Whispers from Disney Executives You Need to Know
Every quarter, Disney executives participate in a phone call with a few high-profile stock analysts. During these recorded conversations, they indicate future plans and recent results involving The Walt Disney Company. Often, the most important Disney tidbits are revealed during these conversations, and the most recent one was especially enlightening. Here are the latest whispers from Disney’s most powerful executives.
Theme Park Updates
For once, Disney’s most important executives were light on park news. The updates they provided were along the lines of, “Ho hum, we dominated yet again. We’re amazing.” I’m not even joking. The continued strength of Disney’s theme parks is so reliable that it’s almost taken for granted.
During the most recent quarter, guests paid more per visit, and occupancy rates increased quite a bit. In fact, the company’s room occupancy of 94 percent is the largest I can ever recall, at least in the United States. It’s the type of steady traffic generally seen only at Tokyo Disneyland.
In simplest terms, out of every 100 rooms available at official Disney resorts each night, Disney rented 94. I KNEW it was weirdly difficult to book a room back in November! Now I understand why.
The higher rate of hotel occupancy isn’t related to the amount spent per customer. That’s a different calculation. The average park guest spent seven percent more during the most recent quarter. This increase is attributable to factors such as higher admission prices, higher food and snack costs, and merchandise spending.
Overall, guests spent five percent more per visit, AND Disney sold more than three percent more hotel rooms each night. That’s a potent combination in terms of revenue gains. Disney added that the current quarter is up four percent over 2018, too. This has happened despite slow periods at Shanghai Disneyland and Disneyland Paris, both of which are negatively impacted by economic struggles in China and France.
Once again, Disney’s theme parks are absolutely crushing it.
The High Cost of Streaming
I’m not being hyperbolic when I say that three things matter the most to Disney over the next calendar year. In order of importance, they are the opening of Star Wars: Galaxy’s Edge, the introduction of the upcoming Disney+ streaming service, and the debut of the Disney Skyliner transportation system.
You’re most interested in the Galaxy’s Edge update, but I’m going to make you wait a bit for that part of the conversation. The Skyliner wasn’t covered much on the call. It primarily matters because anything less than a flawless rollout will lead to many questions about traffic congestion in the wake of Star Wars Land.
Disney+ is quietly the most significant of all Disney projects, although it won’t seem that way as Galaxy’s Edge dominates the headlines for the body of 2019. Disney wants to build a streaming service that replaces the revenue that they’re losing due to cord cutting. It’s a substantial amount of money in play.
Netflix earned almost $4.2 billion in the final quarter of 2018. For comparison, Disney’s entire cable channel division earned about $5.9 billion. Now, our friends at the Mouse House won’t get even one billion per quarter for a while. That’s the long-term goal, though.
To reach that goal, Disney’s had to make a lot of sacrifices. CEO Robert Iger and CFO Christine McCarthy pointed out that ESPN+ has gained two million subscribers to date. At $4.99 per month per user, ESPN+ is only generating roughly $30 million per quarter. This fact should tell you how much of a market advantage that Netflix has.
The worst part for Disney is that they have to cede revenue from licensing films and television programs to Netflix. Disney needs that content for its own service now, and McCarthy suggests that the company will pass on $150 million in revenue it has historically made from Netflix transactions.
Starting with Captain Marvel and Dumbo, all future Disney blockbusters will stream on Disney+ instead. Given the astounding quality of Disney movies over the next few months, McCarthy indicates that most of these opportunity cost losses will occur later in the year. That’s better for Disney since Star Wars Land and Star Wars 9 among other things will counterbalance those anticipated budget shortfalls.
UFC Was a Huge Get for ESPN
The good news for the company is that they’ve discovered a lucrative strategy for enticing sign-ups. During the advertising phase for Disney’s first UFC fight aired on ESPN+, the service sold 600,000 new subscriptions. Yes, that’s nearly 43 percent growth just from UFC.
Iger brags that BAMTech, the infrastructure for ESPN+ and Disney+, was the unexpected winner in this situation. It easily handled almost 15,000 transactions (i.e. sign-ups) per minute during the peak phase of ESPN+ subscriptions for the UFC live event.
