Rebuilding Reputation: Disney’s $60 Billion Solution
Disney (#DIS) submitted its capital expenditure blueprints for the Disney Parks, Experiences, and Products (DPEP) sector to the SEC yesterday, charting a ten-year plan aimed at scaling up to approximately $60 billion. This projection marks a twofold increase compared to Disney’s expenditure on parks and cruises during the previous decade, which had already seen substantial investment growth. For reference, Disney’s closing stock price stood at $82 yesterday, a figure analogous to the outset of the 2020 pandemic; its zenith hit $197 in 2021.
▶ Regarding the timing of this decision it was prompted by challenges across various divisions. Cable television, including ESPN, faced a decline in its former prominence due to network outages, diminished ad revenue, and escalating costs associated with sports programming. The summer box office also fell short of expectations, with Indiana Jones and the Dial of Destiny and Haunted Mansion selling notably fewer tickets than anticipated. Meanwhile, Disney’s streaming service, Disney+, continues to operate at a loss, although the CEO has expressed confidence in its profitability by the fall of 2024, though skepticism persists.
▶ In terms of the financial figures, Disney Parks and Cruises remain a robust force. In the most recent quarter, the operating income for Disney Parks and Cruises reached an impressive $2.4 billion, marking an 11% year-over-year increase. Conversely, Disney Media and Entertainment Distribution reported an operating income of $1.1 billion for the same period, reflecting an 18% year-over-year decline.
▶ Regarding the outlook for Disney parks, Disneyland in California has long grappled with capacity constraints and limited expansion opportunities. Meanwhile, Walt Disney World in Florida faces uncertainty due to an ongoing legal dispute with Governor DeSantis, which has put a $17 billion development project in jeopardy. The international Disney parks, except for Tokyo Disney Resort (where Disney receives royalties but doesn’t have ownership), have encountered occasional challenges in achieving profitability. Over the past decade, Disney has launched several significant initiatives to enhance its offerings. These efforts include the launch of the Shanghai Disney Resort, a substantial increase in cruise line capacity, and the introduction of new attractions inspired by franchises such as Star Wars, Tron, and Avatar at its domestic parks. Upcoming openings are scheduled for themed exhibitions related to Frozen in parks located in Paris and Hong Kong. Currently, there are no concrete plans to establish new Disney parks in additional countries or cities, despite previous discussions about potential expansion into India and exploring opportunities beyond Hong Kong and Shanghai in China.
▶ In terms of scale, Disney currently holds a substantial 1,000 acres of undeveloped land within its existing resort parks, equivalent to the size of seven Disneylands combined. The most significant growth opportunity lies with the original Disneyland, which first opened its doors in 1955. Disney’s plan involves persuading California authorities to revise their existing development plan to enable the company to rebuild and expand the surrounding areas, thereby increasing the park’s capacity significantly.
▶ Concerning Disney’s cruise operations, the company is expected to focus on creating new ports of call for its cruise ships. Starting in 2025, Disney will introduce a new cruise ship based in Singapore, marking the largest vessel in Disney’s fleet to date, capable of accommodating more than 6,000 guests. Additionally, Disney has three more ocean liners in the pipeline, bringing the total number of ships in its fleet to eight.
Key takeaways
- Increased investment in theme parks indeed comes with higher risk, as this industry is susceptible to various external factors beyond Disney’s control, such as economic fluctuations, fuel prices, natural disasters like hurricanes and earthquakes, and geopolitical relations like US-China dynamics. But these challenges aren’t insuperable.
- Disney can pour as much money as they please into their parks and cruises, but they’re heading in the wrong direction. No matter how much they invest, the real solution lies in reducing ticket prices. Shelling out approximately $600, plus additional expenses, for a day at the park with a family of three or four, only to spend most of the time waiting in lengthy lines for just three enjoyable rides, doesn’t make financial sense.
- To enhance their return on investment (ROI), Disney must address a significant problem that has severely impacted their financial stability and driven away loyal customers. They want to distance themselves from the “culture” war and return to their roots of family entertainment and traditional characters, allowing children to enjoy childhood without unnecessary adult themes.