Disney’s first 2023 earnings name was jam-packed with information about restructuring, cost-cutting, and the way forward for streaming companies. Unsurprising, since these are subjects CEO Bob Iger signaled he’d handle upon returning. However, he additionally expressed optimism about Walt Disney World and Disneyland, briefly outlining growth concepts.
This additionally isn’t a shock, because the Parks & Resorts–extra particularly, Walt Disney World, Disneyland, and Disney Cruise Line–had been as soon as once more a shiny spot for Disney. The Disney Parks, Experiences and Products (DPEP or Parks & Resorts) phase noticed a 21% improve in income to $8.7 billion throughout the latest quarter, as in comparison with $7.2 billion within the prior-year quarter, and phase working revenue elevated 25% to $3.1 billion.
Removing shopper merchandise from that complete, the home and worldwide parks accounted for over $7 billion in income, up 27%, and over $2 billion in revenue. Narrowing that additional to simply the home parks and the numbers are roughly the identical: $6 billion in income and (nonetheless) over $2 billion in revenue. That means Walt Disney World, Disneyland, and DCL are doing the heavy lifting for the phase.
It’s thus unsurprising that Iger selected to conclude the decision on a optimistic word for Walt Disney World and Disneyland followers, addressing the untapped potential of the parks. Even although we added this as a late replace to our unique earnings name publish, we felt it was value revisiting for individuals who missed it–and so as to add new particulars and higher context.
While discussing the way forward for Disney’s Parks & Resorts, Iger said that he’s “very, very bullish.” Exciting sentiment, till adopted up with: “Demand for the parks is extraordinary now. We can lean into the demand easily by letting more people in, and by more aggressively pricing.” Suddenly, not so thrilling. More of the Chapek strategy of repeatedly milking the money cow. But wait, there’s extra.
Iger continued: “We don’t think either would be smart. If we let more people in it’s going to reduce the guest experience, and that is certainly not what we want. In fact, if you look at our results this past holiday season, we actually reduced capacity, improved the guest experience, and were able to maintain profitability.”
This follows an earlier assertion through the name from CFO Christine McCarthy that the corporate intentionally lowered capability through the vacation season by 20% as in comparison with 2019. Those of you who visited Walt Disney World or Disneyland and encountered heavy crowds could not imagine this–because it was nonetheless very busy–however each the wait time knowledge and our on-the-ground expertise on each coasts again it up. An fascinating apart, however that’s probably not the purpose of this publish.
“Lastly, we have learned that when we invest in increasing capacity, with Star Wars: Galaxy’s Edge being a good example of that and Pandora a great example of that, we can grow our business,” Iger continued after additional discussing how Disney would proceed to handle the capability they’ve. (Not excellent news for Annual Passholders who hate the reservation system, however we’ve mentioned time and time once more that reservations for APs should not going anyplace anytime quickly–if ever.)
Iger indicated that when you take a look at the outcomes when Pandora – The World of Avatar was inbuilt Disney’s Animal Kingdom, the year-to-year development numbers when it comes to the quantity of people that visited had been “stunning.” He went on to deduce that Disney goes to carry Avatar to Disneyland for a similar cause, and that he was investigating different such alternatives. “I talked to Josh D’Amaro about that this morning. Carefully look at all the great franchises of the company, and see where we can invest in them in the parks to increase capacity, while preserving guest satisfaction.”
This conclusion to the decision is the important thing, and there’s quite a bit to unpack, so let’s get began. First, Pandora – The World of Avatar is value as a case examine. Across the board, Walt Disney World attendance elevated nearly each single yr from 2007 to 2019, so it wasn’t simply development at DAK.
With that mentioned, Animal Kingdom far outperformed in share phrases, leaping from 9.5 million to 14 million–with nearly all of that coming post-Pandora. If you take a look at the spike within the two years after that land opened, it’s actually exceptional. That one land basically rotated Animal Kingdom. It didn’t simply go from a half day to full day park–it went from one folks weren’t visiting in any respect to a precedence.
