Show Stopper: Coronavirus Sends Hollywood Into Unprecedented Crisis

The cancellation of SXSW on March 6 due to the coronavirus epidemic sent shockwaves through the entertainment industry. But in truth it was the culmination of weeks of mounting anxiety — in executive suites and corporate boardrooms, on studio lots, across television and film sets, at red-carpet premieres and in multiplexes and concert venues — that has left Hollywood fearfully staring into an abyss of uncertainty.

No conversation, it seems, is complete without at least some reference to a public health crisis so widespread and world-altering that it could have been the plot of a blockbuster thriller. And actually, it was — 2011’s “Contagion,” directed by Steven Soderbergh, became one of the most rented movies on iTunes last week. But now, it’s all too terribly real, with 4,262 reported deaths worldwide, and 118,583 confirmed cases — at least, as of press time. Those numbers will have increased by the time this story is published.

Much as the spread of the virus now referred to as COVID-19 has been staggered across the globe, so has the reaction to it. Parts of Asia have been on lockdown for weeks, Italy recently shut down the entire nation and several European countries have also seriously considered lockdowns. Despite the cancellation of major communal events, the U.S. remains largely in a nervous, wait-and-see posture, with everyday business certainly interrupted but still moving forward.

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But the brutal math of viral pandemics (though the CDC has yet to define the outbreak in such terms) is at once impossible to escape and frustratingly tough to nail down for certain. On the same day of SXSW’s cancellation, biologist Liz Specht posted a widely read Twitter thread in which she forecast as many as 4 million COVID-19 cases in the U.S. by mid-May, and 2 to 6 billion cases worldwide by July.

Specht’s calculations, however, appear to be a worst-case scenario. “While well-intentioned, these forecasts are still assumptions, some of which are based on misleading data,” says Patricia Sung, epidemiologist and manager of infection prevention at the University of Southern California’s Verdugo Hills Hospital. Sung stresses that businesses should look to the Centers for Disease Control and Prevention and local health departments for guidance. The CDC, however, has not yet ventured a concrete prediction for how bad the virus’ spread in the U.S. could get. As of March 9, the CDC’s coronavirus website stated in carefully vague terms that “for the majority of people, the immediate risk of being exposed to the virus that causes COVID-19 is thought to be low.”

Suffice it to say, it’s difficult to fathom just how massive an impact this epidemic will have on the world, especially the entertainment industry, a multibillion-dollar business built on a foundation of public gatherings and routine travel. One thing, at least, is clear: Should the virus continue to spread on its current trajectory, Americans need only look across the Atlantic to Europe to grasp their immediate future, and across the Pacific to Asia to see where things will ultimately lead.

Since news of the outbreak began to emerge out of Wuhan, China, in January, entertainment companies and talent agencies have started imposing travel restrictions, urging some employees in affected areas to work from home, and encouraging staffers to do more teleconferencing and fewer big in-person meetings. Media stocks have collectively taken a walloping, sinking in tandem with the rest of the market over the past few weeks, largely on coronavirus fears. The dire economic effect of the epidemic is beginning to sink in across the entertainment and media landscape. Disney shares have tumbled nearly 23%, while ViacomCBS, already on a downswing, has fallen more than 51% so far this year. During previous economic downturns, shared consumption of pop culture — going to the movies, seeing a concert — has often been viewed as recession-proof. That’s not the case with COVID-19.

“This is going to have a broad impact on most of the sectors in all of the economies of the world, but entertainment will be particularly hard hit,” says Hal Vogel, a veteran media analyst. “People are scared right now, and they’re not going to want to spend a lot of time in a crowded theater. The big issue in my mind, and it’s not answerable yet, is how long will this go on and will it intensify?”

