Item 1A. Risk Factors
Item 1A. Risk Factors.
Other than as set forth below, there were no other material changes to the risk factors previously reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.
The impact of the COVID-19 global pandemic could materially and adversely affect our business, financial condition and results of operations.
The impacts associated with the ongoing COVID-19 global pandemic and measures to prevent its spread, and the resulting economic uncertainty, continue to affect our business in a number of ways. We continue to experience delays in theatrical distribution of our films, both domestically and internationally, as well as delays in the production of film and television content (resulting in continued changes in future release dates for some titles and series). While we have begun (and have, in certain instances, completed) production of a number of films and television series, and theaters have begun to reopen in certain locations with reduced capacity, we are not able to accurately predict when theaters will re-open at scale, at what level consumers will return to movie theaters, when film production will fully resume, whether productions that have resumed will be paused again, the impact of incremental costs required to adhere to new health and safety protocols, or if and when certain of our content will be released. The full extent of impacts related to the COVID-19 global pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the SEC on May 27, 2020.
Conversely, television and streaming consumption around the globe continues to increase, as well as home entertainment demand. STARZ continues to achieve an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services, both domestically and internationally. However, it is too early to say whether this increase is indicative of future results and whether growth may slow as governmental and other restrictions are relaxed, and as a result of the current and possible longer term negative economic impact of the pandemic. We continue, however, to adapt to these new circumstances. For instance, we have changed the release strategies of several of our theatrical films by releasing solely and/or earlier on streaming platforms, initially releasing in the premium video-on-demand ("Premium VOD") market, or by licensing directly to streaming platforms. We have also begun and completed post-production of a number of our television series and continue the development of film properties and television series.
In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, including the worldwide closure of most theaters, international travel restrictions and the pausing of motion picture and television productions, during the three and nine months ended December 31, 2020 we have incurred $14.8 million and $54.3 million, respectively, in incremental costs which were expensed in the period. These costs include $8.6 million and $36.6 million, respectively, reflected in direct operating expense, which include incremental costs associated with the pausing and restarting of productions including certain cast and crew, idle facilities and equipment costs, and in the nine months ended December 31, 2020 include film impairment due to changes in performance expectations resulting from circumstances associated with the COVID-19 global pandemic. In addition, these costs include $5.4 million and $16.1 million, respectively, reflected in distribution and marketing expense, which primarily consists of contractual marketing spends for film releases and events that have been canceled or delayed and will provide no economic benefit, and $0.8 million and $1.6 million in restructuring and other costs primarily due to transitioning the Company to a remote-work environment and other incremental costs associated with the COVID-19 global pandemic during these periods. We expect to incur additional incremental costs in future periods. We are in the process of seeking insurance recovery for some of these costs, which cannot be estimated at this time, and therefore no material amounts of insurance proceeds have been recorded in our consolidated financial statements.
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We expect that the ultimate impact of these disruptions, including the extent of any adverse impact on our business, results of operations and financial condition, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), and global economic conditions related to the COVID-19 global pandemic. All of these impacts could place limitations on our ability to execute on our business plan and materially and adversely affect our business, financial condition and results of operations. We have implemented policies, procedures and protocols to address the situation and expect to continue to adjust our current policies and procedures as more information and guidance become available. In addition, recent resurgences of COVID-19 in certain parts of the world, including the United States and parts of Europe, and the discovery of new variants of the virus, have resulted in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19. These measures could result in further interruptions to our operations. Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the impact on our operating results, cash flows and financial position, particularly over the near to medium term.
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