites rather than cinemas earlier this year and said the results ‘exceeded expectations’, prompting it to introduce a new policy of releasing new titles both in the cinema and on streaming platforms. AMC, in response, said this ‘represents nothing but downside’ for the business and accused the studio of trying to ‘have its cake and eat it too’ by releasing titles in home and the cinema simultaneously.

AMC announced it would no longer play any Universal films in any of its theatres because the studio was ‘breaking the business model and dealings between our two companies’. However, it has since struck a new deal with Universal that means all the studio’s new releases will enjoy exclusivity in the cinema for at least 17 days before being released on a streaming platform.

The problem is that cinemas need studios more than studios need cinemas. Companies like Disney and Universal have other options to distribute their content, but cinemas have few options to replace any lost content from the few powerhouses that dominate the industry.

For Disney, the first insight into how the strategy is paying off will be the performance of Mulan, which is offered exclusively to Disney+ subscribers for a cool $30. Although we won’t know until later this year whether it was a hit or not, the fact Disney is reshaping its media and entertainment business around streaming sites suggests it has performed well.

Plus, while investors have reacted favourably to the move, they will also be aware that Disney will have to spend more on content if it plans to succeed. CNBC reported Disney was evaluating all investments, including dividends, as it looks to increase spending on content.

The two largest cinema stocks – AMC and Cineworld – have both had to take drastic action to shore up their balance sheets in light of the pandemic. Both stocks say they have enough liquidity to survive into 2021, but investors will be worried about their ability to recover by then considering the uncertainty over future lockdowns and the lack of guarantees that there will be a strong film slate to attract customers. The pandemic has weighed on the short-term outlook for cinema stocks, but the news from Disney poses a much bigger problem for the industry over the longer term.

Disney vs cinema stocks: how have share prices performed?

Disney shares reacted positively to the news, with the all-sessions share price rising by over 4.5% since the news broke on late Monday. Disney shares have been steadily recovering since being hard-hit by the sell-off seen in March, but still trade over 10% lower than the start of the year. Although investors will welcome Disney’s plans to capitalise on the early success of its streaming services, they are also aware that the outlook remains bleak for the rest of the business.

Cinema stocks have been among the worst-hit by the pandemic this year, and news from Disney has pushed share prices even lower. Cineworld shares were down over 6.5% on Tuesday and now trade over 87% lower than the start of 2020. AMC shares have staged a better recovery since the sell-off in March, but are still trading over 45% lower than the start of the year. Further, Cinemark shares have lost almost 75% of their value this year.

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5. Confirm the trade

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