Coronavirus particle, illustration. Different strains of coronavirus are responsible for diseases such as the common cold, gastroenteritis and SARS (severe acute respiratory syndrome). A new coronavirus (2019-CoV) emerged in Wuhan, China, in December 2019. The virus causes a mild respiratory illness that can develop into pneumonia and be fatal in some cases. The coronaviruses take their name from their crown (corona) of surface proteins, which are used to attach and penetrate their host cells. Once inside the cells, the particles use the cells’ machinery to make more copies of the virus.[/caption]

Executives, filmmakers, agents, publicists, talent and analysts say that the situation is entirely unprecedented. There’s never been a global epidemic that threatened so many core pieces of media conglomerates at the same time. When more people get sick with the virus, consumers will likely stay home, avoiding multiplexes, Broadway theaters and rock concerts. In the short run, people will likely flock to streaming services such as Netflix and Disney Plus, which offer consumers access to movies and shows from the safety of their homes. Amid the market meltdown, Netflix has been a standout stock in the media sector. The streamer’s shares are up 12.5% since the start of the year through March 10 compared with S&P 500’s 10.8% drop over that period. Investors see Netflix as relatively virus-proof, with virtually no exposure to epidemic-related revenue declines. If anything, the company stands to benefit if the outbreak worsens and people avoid public venues.

“They’re absolutely unique among public media companies because they are a pure streaming play,” says Imperial Capital analyst David Miller. “Consumption of streaming is obviously going to increase if people stay inside.”

“The thought of rehearsing for something that no one would even get to see is heartbreaking.”
Jesse Tyler Ferguson, star of “Take Me Out”

But even streaming companies will face headaches in terms of producing content. Netflix’s “Red Notice” opted to shoot outside Italy, given that the coronavirus has resulted in 631 deaths in the country as of March 10. Paramount’s “Mission: Impossible 7” scrapped a location shoot there as well.

Movies and shows shot in China, South Korea and Hong Kong have faced delays. The threat of contagion has prompted some productions to be quick on their feet. “The Bachelorette” nixed plans to film in Italy and “The Amazing Race” suspended production on Season 33. Producers of a scripted network show based in New York revamped the show’s season finale, according to a source familiar with the situation. They scrapped plans to shoot the episode in a tropical country, then axed a move to shoot in Florida, its replacement destination. The finale is now being rewritten to minimize travel.

There’s also an ongoing debate about whether or not contracts with insurance companies will cover the financial toll that delays related to an epidemic like COVID-19 could impose on movies and shows.

“If the insurance companies take the position that there are no exclusions for communicable diseases, then globally that will shut down production until this is over,” says Chris Spicer, an attorney with Akin Gump.

If production shuts down or even slows, that will hurt crew members, actors, writers and directors who exist in a gig economy, where paying the bills is dependent on finding the next show or movie.

The theatrical landscape has been upended by COVID-19. Last week, MGM pushed the release of the James Bond movie “No Time to Die” — which was counting on the lion’s share of its grosses to come from foreign territories — from April until November. On March 10, Sony moved “Peter Rabbit 2: The Runaway” from the end of the month to August. So far, other tentpole movies are keeping their release dates, but costly films such as “Black Widow,” “F9” and “Wonder Woman 1984” that depend on healthy international box office grosses might reconsider if the situation doesn’t improve in the coming weeks, and there is no indication it will.

Studios’ inability to release major movies such as “1917” and “Mulan” in China, where theaters have been closed for two months, has taken a financial toll. Analysts estimate that the movie business has lost $2.15 billion in box office revenue. When Hollywood releases are allowed back into the market, they will have to compete with Chinese blockbusters that had their openings delayed, creating a bottleneck for studio movies looking to attract crowds in the world’s second-largest film market.

“It’s been a bad year for Hollywood in China, and it’s not going to get much better,” says Stanley Rosen, a USC political science professor and an expert on the China film market.

The domestic marketplace hasn’t suffered the same fate yet. The box office last weekend was down nearly 50% from the same weekend last year, but that was because Pixar’s “Onward” failed to generate the same level of excitement as “Captain Marvel” did when it premiered in the year-ago period. “The Invisible Man” and “Sonic the Hedgehog,” meanwhile, have been major hits despite opening in theaters as updates on the virus began to dominate cable news chyrons.

“We have worked this with so many different scenarios and variables — it’s anybody’s guess,” says Jeff Goldstein, president of domestic distribution at Warner Bros. “I was in a movie theater yesterday, and it didn’t seem to me that attendance was depressed at all. I also went to a restaurant, and it was packed. But if the news gets worse, that could change on a dime.”

Greg Laemmle, president of the Los Angeles-based exhibition chain Laemmle Theatres, went into 2020 optimistic that the Oscar-winning movie “Parasite” would boost specialty film exhibition, but COVID-19 has erased his high hopes. “It’s only now starting to impact U.S. consumers, and I’m very nervous,” he said in an interview with Variety at the GlobeScreen conference in Los Angeles last week. “If movie theaters have to close, it’s not just going to be Laemmle Theatres, it will be theaters across the country. We hope it’s not going to last forever.”

