After coronavirus, entertainment will never be the same

No industry has been safe from the disruption of the Covid-19 pandemic. For some, it may prove just a temporary stressor that they can eventually move past. But for the world of television and entertainment, the economic shutdown is hastening an unsettling inevitability: a permanent shift in how we watch and pay for content.

The seismic changes that began shaking up Hollywood in recent years intensified in the weeks and months leading up to the coronavirus outbreak. The meteoric rise of Netflix Inc. inspired copycat services that were beginning to spring up from the traditional media stalwarts. Studios and cable programmers had to shift some of their focus to streaming apps, away from theaters and traditional TV audiences. The box office was already showing signs of trouble, raising questions about the long-term relevance and viability of movie-theater chains. (Indeed, Netflix's revenue surpassed annual U.S. cinema ticket sales long ago.) And while industry giants such as Walt Disney Co. were getting bigger, the weak were getting weaker.

Since the outbreak, these trends have kicked into high gear, revealing pressure points all across the industry. In some cases, the U.S. shutdown is merely fueling more of what was already happening. But in other ways, the pandemic presents new threats: Theaters are closed, and when they reopen there may be a reluctance to go to the movies that outlasts this virus. At a time when consumers are streaming from home more than ever, new content also can't get made. Industry mergers and succession plans are being thrown into disarray at the media conglomerates, where a financial strain is being put on old reliable business units that were helping to fund their expansion into streaming. Now those streaming services are being put to a test they hadn't faced before, with more people glued to their smartphones, yearning for an escape from reality that may be just as easily fulfilled by free user-generated content found on social-media apps.

If the nation does enter a deep recession, old-school cable-TV packages will look even more dispensable than they already did given the lack of live sports right now (the costliest part of your cable bill) and the proliferation of cheaper streaming alternatives. But it's the debt-laden cinema chains that have the most to fear if they lose leverage over their sacred theatrical windows. Studios have put some upcoming film releases — such as the latest "Fast and the Furious" and the live-action remake of "Mulan" — on hold. Not all are waiting for cinemas to reopen, though. "Trolls World Tour" went straight to digital for families willing to pay the steep $20 on-demand rental fee.

Even before the mass quarantine, 2020 was set to be the year of streaming: Quibi, a short-form video app, was released last week, while the soft launch of Peacock — a new digital home for Comcast Corp.'s NBCUniversal content — is set for Wednesday. Next month comes AT&T Inc.'s refreshed HBO streaming product, called HBO Max. Meanwhile, Disney+ has drawn, rather incredibly, more than 50 million paying customers in the five months that it's been on the market. Quibi, which doesn't have the benefit of being a globally recognized brand like Disney, reported 1.7 million downloads in its first week. One has to wonder, though, how much the Quibi ads blanketed across social media cost it to get there and how many users are willing to pay $5 a month after the generous 90-day free trial period is up.

The competition hasn't necessarily translated into a better, more affordable experience for all consumers. While Netflix's popularity drove the industry into a content-making frenzy that can finally be enjoyed, the best programs are now scattered across different apps with their own paywalls and limited selections. None has earned long-term subscriber loyalty yet the way Netflix has.

Investors will be hanging on each CEO's every word during earnings season, which kicks off with Netflix's results on April 21. The recent viral hit "Tiger King: Murder, Mayhem and Madness" may have helped Netflix attract or retain subscribers, and at the very least they're watching for longer. But the notion that this is a great time for streaming businesses simply because everyone is stuck home isn't necessarily true. The fear and hurt from the outbreak and economic shutdown is ubiquitous — and flat-rate subscription services don't make more money from users spending more time with them. Hollywood has had to halt productions across the board, which means that eventually even apps such as Netflix and Disney+ could run out of new content, giving their subscribers more of a wandering eye.

Any wins in streaming also don't make up for losses elsewhere. Take Disney: The company is dependent on its theme parks, resorts and cruise lines for about $5 billion of operating profit, and no film business has more money tied to the box office than Disney. Building its direct-to-consumer streaming unit — comprising Disney+, Hulu and ESPN+ — is a worthwhile pursuit, but one that will continue to lose money for the next couple of years. It's no wonder why Bob Iger is reportedly taking back operational control at Disney after having stepped aside as CEO in late February.

Recent megamergers are also facing an unforeseen stress test. AT&T, a wireless connectivity business that's somewhat insulated from the economic downturn, is now experiencing the downside of owning a media business. In the case of ViacomCBS Inc., two already challenged sets of assets were brought under one roof, including the Paramount film studio that was just beginning to get back on its feet financially after years of mismanagement.

It's all about streaming now, and entertainment platforms are competing for fans who have more time than money to spend these days. That might just force a shift in thinking at the media giants and bring about the most rapid change the industry has ever seen.

Tara Lachapelle, is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News. tlachapelle@bloomberg.net

[Disclaimer: This article first appeared on Bloomberg Opinion, and is published by special syndication arrangement.]