Disney Braces for a Bumpy Fall as Delta Variant Threatens Theatrical Plans

Disney’s big bet on theaters this summer—a high-profile release of the anticipated Black Widow, which was released both in theaters and on streaming last month—wasn’t quite a home run after a successful dual-release opening weekend was soon soured by tepid subsequent box-office figures and a high-profile lawsuit. And don’t expect to be wowed by any upcoming box-office figures for the media company, either: Disney is signaling that its upcoming theatrical-only releases, which were decided several months into a Covid-19 recovery, will almost certainly face headwinds due to the virus’s resurgence across the country. In a call with investors Thursday, Disney CEO Bob Chapek admitted that some upcoming releases, including the Ryan Reynolds-led Free Guy on Aug. 13 and the upcoming Marvel film Shang-Chi and the Legend of the Ten Rings on Sept. 3, are almost certain to face a bumpy ride as Covid-19’s delta variant threatens to keep theatergoers home. However, it is too late for Disney to adjust its release plans for those titles. “We value flexibility and being able to make last-minute calls as we can. When we planned our schedule that we’re executing right now, we did not anticipate—nor did I think anybody—the resurgence of Covid with the delta variant would have such a significant impact on the marketplace,” Chapek told investors Thursday. “At the same time, we work in an ecosystem and having a lot of partners, they need to be able to plan their businesses, too. At some point we have to put a stake in the ground.” Disney+ Premier Access Adds $60 Million to Black Widow’s Opening Weekend That stake in the ground hasn’t always included the option to move titles over to a dual-release strategy that offers an option for Disney+ subscribers to watch new film releases at home after paying a one-time fee. Disney acquired the distribution rights to Free Guy “around a different distribution assumption and a different set of agreements” that don’t offer that degree of freedom to change releases, said Chapek. The story is similar for Shang-Chi and the Legend of the Ten Rings, which won’t be able to be switched to a Premier Access title on Disney+ as a dual-release film as Black Widow was. “When we planned Shang-Chi, that title was planned on being in a much more healthy theatrical environment,” Chapek said. “At this point, unfortunately, due to distribution agreements that we have and the practicalities of last-minute changes, it wouldn’t be possible.” Despite the disappointment, the company will look to the arrangement as a learning possibility. Shang-Chi has a truncated 45-day theatrical window before arriving on Disney+ for subscribers, and will serve as “yet another data point to inform our actions going forward on our titles,” Chapek said. 116 million Disney+ subscribers The troubling theatrical outlook for Disney comes as the company continues to lean heavily into the portion of its business least directly affected by the resurgence of the virus: direct-to-consumer streaming. At the end of the company’s third quarter, Disney+, which continues to expand internationally, counted 116 million subscribers, with the international Disney+ Hotstar product accounting for most of that growth, said Disney chief financial officer Christine McCarthy. Hulu, the mostly-Disney-owned all-purpose streaming service, had 42.8 million total subscribers, while ESPN+, Disney’s smallest streamer, counted 14.9 million subscribers. On Hulu, higher advertising revenue helped improve its results as impressions increased and as the streamer benefitted from a robust upfronts season as well as dynamic ad insertion technology on its live television product, McCarthy said. In all, 40% of Disney’s total upfront dollars went to streaming and digital, which encompassed not just Hulu but to other entertainment and sports platforms. Combine it with subscription figures, and total direct-to-consumer revenues increased 57% to $4.3 billion. “The advertising sales team, if they had more inventory, they would sell it, because there’s that much demand for it,” McCarthy said. “The kind of advertising going through Hulu is a growth driver.” Prioritizing the Disney Bundle Disney doesn’t break out how many of those subscribers are part of the company’s highly-promoted Disney Bundle, which combines Disney+, Hulu’s ad-supported tier and ESPN+ for a flat fee of $13.99 a month. But the company continues to prioritize that bundle by putting “a good chunk” of its marketing dollars behind the bundle, Chapek said, a move that is helping with customer retention. “While we enjoy extremely low churn rates on our individual services, the churn rates on the bundle are even lower—surprisingly low, even for us,” Chapek said. As Disney continues to funnel resources toward streaming, it’s expecting a slight slowdown in new sign-ups in the second half of the year, and Chapek said that the company is witnessing “tremendous seasonality” in the business that may create additional choppiness. With that said, the company is planning a marketing milestone moment for Disney+’s two-year anniversary on the market: Disney+ Day to bulk up sign-ups in the later half of the year. Disney+ Day, as the milestone will be called, will be held on Nov. 12 and will serve as a curtain-raiser on new programming, including a rebooted Home Alone, and other efforts to promote the service domestically and internationally. The company is still working out additional plans, but the aim is to “provide a focal point for consumers that have not yet tripped over to Disney+,” Chapek said. And as the company continues to plot ways to grow its streaming footprint, Chapek cautioned investors against making any assumptions about the total size of the potential streaming market. “I like to think of it like we're in the first inning of the first game of a very long season,” Chapek said. "We haven't even been at this now for two full years."