Other industry veterans predict that theater shutdowns will be regional, not nationwide. That would make the economic fallout less intense.

“Movie theaters are local destinations,” says Tom Bernard, head of Sony Pictures Classics. “If people live in areas that haven’t been flagged as highly dangerous, they’re still going to the movies.”

That kind of cautiously optimistic thinking appears to be widespread across the industry. “We’re all basically following the CDC, and so far, it’s business as usual,” says ID PR CEO Kelly Bush Novak, who reports that none of her celebrity clients has nixed travel to hype projects. But she also notes that SXSW’s cancellation has triggered conversations about what happens with upcoming events.

Promoting major projects abroad is becoming an obvious challenge. Universal’s “Trolls: World Tour” will host a satellite press day in Los Angeles for countries like Australia, but at press time, John Krasinski is expected to brave the flight to London in support of “A Quiet Place Part II.” HBO, meanwhile, has canceled a press tour in Brazil for the upcoming season of “Westworld.”

“Entertainment will be particularly hard hit. People are scared right now, and they’re not going to want to spend a lot of time in a crowded theater.”
Hal Vogel, analyst

Indeed, studio executives are privately worried about traveling to Las Vegas for CinemaCon, the annual trade show for theater owners. No studio has yet dared to blink and pull participation from the annual event, where the movie companies trot out stars and exclusive footage to pump up the exhibitors for the coming year. However, almost all attending are paring down their presentations.

Some are having trouble convincing skittish talent to leave the house and board a private jet. As press time, the event’s backer, the National Assn. of Theatre Owners, says that the event will move forward as planned — running from March 30 through April 3. NATO also maintains that most of the people who signed up for the conference will attend, although, as Variety reported earlier, a delegation of roughly 24 exhibitors from China has canceled plans to attend this year over travel restrictions.

There are also questions about whether or not the Tribeca Film Festival will take place in mid-April and if the Cannes Film Festival in mid-May will be able to go forward given that the government in France has banned gatherings of more than 1,000 people. That creates problems not only for filmmakers and talent who were looking forward to a glitzy premiere at an elite festival; it’s also a blow to the publicists and agents who make money promoting movies and selling them to distributors. “If there’s no Tribeca and no Cannes, it will have an intense financial effect on us,” says Hilda Somarriba, the founder of the public relations firm Prism Media Group. “If no movies are going to be screening, that means no work for us.”

Sales agents are trying to figure out novel ways to screen movies for buyers. They acknowledge that it could be harder to create a bidding frenzy without the buzz that accompanies a premiere at SXSW or Cannes.

“There’s an interesting paradox,” says John Sloss, head of Cinetic, a management and sales company. “It’s not good for the festivals, but people are going to be trapped in their houses and they’re going to consume more content. So that’s not great for the theatrical experience, but it’s good for people selling movies to streaming platforms.”

Some filmmakers have been discussing the possibility that SXSW could have a digital event instead, where the movies that were intended to debut in Austin could stream for those who bought tickets. But not everyone is convinced that would be an acceptable alternative. (SXSW laid off a third of its year-round staff after canceling the fest.)

“I’m concerned that you wouldn’t be showing the film in a substantive way to the people that you want to have reacting to it,” says Caleb Johnson, the director of “The Carnivores,” a dramedy that was supposed to premiere at SXSW. “The major question mark is, does [a streaming event] have substance to it or is it a placebo?”

The last-minute cancellation has left moviemakers feeling devastated.

“We were expecting to have the film reviewed in the trades, to find a distributor and to have some ceremonial event like a premiere that marks the completion of all this work,” says Jason Sussberg, director of “We Are as Gods,” a documentary that was slated to open at SXSW. “It’s an important ritual. It’s like having a death without a funeral, or a marriage without a wedding.”

While music fans in the U.S. seemed more concerned with travel than with avoiding public gatherings, events that combine the two have been hit hard. The cancellation of SXSW and Ultra, a Miami-based dance-music festival, had a brutal impact on the artists and the communities that host those events. Hamid Bijari, general manager at the Belmont in Austin, Texas, says the venue was booked for all 10 days of SXSW. “The real losers in this aren’t the big companies — it’s the average local bartender or server,” he says.

