Global Eagle quietly released its Q2 2020 earnings last Friday and the numbers are bad. But, in at least one context, not nearly as bad as they could have been. Somehow the company’s global connectivity business segment managed to eke out a positive margin for the quarter.
The company still lost ~$31 million in the quarter and the subsequent Chapter 11 bankruptcy reorganization filing will dramatically change the debt structure and some of the long-term contracts like satellite spectrum. But looking just at the segment margins connectivity leaves a positive impression. Despite significant aircraft groundings around the globe the connectivity services segment dropped only 20%. Some of this can be attributed to Southwest Airlines, 40% of the connectivity revenue, grounding fewer of its planes than many other airlines.
That drop compares very favorably to Gogo‘s numbers in the same quarter, for example. Gogo’s daily sales numbers in its Commercial Aviation segment are still down ~70% in August, with worse numbers in Q2. That’s the bulk of the service revenue component for the company, leaving it far, far behind the 20% drop Global Eagle showed with a 75% reduction in service revenue.
The entertainment is gone
The company’s Media & Content arm fared far worse in the quarter. That segment dropped more than 70% from the 2019 numbers and a recovery will prove challenging. With fewer passengers in the skies airlines are slashing content budgets and stretching refresh cycles. Live television took a hit, too, with several airlines suspending those deals (though Global Eagle appears likely unaffected on that front). And the biggest spenders on content are the long-haul carriers, typically based in the Middle East and Asia. Those airlines face a long, slow recovery cycle as border closures, quarantines and shift rules depress demand for intercontinental passenger traffic.
When will those big spenders return to the trough? What will the content profile look like moving forward? Will the range of selections available decrease? Or the portion from Hollywood? Given the lack of new Hollywood releases this year, where will the money flow?
Fortunately most of that side of the business is pass-through licensing costs with a processing fee attached, but it was still not able to cut costs as quickly as the revenue dropped. The $1.2mm loss in Q2 ’20 compared to a $16.4mm profit the prior year hurts.
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