the top line

Why Disney’s Plan to Release Mulan Online for $30 Pleases Wall Street

Disney is also taking a shot. Photo: Walt Disney Pictures

Like other entertainment companies, Disney has a problem: It has made movies, but in much of the world, there are no open theaters to release them in — or even if they are open, nobody wants to go. So Disney has repeatedly delayed the release of its $200 million live-action remake of Mulan, and now it has decided to release the movie over the internet. Subscribers to the Disney+ streaming service — who now number over 60 million worldwide, Disney CEO Bob Chapek announced during the company’s earnings call on Tuesday — will have the option in many countries, including the U.S., to see the movie starting September 4. But they will have to pay $30, on top of the usual subscription fee for Disney+.

Is $30 a lot? That depends. Obviously it’s more than a movie ticket for one, but it’s less than a family of four would typically pay to see the movie. And while you don’t get to watch Mulan on as big a screen, you also don’t have to leave your house, and you can make popcorn a lot more cheaply than you could buy it at a theater. From Disney’s perspective, online sales are better than sales at a theater because it doesn’t need to share revenue with a theater operator, so this plan doesn’t need to bring in as much revenue as an eventual theatrical release would in order to be the company’s best financial strategy. And Chapek noted that there were two elements to the company’s revenue strategy with Mulan: getting $30 in incremental revenue from Disney+ subscribers who watch the movie; and getting nonsubscribers to subscribe to Disney+ (which costs $7 a month or $70 a year), as a necessary step to pay $30 to see the movie.

Wall Street investors seem eager about this approach: Disney’s stock price bounced up and down when the company announced its earnings for the quarter that ended June 30 right after 4 p.m., but later rose nearly 5 percent after Chapek announced the plan to release Mulan online. And while Chapek said the company didn’t have plans to release future films as premium pay-per-view offerings, he did say they would try to learn from the Mulan experience when deciding how to monetize content in the future.

Disney overall posted a small profit from continuing operations in the quarter, and actually reported a positive COVID-19 impact on operating income at its media-networks business, which includes ABC and ESPN. Advertising revenues were down 17 percent, said CFO Christine McCarthy, but that was more than offset by other factors, including reduced costs for programming and production — for example, the lack of live sporting events meant the company was able to defer the cost for the rights to sports it wasn’t airing.

The pandemic hurt the company’s movie-studio business and especially hurt its “parks, products, and experiences” business, which is dominated by its theme parks. That’s not a surprise: The company’s U.S. and European parks were closed for the entire quarter, and its Asian parks were closed for most of it. And there was more bad news: The company said Walt Disney World’s reopening, which began on July 11, is so far contributing less to operating income than the company had expected, largely because the surge of COVID-19 cases in Florida caused an unexpectedly large number of nonlocal visitors to cancel their planned vacations. The company has been managing the limited-capacity operation of the parks by admitting more local visitors to offset the lost nonlocal visitors, but visits by locals are less profitable for Disney because locals are more likely to visit on annual passes and less likely to stay in Disney’s hotels. The theme parks at Disneyland, in Southern California, remain closed entirely.

Repeatedly, when pressed on the outlook for the parks, Chapek and McCarthy noted their confidence in the long-term prospects for the businesses, and in the eagerness of customers to return when normal travel patterns can be resumed. Of course, when normal travel patterns can be resumed is a big question, and it’s possible for a business to lose a lot of money during a period of disruption even if it’s eventually going to get back to normal. (The company estimates that the pandemic-related hit to profits in “parks, products, and experiences” was $3.5 billion in just the spring quarter.) Meanwhile, the effect of COVID-19 on the company’s movie business will depend in large part on the company’s success in adjusting to what is likely to be a faster-than-expected shift away from movie theaters toward online viewing. The huge subscriber growth for Disney+ has been one data point indicating success in that area. And if $30 Mulan is a success, it will provide even more reason for investors to think Disney is finding good ways to handle what COVID-19 is throwing at it.

Why Wall Street Likes Disney’s Plan to Release Mulan Online