Initially, U.S. events were not being affected, but that has changed quickly. On March 9, Pearl Jam postponed the first leg of its North American tour, which was slated to begin on March 18, and the Coachella and Stagecoach festivals in Indio, Calif., are moving from April to October. Overseas, Green Day, Madonna and Khalid have postponed or canceled concerts in Asia and Europe.

Other sectors of the entertainment industry are wrestling with how to proceed. Broadway shows such as “Hadestown” have eliminated stage-door greetings with autograph-seeking fans, while late-night programs and sitcoms that shoot in front of a studio audience are considering playing to empty seats. Those precautions may not be enough. Jesse Tyler Ferguson, who is rehearsing “Take Me Out,” a drama about a gay baseball player that starts Broadway previews on March 31, acknowledges that all the cast’s hard work could come to nothing. “The thought of rehearsing for something that no one would even get to see is heartbreaking,” he says. “So I really hope that doesn’t happen.”

Disney may prove to be a bellwether of the industry’s resistance to the virus, given its hefty presence in all pockets of entertainment — from broadcast and cable to cruise ships and theme parks. The corona effect was amply evident at the March 9 world premiere of “Mulan” at the Dolby Theatre in Los Angeles: Most staff working the event wore gloves, hand-sanitizing stations were plentiful, rows of seats were covered in black cloth to hide lower attendance, and director Niki Caro read a statement in support of the people of China as they weather the worst of the outbreak. But while Disney has shuttered its parks across Asia, Disneyland and Walt Disney World remain open for business domestically. Disney Cruise Line temporarily altered its cancellation policy to allow guests to change their plans; the U.S. Dept. of State has since advised U.S. citizens to avoid cruises.

“I think every marketer in the world has talked about the rise of experiential entertainment for the last 15 years,” says Craig Moffett, an analyst with MoffettNathanson. “It’s not hard to imagine that the biggest impact of the coronavirus will be to swing the pendulum back in the other direction, and potentially hard.”

That could be bruising for Disney, given that its theme parks segment accounted for more than 45% of its $14.87 billion in operating income in 2019. Comcast NBCUniversal could similarly be disrupted across its many businesses, which span filmed content, theme parks and telecommunications.

The ripple effect from the broader economic jolt from the coronavirus could be enough to push the U.S. into a recession. That would lead to a slowdown in advertising expenditures by blue-chip marketers, which would hurt the TV sector. Widespread job losses in a slowdown would cut into discretionary income that consumers spend on subscription TV and streaming services, as well as on theater, movie and concert tickets, leaving all businesses singed.

That couldn’t come at a worse time. Many of Hollywood’s largest players — Disney, Comcast and AT&T among them — have experienced a spurt of transformative acquisitions. By buying up 21st Century Fox, BSkyB and Time Warner, respectively, they have been left with higher levels of debt and restructuring demands. They’re already under pressure to trim costs. Hits to their bottom line caused by the coronavirus may force them to undergo layoffs.

“When a company is [doing well], nobody cares and nobody wants to make those painful cuts,” says James Angel, professor of finance at Georgetown University, who says the dynamic changes “when your back is up against the wall.”

The pressure may not be alleviated any time soon; hopes that COVID-19 will be under control in a matter of months also may not be realistic. “There is a chance that the virus will have spread more widely into fall of 2020,” says epidemiologist Sung. But, she adds, “by the fall, we will have even more knowledge about how to prevent people from getting sick and how to respond to people who are dealing with complications from COVID-19.”

In the meantime, studios, concert venues and theaters are taking the kinds of precautions that health experts advise. They’re reminding employees to stay home if sick and wash their hands, while increasing the frequency with which offices and public spaces get cleaned — and hoping for the best. But even making sure that Purell is readily available for guests and staff comes with some risks.

“If you can get hand sanitizer, you put it out,” says Laemmle. “But as soon as you put it out, it gets stolen, because people can’t get it in stores.”

Jem Aswad, Leo Barraclough, Vivienne Chow, Rebecca Davis, John Hopewell, Elsa Keslassy, Sonia Kil, Cynthia Littleton, Elaine Low, Ed Meza, Naman Ramachandran, Manori Ravindran, Rebecca Rubin, Todd Spangler, ElizaBethTaylor, Nick Vivarelli and Andrew Wallenstein contributed to this report.

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