Disney’s Hollywood Studios was on the same course after the opening of Toy Story Land. If what we witnessed on the bottom within the first 2.5 months of 2020 was any indication, the influence of Star Wars: Galaxy’s Edge (or extra particularly, Star Wars: Rise of the Resistance) would have been comparable. Of course, that didn’t proceed to play out as deliberate, and DHS remains to be hobbled by lowered capability as in comparison with pre-closure. The level is that high-profile park expansions are main drivers of attendance.
What qualifies as an growth is nebulous. In the instances of the Avatar and Star Wars lands, technically one thing was being changed–it wasn’t a “pure” growth. However, these issues (Camp Minnie-Mickey and the Backlot) had been underutilized capability that had nearly no drawing energy. There’s a cause why the Streets of America was the right spot for the Osborne Lights–and why relocating them would’ve confirmed almost not possible–the out of the way in which space didn’t have something to attract crowds.
This is completely different from reimagining and even constructing a single new attraction. Mission Breakout is broadly seen as a stunning success story for Disney California Adventure, and even we will concede that the result’s a enjoyable and better-than-expected attraction. But it took a well-liked attraction and made it extra standard. The influence on park attendance was not almost as pronounced.
When wanting by means of theme park guests statistics, the identical can in all probability be mentioned for Frozen Ever After, Star Tours: The Adventures Continue, and different additions that weren’t expansions. (It’s not possible to evaluate something added since 2020 as the info is both skewed as a consequence of capability reductions or not but accessible. It’s my perception that the EPCOT overhaul has moved the needle for that park, however I don’t have corroborating stats.)
While Iger is the one who articulated this angle on the primary earnings name of 2023, it’s hardly a brand new concept. For one factor, Iger was on the helm when Pandora – The World of Avatar, Toy Story Land, and Star Wars: Galaxy’s Edge had been greenlit and opened. He would’ve seen the customer knowledge for not less than the primary two tasks, and already had that growth strategy vindicated.
Years earlier than that, he established the blueprint for such a method with the overhaul and growth of Disney California Adventure, arguably the most important success story of all. That 2012 transformation, together with New Fantasyland, was probably the catalyst for the latest wave of growth that’s now wrapping up.
Although our focus is Walt Disney World, comparable bulletins got here beneath Iger for the opposite parks. Hong Kong Disneyland is already double the park it was when it opened, with Arendelle: The World of Frozen being one other blockbuster growth initiated beneath Iger. Same goes for the Walt Disney Studios Park in Paris, which completely sucked till growth plans had been set in movement beneath Iger. It nonetheless sucks, nevertheless it’s on target and could have its personal Arendelle in one other couple years.
Then there’s what Parks Chairman Josh D’Amaro teased at the latest D23 Expo. He was joined on-stage by Imagineer Chris Beatty and Chief Creative Officer of Walt Disney Animation Studios Jennifer Lee to debate early idea explorations. They began with Dinoland USA at Animal Kingdom, and potential growth alternatives together with a Zootopia Metropolis and Moana Mini-Land.
Then they turned to Magic Kingdom, the place it was obvious this was rather more ‘blue sky’ in nature. That presentation checked out Magic Kingdom Expansion Possibilities “Beyond Big Thunder” and showcased attainable Coco, Encanto & Villains lands. While there was preliminary pleasure amongst followers, that shortly soured. The optimistic sentiment gave means for skepticism about these attainable plans, particularly in mild of Disney’s not-so-stellar observe document in constructing issues that had been “firmly” confirmed at previous D23 Expos.
Back in our D23 autopsy, I introduced my case for being optimistic in regards to the panel and way forward for Parks & Resorts, and studying between the strains regardless of all of this: “Walt Disney World continues to outperform, and investors have begun to take notice of its success. This coupled with Wall Street souring on streaming (at least a bit) means Disney may finally start to bet bigger on its theme park business. Given that, a big slate of announcements at the 2022 D23 Expo was a possibility.”
