During The Walt Disney Company earnings call today, CEO Bob Iger and Disney temporary CFO Kevin Lansberry shared updates and added more color to the previously announced plans to invest $60 Billion in the Disney theme parks in what executives have been calling a Disney Parks “turbocharge”.
The details shared, which were discussed as just one of four priorities, give us a better understanding of when we could see actual work begin for the Disney theme parks. In addition to the theme parks, Disney has a lot of other areas to focus on right now.
Specifically the company is figuring how to successfully maneuver the decline in cable television subscriptions and the impacts that will have on the ESPN sports business and the ABC linear television channel business. They are also now working towards a world where Disney fully owns Hulu and the Hulu and Disney Plus offerings are integrated into one service. Plus, they need to right the ship in the Disney Studio.
Disney’s Upcoming Priorities
Disney CEO Bob Iger returned to the position just under a year ago in a shocking move that ousted Disney CEO Bob Chapek. Over the past year he has faced challenges that Bloomberg has reported Iger described to friends as even more serious that he could have realized from the outside.
Now, Disney is framing the past year as a time that they spent fixing and righting the ship and now they are ready for growth.
Today on the earnings call Disney CEO Bob Iger sounded upbeat as he dove into the priorities of the company. He specifically called out that the company would focus on:
- Achieving significant and sustained profitability in our streaming business
- Building ESPN into the preeminent digital sports platform
- Improving the output and economics of our film studios
- Turbocharging growth in our Experiences business
Note that the Disney Parks – or Experiences as they are called out here – is listed as last. However, it is good to see them listed at all. This is a positive sign in general.
The rest of the business is far more challenged than the Disney Parks and will require much more investment that will not drive a return in the near term. Let’s quickly run through each of these priorities and how they will impact further investment.
Disney is buying out the rest of Hulu from Comcast for at least $8.6 billion. They could end up having to pay more for the asset based on a valuation completed by a third party. This is a big financial outlay that will be a key focus for Disney as part of the streaming integration of Hulu and Disney Plus.
Disney confirmed today that they will eventually roll Hulu and Disney Plus into one app experience and will have a beta experience of this offering launching in December. They’ll then focus on expanding a Disney Plus service that features both general entertainment offerings and the best offerings from Disney. They called out today the importance of releasing theatrical titles from the company on the service and the large amount of subscribers they see engage with these titles.
Tied to the streaming move is the need to figure out what ESPN looks like in a world where far fewer people pay for a cable bundle. Previously $9 on average of every American’s cable fee went to paying for just ESPN whether that household watched sports or not. Disney has to find a way to replace that revenue.
Disney has now openly talked about wanting ESPN to be a platform that can be a home for sports. We are unclear on what this looks like, but generally sports rights are expensive and only increasing in value as competition from the bigger tech players like Amazon drives up their cost. This is another big investment from Disney. They also talked about the desire to establish both distribution and content partnerships to further the expanded mission of ESPN.
Not so much investment related, but key to the success of ongoing engagement with Disney is improving the output of the film studio. This one is actually more about cutting costs and being more selective about what the company produces.
After creating an abundance of Disney storytelling on streaming that appears to have diluted the Pixar and Marvel brands, Disney now wants to scale back here and reconsider how they should be approaching their film studio. The upcoming Wish film and the heart found in the recent ‘Once Upon a Studio’ short film seem like good places to start. The Disney Parks need these stories to be successful in order for the parks to have new characters and thrive. We see that the parks are at their best when they are working hand in hand with the studios to bring our favorite stories into the real world.
In an interesting interview with Kevin Mayer, a former heir apparent to the Disney CEO job and current advisor to Bob Iger, he spoke about his current work with Iger and actually didn’t mention the parks at all. This was an interview conducted the day before the earnings call. When he didn’t mention the parks I was worried that they had fallen off of the main priorities list but it appears that Mayer just may not be focused on that side of the business in his limited engagement and thus didn’t mention them in his interview. Interestingly when Mayer spoke about Iger’s priorities for the company he specifically listed ESPN as the top priority that Iger was thinking about most.
Now, let’s dive into the parks specifics shared about these upcoming priorities.
“Turbocharge” Growth at Disney Experiences aka Disney Parks
Also during the earnings call Disney shared the positive results for the parks business. Iger specifically called out the financial success for the segment. He shared “when you look at this year’s numbers compared to pre-pandemic levels in fiscal ’19, we have seen growth in revenue and operating income of over 25 and 30%, respectively.” The more successful the theme park business is for the company the more they will continue to invest in the area for fans.
