Hollywood, Tech Brace for Billions in Losses Due to Coronavirus

Coronavirus China
Miguel Candela/SOPA Images/Shutt

The rapid spread of coronavirus, which has already killed more than 3,000 people and infected as many as 90,000, has gripped a fearful global population and threatens the livelihood of countless workers as major events are canceled and businesses shut their doors to prevent transmission. Meanwhile, reacting to news of the worldwide spread of the virus, the Dow had its worst week since 2008, and plunged 1,191 points on Feb. 27, its worst single-day point drop in history, before staging a huge Monday rebound.

Hollywood and digital media are among the sectors feeling the weight of the impact. Consumer electronics, movie theaters, content production, theme parks and touring music acts rank among the collateral damage from the epidemic. China, which has suffered the bulk of the world’s coronavirus infections, relegated much of its workforce to in-home isolation in order to avoid infection. Even as the outbreak appears to slow and people make their way back to work, its entertainment industry is still very much feeling the fallout from the shutdown of cineplexes and film and television production.

“Oh, God, don’t say that out loud,” pleads one top film distribution executive when it is suggested that Chinese movie theaters could still be padlocked in December if health officials cannot contain the virus known as COVID-19.

In the coastal boardrooms of show business and media, top executives understand the need to be hypersensitive to human losses even as they dare to strategize over how and when the region might normalize and avoid a global economic meltdown.

“What’s happening in China is an unprecedented shutdown of everything and anything that might exacerbate the spread of the disease,” says Dr. Irwin Red­lener of Columbia University, a professor who specializes in the ramifications of large-scale catastrophic events, including epidemics, natural disasters and terrorism.

China’s booming moviegoing business has lost close to $2 billion in box office grosses since theaters closed in late January, estimate several film executives who have spoken to Variety on condition of anonymity.

Franchise films and blockbuster hopefuls have been quietly and indefinitely pushed from their Chinese release dates, recently “Sonic the Hedgehog,” and before that MGM’s James Bond title, “No Time to Die,” which Universal is distributing abroad. The importance of China box office in terms of overall profitability cannot be overstated when it comes to American tentpoles, a grim reality confronting upcoming titles like Sony’s “Bloodshot,” Paramount’s “A Quiet Place II,” Disney’s “Mulan” and Marvel’s “Black Widow.”

Multiple studios are considering scenarios where they would release films directly to digital platforms in China, sources say, to complement global rollout strategies and stave off a serious threat of piracy in the region. Government officials in China have expressed to the majors that their movies will be necessary for coaxing audiences back to theaters, if and when the crisis ends, says one individual familiar with the talks. Seeing the intellectual property on screens could also encourage attendance at theme parks like Shanghai Disneyland, it was suggested, which has lost roughly $200 million in operating revenue since closing in January.

Some in the mainland government would consider day-and-date film releases in China to be a selfish cash grab on the part of the studios, as the country grapples with an extraordinary situation. Others think in-home entertainment is a lifeline to the anxious citizens. USC clinical professor of communications Ben Lee points to the eager reception of the local comedy “Lost in Russia,” starring beloved Chinese comedian Xu Zheng. Distributor Huanxi Media uploaded the title for free last month, where it racked up more than 600 million views in three days, according to internet monitoring service Techweb. “Going forward, it wouldn’t be so shocking to have a full movie premiering on streaming,” Lee says.

Preparations for the most global of events — the Olympics, this year in Tokyo — are continuing as planned, according to the International Olympic Committee. And Olympics backers are maintaining an optimistic stance. Two big U.S. media companies have fortunes tied directly to the Games taking place as usual: NBCUniversal owns the U.S. broadcast rights, while Discovery has rights to air the Games in Europe.

“The safety of our employees is always our top priority, but there is no impact on our preparations at this time,” NBC Sports said in a statement. The annual SXSW conference, covering tech, media and film, is moving forward as planned. While Hillary Clinton announced on March 2 that she would attend the event, Twitter CEO Jack Dorsey dropped out, citing new employee travel restrictions at his company.

A morbid silver lining in the face of social distancing is how reliant households are becoming on streaming entertainment, pushing the ritual of “Netflix and chill” to its limits. Chinese teens and early 20-somethings are engaging in “cloud clubbing,” Lee says. The phenomenon involves clustering around live streams that feature a camera trained on a DJ. The virtual parties can attract upwards of a million views — and given the ability to give monetary “gifts” through live-streaming platforms, they’ve also resulted in profitable nights for the clubs themselves.

Alibaba declined to comment on how the epidemic had impacted its popular streaming service Youku Tudou, but has previously said its workplace communication tool DingTalk experienced “explosive growth” in daily average users.

According to a report from market research firm QuestMobile, both the number of daily active users and the amount of time the average daily user is spending online have hit new highs as a result of the epidemic’s containment efforts. China-based mobile developer service provider Aurora Mobile reported a “sharp” 26% jump in time spent on mobile phones in the country.

“Apps from diverse categories such as online education, social media, instant messaging, home cooking, all forms of online video and mobile games and news-reading apps all saw a large spike in usage,’ says an Aurora report. “Likewise, online-to-offline, food delivery and ride-sharing apps all saw usage fall significantly as a result of government restrictions during the outbreak.”

In the tech sector, the toll on China’s massive consumer electronics industry is considerable, as is the ripple effect around the world. Unexpectedly on President’s Day, Apple warned the outbreak would cause it to miss revenue projections for the quarter ending March 28. The world’s biggest tech company blamed iPhone manufacturing delays and reduced sales in China after it temporarily closed all of its 42 retail stores in the nation (as have other U.S.-based companies like Starbucks and McDonald’s).

Previously, Apple expected sales of $63 billion-$67 billion for its fiscal 2020 second quarter. The coronavirus issues could push current-quarter revenue $10 billion below Wall Street estimates, according to Loup Ventures analyst Gene Munster. Apple’s stock price dropped 1.8% the day after the warning but recovered later in the week as investors optimistically viewed the shortfall as a short-term hiccup. “We don’t expect the situation to cost [Apple] significant business, as missed sales are likely pushed into future quarters,” CFRA Research analyst Angelo Zino wrote in a report, maintaining a “buy” rating on the stock. (Apple shares fell $14.87, or 4.74%, on Feb. 24 as part of the broader selloff.

Overall, manufacturing slowdowns in China related to coronavirus — as tech suppliers like Foxconn suspended operations — will drive smartphone production down 12% in the first quarter of 2020, to its lowest levels in five years, market researcher TrendForce predicts. The crisis is having “a relatively high impact on the smartphone industry because the smartphone supply chain is highly labor-intensive,” the Taiwan-based firm noted in a report.

The social culture of tech also has been affected. Organizers of Mobile World Congress, the wireless industry’s biggest trade show, which attracts 100,000-plus attendees, pulled the plug on the event, slated to run Feb. 24-27 in Barcelona, after more than a dozen participating companies announced they would sit out MWC because of coronavirus contagion concerns. Amid the panic and uncertainty over the epidemic, the National Assn. of Broadcasters felt compelled to announce that the 2020 NAB Show is still a go for April 18-22 in Las Vegas. “The association is closely monitoring COVID-19, commonly known as coronavirus, and is prepared to devote whatever resources necessary to ensure a safe and productive NAB Show experience,” the trade group said late last month.