Big Tech Are Soaring, But Disney Is A Reality Check On COVID-19 Crisis

Disney is giving us a reality check this week. Last week’s earnings announcements among the tech giants were exuberant. Each made robust gains in sales, prompting a bewildered Paul Krugman to conclude in the New York Times that “the stock market is not the economy.” The share price of big tech could go up, despite the shrinking economy and skyrocketing unemployment.

That’s not the same on Main Street. The Walt Disney Co. reported on Wednesday night that profits dove more than 90% in the second quarter. And its share price declined more than 30% so far this year, for a company, until now, has been held as the best example of a traditional organization transforming into a digital winner.

That magical experience was then extended to Shanghai when Disney opened its $5 billion Chinese theme park in 2016. Next, it weaned itself off of Netflix, halting the distribution of its content through the streaming behemoth in 2017 by launching Disney+ as its own direct-to-consumer service. All of these have been part of their relentless pursuit of great content as were their acquisitions of Marvel and Pixar a decade ago. That’s how Disney achieved almost exactly $70 billion in total revenue in 2019 between its media and studio on the one hand and its parks and experiences on the other.

Unlike Netflix, which has acquired the largest movie library on Earth, the nascent Disney+ needs new content beyond its existing back catalog. Netflix is the ultimate matchmaker between films and film viewers, while Disney is under constant pressure to produce new hits. This hitmaker logic works well when every Disney business is set to capitalize on spillover from the box office. But when all non-film businesses are on pause, the cost of producing a new title while limiting its distribution to only online streaming cannot pass even the most lenient of financial considerations. The more movies Disney makes, the more money it may lose, no matter how popular a new title is. The flywheel of the magic kingdom seems to have gone into reverse.