“From my perspective, that’s almost certainly why we saw the early expansion plans for Animal Kingdom and Magic Kingdom. A realization by the company that Wall Street is increasingly skeptical of the streaming business, but all-in on theme parks. Given that this is a relatively recent development, the company hasn’t had a chance to finalize plans. Still, they want us–and more importantly to them, Wall Street–to know that big investments are on the horizon.”
If you return and browse that article at the moment or assume again to the D23 Expo in mild of the encircling circumstances on the time and contemplate what has occurred since, I feel that’s even extra believable. Wall Street was already souring on streaming subscriber development, however that Parks & Resorts panel was earlier than the quarterly earnings name that exposed $1.5 billion in losses on streaming. (As a reminder, financials are reported a few months after their quarters conclude–which means that the D23 Expo fell inside that significantly poor quarter.)
Those outcomes proved to be Chapek’s undoing, setting in movement the return of Bob Iger, the dismantling of Disney Media and Entertainment Distribution, and a promise to be extra accountable with runaway spending on streaming.
Equally as vital, this got here earlier than traders grew to become vocal in regards to the efficiency of Parks & Resorts. Although he’s referred to as off the proxy battle, one of many cornerstones of Nelson Peltz’s “Restore the Magic” marketing campaign was that the home theme parks had been “over-earning” to subsidize losses elsewhere. He contended that margins had been pushed too far, too quick in a way that was unsustainable. Peltz needed to see extra accountable development at Disney’s home parks.
He’s not alone. If you’ve learn or listened to analysts following the latest two earnings calls (once more occurring after that D23 Expo), “what about parks?” is a continuing chorus. The sentiment is that Walt Disney World and Disneyland are doing very well, proving surprisingly resilient, and one of many firm’s few shiny spots. The message Wall Street is sending is that funding in theme parks is wise and protected, and the suitable plan of action.
Honestly, that is irritating. Disney already discovered this actual lesson after the Great Recession–therefore the final growth increase. The entire cause Disney targeted on streaming subscriber development was as a result of that was Wall Street’s key metric for media firm success on the time. Now they’re altering the ‘rules’ mid-game and appearing like they only found the recognition of theme parks. As if the entire colossal growth plans of the final decade occurred by luck or accident. But I digress.
The excellent news is that everybody appears to be on the identical web page. Wall Street is extra bullish about Disney’s theme parks than streaming companies. Bob Iger and Josh D’Amaro need to construct capacity-expanding additions to the parks. Walt Disney World and Disneyland followers are clearly on board. Heck, I feel even Bob Chapek was in favor of this…and we don’t precisely throw round reward for that umbrella aficionado right here!
If everyone seems to be on the identical web page and growth is on the horizon for Walt Disney World and Disneyland, why haven’t we heard official bulletins? Is it only a matter of Imagineering placing the ending touches on plans and idea artwork? This brings us to the dangerous information…
Earlier within the earnings name, Iger mentioned the corporate’s restructuring and cost-cutting initiatives. To that time, Disney will likely be reducing $5.5 billion in prices, made up of $3 billion from reductions in content material and the remaining $2.5 billion from non-content cuts. As a part of that, the corporate is decreasing its workforce by 7,000.
There are a pair essential causes for this. The first is the debt Disney took on with the twentieth Century Fox acquisition and at first of the pandemic. The second is streaming losses, which elevated for the quarter by $0.5 billion to $1.1 billion. This is the third consecutive quarter that streaming has racked up over $1 billion in losses.
Note that this isn’t a failure of Disney+ or as a consequence of unpopularity (fairly the other is true). Streaming dropping cash its first a number of years was at all times the plan. Disney+ launched with a ‘growth at all costs’ person acquisition technique to seize market share, which was kicked into larger gear by Chapek till Wall Street modified the metric of success. As earlier than, Disney+ is on a path to profitability, however not till late 2024.
As a results of this, CFO Christine McCarthy indicated that fiscal 2023 capital expenditures at Parks & Resorts will complete proximally $6 billion, which is decrease than the prior steering of $6.7 billion. Interestingly, this isn’t primarily as a consequence of decreases in CapEx on the home parks, however slightly, as a consequence of “timing shifts.”
