- Prolonged quarantines may alter consumer behavior in ways that won't be reversed.
- The effects of consumer behavior will be determined by the length of at-home stays and will differ from industry to industry.
- Movie theaters, fitness centers, commercial real estate companies and traditional pay TV are all at-risk industries.
Just as the actual coronavirus is deadliest for the immunosuppressed, the coronavirus quarantine will attack industries that have already proven to be susceptible to disruption, potentially changing global society in irreversible ways once consumers adjust to new ways of living.
The long-term ramifications of quarantines on the business world will depend on how long people are stuck at home, juggling raising and educating kids with working remotely. A short delay of just a few weeks will likely lead to few, if any, lasting changes. But a mandatory work-from-home policy that lasts months could drive businesses to make consumer-friendly alterations that customers will demand continue when life returns to normal.
Industries that rely on people leaving their homes are most obviously at risk. Many of these businesses already face competition from at-home Internet-connected alternatives that technology companies have built in the last 10 to 15 years. Others have worked hard to establish moats that aren't easily bridged, even when consumer choice is limited.
The following is a sample of industries that are about to watch revenues fall off a cliff and may have to grapple with questions of long-term survival.
Theaters have successfully bobbed along over the last decade due to increased ticket prices and doggedly fighting against media companies who have toyed with the idea of releasing movies on television at or near the same time as theaters.
Theaters currently have a 90-day window before movies are available for streaming — and even then, a film only becomes available for streaming on a DVD/on-demand/rental basis. Typically another three months has to pass before movies are added to Netflix, Disney+ or other subscription streaming catalogs.
Netflix Chief Content Officer Ted Sarandos has publicly chastised the theater industry for years for fighting to keep movies away from at-home viewers for months before they become available on traditional pay-TV or on streaming services. Exclusive windows have "disconnected people from movies," Sarandos said in 2018. "I have not found it to be very consumer-friendly, that consumers who live nowhere near a theater are waiting six months, eight months, a year to see a movie."
The next few months will test media companies' appetite for change. Comcast's NBCUniversal said Monday it was eliminating the long-standing 90-day theatrical window, making movies such as "Trolls World Tour" and "The Invisible Man" available on demand for a 48-hour rental period at a suggested U.S. retail price of $19.99.
"Rather than delaying these films or releasing them into a challenged distribution landscape, we wanted to provide an option for people to view these titles in the home that is both accessible and affordable," said NBCUniversal CEO Jeff Shell.
Disney released "Frozen 2" for on-demand services over the weekend, months ahead of schedule, and other early releases are likely.
Movie theaters won't disappear completely. As LightShed analyst Rich Greenfield explained in a note to clients Monday, the math of how much a studio makes on releasing a movie in theaters globally versus how much it would have to charge per household for immediate on-demand viewing is wildly skewed in favor of theatrical windowing. Pay-per-view wouldn't come close to making up for box office ticket sales.
But theaters will continue to lose leverage as their business struggles, and initial market reaction looks horrible for theater chains. Cinemark is trading down nearly 40% on Monday. AMC Entertainment is down about 20%, and its market capitalization is below $300 million. Film studios may shorten the 90-day window to one month or less if media stocks such as Disney and Comcast start trading on streaming service subscriber numbers instead of box office revenue.
"If you ask studio executives, the right windowing between theatrical and at-home is probably a few weeks," Greenfield said in an interview. "Between the quality of TV content improving, streaming services like Netflix introducing original movies, and then add in theaters closing for months, which may lead some to go out of business or go bankrupt, and it's hard to believe theater attendance is going to come back to what it was."
Peloton has earned itself a $6 billion enterprise value by taking on gyms with Internet-connected home fitness classes on its bikes and treadmills. Shares rose more than 12% Monday as investors doubled down on home fitness classes, even as the rest of the market crashed, with the S&P 500 losing almost 12%.
Peloton could benefit from strong word of mouth over the coming weeks or months, prompting others to spend $2,000-$4,000 on bikes or treadmills while staying away from gyms. Such large investments on home equipment could have long-lasting negative impacts for gyms if clients choose to stay home to ensure that their expensive purchases get significant usage.
It's possible gyms could see a quick bounce back if "social distancing actually makes you crave social contact," said Gregory Milano, CEO of Fortuna Advisors, a strategy consulting firm that specializes in capital allocation and behavioral finance. But the longer consumers develop habits to live life without gyms and other location-based businesses, such as spas or salons, the harder those businesses may have to work to entice consumers to return.
"Crises can be good opportunities for companies to advance their cause," said Milano, who noted that traditional industries such as hotels and rental cars may also get a second chance with customers given potential consumer uneasiness with disease spread in Airbnbs and Ubers.
Part of why investors turned up their noses at WeWork's initial public offering last year was a sense that the company wouldn't survive well in an economic downturn. This year may put that theory to the test if an elongated quarantine turns into a deep recession.
Working remotely will introduce new customers to technology made by Slack, Zoom, Atlassian, Citrix and other companies that have spent the past decade allowing people to take their offices home with them. For companies that have resisted work-from-home efforts, a seamless stretch of months away from the office could change minds and establish work-from-home policies as standard for nearly all jobs.
That could be bad news for WeWork and other commercial real estate companies counting on people understanding the value of traditional office space. Indeed, investor Carl Icahn told CNBC on Friday that he expects the commercial real estate market to "blow up" and said it's his largest short position by far.
Streaming services such as Netflix, Amazon Prime Video and Hulu have been chipping away at traditional pay TV for years, pushing millions of Americans to cancel traditional cable TV for cheaper online options. About 80 million Americans still subscribe to pay TV, down from a peak of close to 100 million.
One of the main reasons millions of people have kept paying cable bills is exclusive access to live sports on cable networks such as ESPN, TNT, TBS, Golf Channel and others.
That's now evaporated as sports have come to a standstill worldwide. The lack of live sports may prompt even more people to cut the cord — and like working from home, it's possible the change in habits could be irreversible if the delay is long enough.
"The initial nesting response, coupled with a very real demand for real-time news, may initially slow cord cutting, but only for a very short time," said Craig Moffett, an analyst at MoffettNathanson. "The real glue of the cable bundle is live sports, and without live sports, the value proposition begins to fall apart. It won't be long before the economic stresses of a recession overtake the nesting impulse. Cord cutting seems likely to significantly accelerate."
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.