Disney Sends Movie Theaters Scurrying for Cover in This Major Market

The coronavirus pandemic has dealt a severe blow to movie theaters around the world. Social distancing measures put in place to contain the spread of COVID-19 have kept theaters closed for nearly four months now, leaving multiplexes without a source of revenue as they struggle to pay rents and salaries.

But the loss of theaters has turned out to be a tailwind for video streaming platforms that have swooped in to fill the entertainment void caused by the closures. There has been a sharp spike in video streaming in recent months as consumers have turned to online platforms to keep themselves entertained from the confines of their homes.

This may have put traditional theaters in a tough spot as more and more production houses are moving to over-the-top (OTT) media platforms that release movies via the internet. Disney (NYSE: DIS) is one such company that's benefiting from this trend in India -- a country with one of the largest movie industries in the world.

Person holding a remote in front of a TV.

Image source: Getty Images.

Disney brings movie premieres online in India

Disney recently launched a new platform, Multiplex, to directly release local movies on its Indian streaming platform Disney+ Hotstar. Between July and October, the Disney+ Hotstar Multiplex platform will release seven movies featuring popular A-list actors and actresses from Bollywood (the local movie industry is based out of Mumbai, India's financial capital).

Disney is aiming to generate a theater-like excitement with these releases through its "first day, first show" promotional campaign. The initiative looks set to get off to a flying start on July 24 with the platform's first movie release, Dil Bechara (meaning "the helpless heart"). A Hindi language adaption of The Fault in Our Stars, Dil Bechara has already set an impressive record by becoming the first movie trailer to get over 10 million "likes" on Alphabet's YouTube.

Since the trailer's July 4 premiere, it has been viewed over 75 million times on YouTube, indicating that the movie could go on to become a major success -- and help Disney attract more users thanks to an attractive subscription plan. Users who wish to watch the movies premiered on Disney+ Hotstar will have to purchase an annual membership worth just 399 Indian rupees (roughly $5.30).

That's a very low price to pay, as the average cost of a weekend movie ticket in India is around rupees 199 ($2.65), according to third-party data from ValueChampion. So, consumers can buy a Disney+ Hotstar VIP annual membership for the price of just two movie tickets. More importantly, Disney+ Hotstar subscribers can enjoy multiple theatrical releases from the comfort of home, instead of spending money on new tickets every time they go to a theater.

This value-for-money proposition could hurt movie theaters in India for a few simple reasons.

Why traditional movie theaters need to be worried

According to a survey carried out by an online ticketing platform in India, 54% of respondents said they were willing to visit a movie theater 15 to 90 days after coronavirus-related restrictions are lifted. The survey covered 4,000 respondents spread across 235 cities and towns in the country.

However, the survey was carried out in May, when COVID-19 infections in India were around 190,000. That count has now ballooned to nearly 1 million, and there are no signs of the curve flattening just yet. Not surprisingly, the government hasn't yet decided when to reopen theaters, and the rising number of cases could instill fear into the minds of consumers.

There is also a shaky economic situation in India. Goldman Sachs estimates that India's gross domestic product shrank 45% in the quarter that ended in June as compared to its earlier forecast for a 20% contraction.

Additionally, India's unemployment rate stood at 11% in June, and things could get worse as employers are reportedly planning mass layoffs in important industries such as information technology. The restaurant and hospitality industries are already in dire straits.

In this uncertain scenario, consumers can be expected to stretch their budgets. They could opt to keep themselves entertained from home instead of going out, where the risk of contracting the virus remains. After all, 60% of respondents surveyed by media consulting firm Ormax Media recently said they are consuming a lot more content on OTT platforms.

As such, video streaming in India is likely to gain from movie premieres at the expense of traditional theaters, paving the way for Disney to become a big player in the country's media industry, as it is already making smart moves.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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