It’s troublesome to find out the place Disney Parks & Resorts might save $700 million because of “timing shifts.” My finest guesses are delays in Arendelle at Walt Disney Studios Park, Polynesian DVC Tower, and regardless of the heck is happening with Disney Cruise Line and Lighthouse Point.
Everything else is both too far alongside or needed (knock on wooden). It’s arduous to see the EPCOT overhaul paused at this level, however then once more, I might’ve mentioned the identical factor in Spring 2020. Delaying Tiana’s Bayou Adventure appears equally unlikely, as does suspending different tasks nearing completion. The financial savings may be on CapEx tasks that had been slated to start this fiscal yr, however now is not going to.
Ultimately, it may appear troublesome to reconcile Bob Iger’s bullishness on large growth at Walt Disney World and Disneyland with the aforementioned near-term cost-cutting. As was the case after the odd panel on the D23 Expo, we completely perceive fan skepticism, pessimism, and downright dismissiveness. Actions converse louder than phrases, and it could be arduous to take at face worth Bob Iger’s declare that he’s “very, very bullish” on constructing new capability when he’s reducing budgets. That’s honest.
However, it’s fairly straightforward to reconcile. Just take a look at the timeline for Pandora – World of Avatar, or any of the opposite aforementioned new lands. Pandora is essentially the most excessive instance, being introduced years earlier than building ever started. Other additions have had equally gradual turnaround instances. I in all probability don’t have to belabor this level…you’ve all seen how lengthy it took Disney to construct TRON Lightcycle Run. My guess is that the subsequent growth cycle will play out on this identical style. Suffice to say, no matter is introduced this yr received’t influence CapEx numbers till 2024 or 2025.
As for the timing of bulletins, they might happen every time, however one entry on the calendar stands out to me: Destination D23 will likely be held September 8–10, 2023 in Contemporary Resort at Walt Disney World. This occasion celebrates Disney100, and can be the right alternative for giant information. And not simply due to its location or the truth that it’s the one main occasion scheduled.
Timing-wise, Destination D23 is close to the tip of the present fiscal yr, and begin of the subsequent one–the yr by which Disney+ is (supposedly) going to achieve profitability. It’s additionally close to the anniversary of Walt Disney World and EPCOT’s opening (October 1), which isn’t significantly significant by itself given the shortage of milestone, however can be a logical date for the Florida parks to begin celebrating 100 Years of Wonder.
Given all of that, my guess is that we get a gradual tease of stories later this summer season in regards to the new nighttime spectacular at EPCOT and that Walt Disney World will have fun the corporate’s a hundredth Anniversary beginning this fall. Then, throughout Destination D23, specifics are shared (drones! decorations! dreamlights! merchandise! extra!) about Disney100 at Walt Disney World, which is able to function a bridge to the opening of Tiana’s Bayou Adventure (count on to additionally see video of that–hopefully of spectacular new Audio Animatronics that put some criticism to relaxation).
Most considerably, I’d count on an official announcement of Animal Kingdom growth, and presumably one other obscure tease of one thing coming Beyond Big Thunder in Magic Kingdom. Disneyland is extra of a wildcard, with Fantasyland or Tomorrowland growth being potentialities (in addition to the beforehand introduced Marvel E-Ticket and Avatar “Experience”). Don’t get too excited but, because the timeline for the primary new lands opening is probably going 4+ years out, however I firmly imagine that they’re coming to each ‘kingdoms’ in Walt Disney World.
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YOUR THOUGHTS
What is your response to Bob Iger saying he’s “very, very bullish” about park growth at Walt Disney World and Disneyland? Think this may be reconciled with the near-term cost-cutting, or would you slightly not construct anticipation for one thing a number of years out, or that will by no means come to fruition? What potential plans have you ever most and least excited? Anything you’re hoping does not find yourself coming to fruition? Do you agree or disagree with our assessments? Any questions we can assist you reply? Hearing your suggestions–even if you disagree with us–is each fascinating to us and useful to different readers, so please share your ideas beneath within the feedback!