The Disney Experiences division specifically experienced growth because of success at Disney Cruise Line, Disneyland, Disney Vacation Club (specifically calling out the new Villas at the Disneyland Hotel sales), and the international Disney parks around the world.
At Disneyland, Disney attributed growth to higher attendance numbers, increased guest spending due to higher average ticket prices (see details on the recent Disneyland price increase here), and higher costs due to inflation.
The one resort that did not experience an improvement year over year was Walt Disney World but this could be expected as that was the first resort to reopen after the 2020 closures and much of the demand was pulled forward. Disney also pointed to the depreciation of the now closed Star Wars Starcruiser hotel and lower guest spending due to lower costs of hotel rooms across Walt Disney World resort as factors in the lower operating income.
Iger shared more about the hope for expansion at the parks saying – “Over the last five years, return on invested capital has nearly doubled in our domestic parks, and we have seen sizable increases over that same timeframe across the total Experiences portfolio as well. Not to mention, the improved guest experience ratings we’re now seeing at every one of our parks.”
Though no further concrete announcements of what may be coming to the Disney Parks, like the surprise Avatar experience teased for Disneyland earlier this year or potential Frozen land expansion at Disneyland, we did get some good insight into the way the promised $60 billion would be spent.
Kevin Lansberry, who is the current interim CFO of the entire company and ongoing CFO of the Disney Experience division specifically, shared that the investment in the parks will “ramp up towards the back half of the 10 year period” previously identified in September. He share that during the first few years there would be more gradual increases.
Though Iger said “we plan to turbocharge growth in our Experiences business through strategic investments over the next decade” those investments will really be in the later part of that decade and that’s based on the current planning. Iger continued to say “Given our wealth of IP, innovative technology, buildable land, unmatched creativity, and strong returns on invested capital, we’re confident about the potential from our new investments.”
Iger definitely did seem bullish on the investment and future here but we also know that Iger plans to be gone by the time that a majority of these investment are being made. These plans could shift and change in the period as we ramp into the next decade.
The other good news here is an answer to the common refrain from people when we talk about the $60 Billion investment from Disney. Many say that the international parks will get the bulk of the investment. While we expect that an early chunk of this investment will be tied to international parks, Lansberry did note that investments in Shanghai Disneyland and Hong Kong Disneyland are partially funded by cash flows from the joint ventures owned by the government entities there. This means that expansion there actually costs Disney less should eat up less of this $60 billion.
So, is Disney really going to “turbocharge” their theme park plans or are they just thoughtfully investing in a business that continues to deliver consistently great results? It’s much more the later. Sadly we aren’t going to see cranes moving dirt for any of the exciting blue sky concepts teased for Magic Kingdom “Beyond Big Thunder Mountain” tomorrow. The “turbocharge” messaging is really meant to help Wall Street find a new growth narrative for the company now that the streaming mega-growth story is coming to a close.
The longer timeline for the investment in the parks is in line with the predictions we made in our initial reporting on the $60 billion announcement largely due to the fact that Disney takes awhile to actually ramp into construction of a project and the sluggish timing for investment during the last few years.
Iger shared in his CNBC interview before the earnings call that the investments made in parks over the last five years and decade have really paid off. He also drew a comparison back to the 2008 recession when asked if a financial slowdown would shift these plans. In a comment that I was pleased with he, he shared that Disney will invest in parks through any financial slowdown because history indicates that it’s the right move to keep investing in growth of the theme parks business for longterm success.
Iger said that when they looked ahead at how they would allocate capital and referring to the parks shared that a “a great place to place their bets, or capital, was in the business the delivered the best results.” He summarized saying that the “trajectory is very bright for the parks” and leaned into calling the theme parks experiences division a growth business.
We know that getting new investments in major expansions at the theme parks like the teased Indiana Jones & Encanto area at Animal Kingdom or the new Avengers Campus E-Ticket attraction take time and the entire parks teams are still recovering from the large exodus of creative talent that left during the 2020 Walt Disney Imagineering shutdown and the nonsense that moved Imagineers to the East Coast and then back again. I just hope we see them make progress on announcing and beginning some of this expansion work soon.
The most important takeaway from the earnings call today is that interest in the Disney Parks offerings continues to be strong among consumers and that Disney is bullish on the future of the parks. Disney sees a reason to invest and drive Wall Street attention here. They know that Disney Parks are a great business and I hope that means we will all see the benefit of the investment sooner than later.
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