HOT AIR BALLOON FLIGHT

By Charles Riley • Friday, August 13

Good morning. In today's newsletter: Disney really needs the coronavirus to go away. Plus, Delta hits China's economy and a major update for "Lord of the Rings" fans.

 

US stock futures point higher after moderate gains pushed the Dow and S&P 500 to new records on Thursday. Markets in Europe gained in early trading, while stocks in Asia were mixed.

 

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MARKET FLASH

Disney needs the coronavirus to go away

Disney shares are up more than 5% in premarket trading after the entertainment giant added more steaming video subscribers than Wall Street expected and reported a strong recovery for its theme park business.

 

But the company still can't escape the coronavirus pandemic. 

 

Disney shares have gained less than 1% this year, badly trailing the S&P 500 index, which has increased by more than 20% since January 1. Disney may struggle to make up that ground until the pandemic recedes.

 

Video gains: Disney+, the company's streaming service, could stand to gain more subscribers if the Delta variant keeps people at home. The service grew to 116 million subscribers in the quarter ended July 3, exceeding the 112 million figure that Wall Street analysts expected.

 

But the company's massive theme park and movie businesses remain exposed to the coronavirus, and their recovery could be slowed or reversed by the more contagious Delta variant. 

 

"We did not anticipate nor did I think anybody the resurgence of Covid with the Delta variant that would have such a significant impact on the marketplace," CEO Bob Chapek told analysts on Thursday.

 

Chapek was responding to a question about how Disney would handle the release of its next two potential blockbusters, "Free Guy" and "Shang-Chi and the Legend of the Ten Rings."

 

Both films will spend 45 days in theaters before heading to Disney+, a departure from the strategy the company used for "Black Widow," which was released simultaneously in theaters and on the streaming service. 

 

Chapek said that Disney can't change its plan for "Free Guy" because of promises made when the film was acquired, while distribution commitments prevent last-minute changes to the rollout of "Shang-Chi."

 

"The marketplace is rapidly changing," Chapek added. "But at some point, you've got to put a stake in the ground and say, this is what we're going to do, and that's where we ended up on 'Shang-Chi' and 'Free Guy.'"

 

Another problem: Disney's decision to release "Black Widow" on its streaming service prompted a lawsuit from star actress Scarlett Johansson, who has sued the company, saying the strategy reduced her compensation.

 

Theme parks also remain vulnerable to Delta.

 

Revenue from Disney's parks division increased by more than 300% in the most recent quarter to $4.3 billion, and Chapek said bookings continue to show strong demand.

 

But one of the company's biggest parks, Disney World, is located in Florida, a Delta variant hot spot. And other tourism companies have issued warnings about Delta, including Southwest Airlines and Airbnb.

 

Disney World and Disneyland are already requiring employees and guests to wear masks and face coverings once again when indoors.

 

Investors are ready to reward Disney for the progress it's made. But with Delta continuing to spread, it's too soon to say the company is out of the woods.

 

VOICES

On tying CEO pay to climate

"Boards can no longer rely on the excuse that climate performance is hard to quantify or that generally accepted metrics are lacking."

 

FRISO VAN DER OORD, NATIONAL ASSOCIATION OF CORPORATE DIRECTORS

 

 

Read more from CNN Business

CHINA MONITOR

Delta hits China's economy

China's worst coronavirus outbreak in a year has authorities taking dramatic measures to stamp out new infections.

 

But while locking down cities, canceling flights and suspending trade may bring the virus back under control, those actions risk stalling an already precarious recovery, reports my CNN Business colleague Laura He.

 

While the numbers of coronavirus cases remain small by comparison with recent surges in infections in the United States and Europe, China has aggressively revived its "zero-Covid" strategy.

 

It has isolated some cities, closed down entertainment venues, canceled flights and rolled out mass testing as it tries to contain the spread — measures not seen at this scale since the beginning of the pandemic last year. Some trade at a major container port near Shanghai was even suspended this week after a worker tested positive for the virus.

 

Those drastic moves have already prompted some economists to slash their growth projections for the world's second largest economy.

 

The impact: Goldman Sachs analysts forecast China's GDP to grow by just 2.3% in the third quarter from the previous quarter — dramatically lower than the 5.8% increase they originally expected.

 

"With the virus spreading to many of China's provinces and local governments reacting swiftly to control the spread of the highly contagious Delta variant, we have begun to see softening in national aggregate data," the analysts said in a research report earlier this week, adding that they expect services like travel, catering and entertainment to be affected.

 

Despite the anticipated slump in the third quarter, the analysts still expect the recovery largely to remain intact this year. For all of 2021, they expect China's economy to grow 8.3%, slightly lower than a previous estimate of 8.6%.

UP NEXT

Earnings from Embraer and Honest Company are out before the open.

Also today →
▸ University of Michigan consumer sentiment data at 10:00 a.m. ET.

 

Coming next week: Earnings from Home Depot, Lowe's, Target, Nvidia, Foot Locker and Applied Materials.

WHAT WE'RE READING AND WATCHING

▸ Key US inflation measure hits new record high (CNN Business)
▸ Home prices jumped across US in the second quarter (WSJ)
▸ Britain-Ireland freight falls 29% amid post-Brexit friction (FT)
▸ Twitter blocks opposition accounts in India (CNN Business)
▸ Samsung's leader walks out of jail on parole (Reuters)
▸ Adidas is selling Reebok for less than it paid (CNN Business)

FINAL WORD

'Lord of the Rings' leaves New Zealand

Middle-Earth is moving from New Zealand to the United Kingdom, reports my CNN Business colleague Diksha Madhok.

 

Amazon Studios announced Thursday that it is moving the filming of the second season of its highly anticipated, and extremely expensive, "Lord of the Rings" series to the United Kingdom.

 

"The shift from New Zealand to the UK aligns with the studio's strategy of expanding its production footprint and investing in studio space across the UK," Amazon said in a statement.

 

The first season of the series is being produced in New Zealand at a cost of nearly half a billions US dollars and is set to debut on September 2, 2022 on Prime Video. 

 

Remember: Nearly two decades ago, Peter Jackson's "The Lord Of The Rings" trilogy, which won 17 Academy Awards, was largely filmed in New Zealand and showcased the country's natural scenery.

 

New Zealand is not pleased about Amazon's decision.

 

"The Amazon Studios' decision in no way reflects the capabilities of our local film industry or the talents of the people who work in it. This is a multinational company that has made a commercial choice," Economic Development Minister Stuart Nash said in response. 

 

Nash said that Amazon was spending more than $460 million in New Zealand to produce the first season. He said that following the decision to relocate production, the government would pull some financial incentives that had been awarded to Amazon.