by Ray Keating
Commentary
DisneyBizJournal.com
March 9, 2020
The U.S. stock market dropped by more than seven percent today, and Italy’s prime minister announced late this afternoon that the entire nation is on lockdown.
I’m not an alarmist when assorted scares pop up. In fact, I usually fall in line with those criticizing the media for drumming up unwarranted fear. However, when one looks at the mortality rate for the coronavirus – especially compared to the flu – and its rate of infection, concerns about the coronavirus warrant attention.
And then you get someone like Niall Ferguson writing a piece with some serious warnings in today’s Wall Street Journal. Ferguson is a smart and sane fellow – a historian – and his piece is sobering. Consider a few key points:
• “This new coronavirus—which is not influenza—appears to have a higher R0 and a much higher mortality rate. That rate is almost certainly lower than the World Health Organization suggested last week (3.4%), but it is still much higher than for H1N1. South Korea, which probably has the most accurate data given its aggressive testing regime, reports 50 deaths from 7,313 infections, a mortality rate of 0.68%. If as many Americans catch Covid-19 as caught swine flu, the death toll could exceed 440,000.” (Emphasis added.)
• “At first, the number of cases outside China did not grow exponentially. But that changed in February. Three weeks ago, the number was doubling every eight days. Now it is doubling every five days.”
• “According to Messrs. Pastor-Satorras and Vespignani’s Global Epidemic and Mobility model, the United States is the fifth-likeliest country to import Covid-19 from abroad—after Thailand, Japan, Taiwan and South Korea. If the U.S. turns out to have proportionately as many cases as South Korea, it will soon have some 46,000 cases and more than 300 deaths—or 1,200 deaths if the U.S. mortality rate is as high as Italy’s.”
• “Network effects are the reason it is anything but dumb to worry about the novel coronavirus. Not only is it spreading much faster than most Americans realize; it is also disrupting global manufacturing supply chains as well as all the economic activities that depend on travel and proximity.”
• “Finally, cable news and online social networks can be relied upon to disseminate alarmist and downright fake stories about the pandemic... That aspect of the panic is indeed dumb. But that doesn’t make it smart to underestimate the scale of the Covid-19 pandemic—a perfect illustration of the vulnerability and fragility of our networked world.”
If you can read Ferguson’s piece in full, I would suggest doing so.
My economist take?
Even if Ferguson is off base – and let’s hope and pray that he is – there likely will still be very real costs for the U.S., including on the economic front. U.S. economic growth already was sluggish over the past three quarters – averaging a mere 2.1 percent rate – and in each of those quarters, business investment declined, and trade ranked as a drag on the economy as well. None of that will improve in 2020, and is likely to get worse, particularly during the first half of this year, along with the consumer reining in spending. That means each of the major segments of our economy point to a recession arriving very soon – if it’s not already started.
For a company like Disney, it faces a triple threat.
First, Disney’s international exposure – which normally serves the company well – ranks as something of a negative in this environment. With theme parks already closed in Japan, China and Hong Kong, it’s hard to fathom – at least at this point – that Disney’s parks in Paris, Florida and California will not have a period of being closed.
Second, and this obviously plays off the first point, Disney is a travel and leisure company – again theme parks, hotels, and cruise ships – and that’s an industry destined to be hit extremely hard in this scenario.
Third, a general recession naturally spells trouble for Disney as well. Indeed, one could argue that the best case scenario for Disney would be the coronavirus not spreading as widely as some assume, and the company only facing a hopefully shallow, short recession.
If there is a plus for Disney in this scenario, it would be Disney+. After all, if more people are stuck at home, then Disney+ is an entertaining diversion.
Over the coming months, it’s going to be a matter of degree for individuals, families, and businesses like Disney – from this being another emergency that turns out to be grossly overblown to the troubling view served up in Niall Ferguson’s piece.
