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When will people go to the movies again?

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      By Daniel RourkeESG Senior Research Analyst, Calvert Research and Management

      Washington -- The current global public health crisis is likely to cause significant operational changes in the way entertainment venues and movies theaters are run. Responsible companies — those that take the long view — would be smart to invest in front-line workers, who will be critical to rebuilding public trust when these businesses reopen. Whether these companies invest in ways that bring audiences back could have knock-on effects on recent efforts to diversify the stories emanating from Hollywood.

      Catching a flick in new ways, thanks to COVID-19

      Movie and entertainment companies have taken a significant revenue hit, as COVID-19 has forced the cancellation of festivals and concerts, postponement of film release dates, shutdown of movie and television production and venue closings. With the quick adoption of social distancing and new shelter-in-place rules, people are turning to digital services not only for remote work but also for entertainment.

      This benefits Netflix, which has been leading the pack in subscribers and streaming minutes per week, but also others including Alphabet's YouTube and Disney's Hulu, ESPN+ and recently launched Disney+.

      However, for Disney, the current crisis cuts both ways. It has had to shutter park operations to protect the health of employees and customers. Initially, Disney announced that it would continue to pay full-time park employees ("cast members") during the crisis, but, with the new extended time frame of social distancing, the company plans to institute furloughs. This announcement comes after the three major movie exhibitors — AMC, Cinemark and Cineworld — announced furloughs shortly after going dark in mid-March.

      For its part, Disney also revealed that senior executives would be taking pay cuts to conserve cash. Moreover, it has said that all impacted workers will remain employees during furlough and receive full health care benefits, with the company paying of the cost of both employee and company premiums. Those impacted can elect to use some or all of their paid time off at the beginning of the furlough period starting April 19. After that time passes, employees are eligible to receive federal compensation through the $2 trillion economic stimulus bill, as well as state unemployment benefits.

      Most employees at theme parks and movie theaters are well aware that their jobs are tied to ticket sales. While furloughs are not good news, if they become necessary in a crisis situation, responsible companies can build employee loyalty by being transparent about the reason for the action, explaining shared sacrifice across the company and being thoughtful about mitigating the impact on front-line workers.

      No doubt, employee morale takes a hit in these difficult situations, but responsible actions may mitigate the impact, which can be a critical investment for the time when facilities reopen. After the pandemic begins to recede, front-line employees will need to be trained on new protocols to protect health and safety. Moreover, these employees operate in public-facing roles. Each employee is a reflection of a company's brand and each interaction with the public can be an opportunity to build the trust needed to return to sustainable ticket sales.

      Evaluating companies in challenging times

      During a crisis that requires extraordinary measures, responsible investors should put themselves in the shoes of front-line employees and ask, "Are the company's actions necessary at this time, and is the company offering meaningful accommodations that could drive loyalty? Are financial sacrifices shared across corporate ranks?"

      At movie operators, whether front-line employees buy-in and are ready to go back to work when audiences return could affect ticket sales and, therefore, the market value of those companies. Late last year, the Trump administration signaled its support for lifting long-standing regulations that banned movie studios from owning chains of theaters. If this crisis has lasting and adverse impacts on revenue, studios could begin making bids for movie theater companies in an effort to better control distribution.

      The likely result of studio-theater consolidation would be less visibility and distribution for movies developed by smaller production companies, which tend to produce more diverse movies featuring women, people of color and alternative points of view (e.g., "Moonlight," "Parasite"). That could be a setback to recent efforts made to diversify Hollywood so that it can tell the stories that are increasingly in demand from diverse and global audiences. With larger studios controlling distribution, less financing and fewer awards would flow to the smaller studios who are growing the pipeline for diverse talent.

      Bottom line: Companies that run entertainment venues and movie theaters should consider what it will take to bring the public back into their spaces after the COVID-19 crisis passes. Investing in front-line employees may be a smart way to get operations up and running, strengthen brands, and return companies to profitability faster.