There were no significant reports of buffering issues or user drops during the show, either. BAMTech just aced its first significant test as the backbone of the new and upcoming services.
Iger suggested that the most enlightening aspect of the last-minute UFC sales involved marketing. Disney employed a zealous cross-platform promotional push to highlight both the debut of UFC and the benefits of ESPN+ membership. The results spoke for themselves, with the CEO suggesting that they’ll perform something similar across all Disney cable channels when Disney+ is ready to debut.
Beyond this news, Iger revealed a crucial piece of information. Disney will hold a special briefing regarding Disney+ on April 11th. On this date, they’ll show the Disney+ app in action, revealing the display for the first time. They’ll also reveal their strategies and plans for the app’s launch. Expect some surprise programming reveals a couple of months from now.
The Hulu Piece of the Puzzle
I quickly want to touch on the other component of Disney’s streaming plans. The company currently owns 30 percent of Hulu and will gain controlling interest when the Fox acquisition is finalized.
One analyst queried Disney on their plans for gambling now that it’s legal in the NBA, a key business partner for ESPN. The person pointedly asked whether Disney would favor gambling. During Iger’s reply, he dismissed any chance of his family-friendly company introducing gambling. He (correctly) views it as a terrible fit.
The question did lead to a more intriguing follow-up, though. The person mentioned the incongruity of Deadpool, a foul-mouthed comic book character, on Disney programming. Iger stated that Hulu will become the place for the more adult content from the current Fox lineup. That part is expected.
The more fascinating comment is that Iger suggested a potential packaging of all three services. Disney aims to keep ESPN+, Disney+, and Hulu separate for now, of course. The idea is that they might incentivize customers to sign up for more than one package by offering a discount.
This is a similar business model to the one cable companies use for bundling phone, internet, and cable. So, those of us who already subscribe to ESPN+ and Hulu might get a discount soon or at least once Disney+ arrives as a way to encourage using all three services. Personally, I think this is a great idea that should boost the numbers for all three services, thereby strengthening Disney’s position in the marketplace.
Disney Can’t Do It All
Even Disney isn’t perfect. For all of its tremendous successes over the years, the company has failed repeatedly in one area. Iger acknowledged as much during the conference call.
The CEO admitted that, for whatever reason, Disney has never done well in creating video games. Here is his admirably honest evaluation of the situation:
“…we’ve tried our hand in self-publishing. We’ve bought companies. We’ve sold companies. We’ve bought developers. We’ve closed developers.
And we found over the years that we haven’t been particularly good at the self-publishing side, but we’ve been great at the licensing side, which obviously doesn’t require that much allocation of capital. And since we’re allocating capital in other directions, even though we certainly have the ability to allocate more capital, we’ve just decided that the best place for us to be in that space is licensing and not publishing.
And we’ve had good relationships with some of those we’re licensing to, notably EA and the relationship on the Star Wars properties. And we’re probably going to continue – we’re going to continue to stay in that side of the business and put our capital elsewhere.”
Given this language, you can safely draw the conclusion that the company’s out of the Disney Infinity business. We knew this from when Disney Interactive Studios closed in 2016, but Iger’s comments suggest a firm belief that his company should stay out of the videogame industry. It’s much safer to take money from licensing fees for other studios like EA and Jam City. This news is a shame since Disney Infinity was so much fun. Ah well. Even the Mouse House has its limits.
The Star Wars Land Update
Okay, you’ve read all the way to the end, anxiously awaiting Star Wars news. I feel a bit guilty about this. The update is that Disney is so confident about Star Wars: Galaxy’s Edge that they aren’t doing much to market it. To wit, Robert Iger, the freakin’ CEO of the company, joked that he might just tweet, “It’s open,” letting social media do all the work from there.
Iger is being facetious, of course, but he’s hinting at something important here. The awareness for Star Wars Land is already at historic levels. Disney has no need to spends millions of dollars on marketing campaigns the way that they’ve done in recent years. In 2014, they built an entire year’s worth of advertising around the opening of Seven Dwarfs Mine Train. With Toy Story Land, they aired a slew of commercials as well.
Star Wars: Galaxy’s Edge is different. People on Disney buses can’t shut up about it. You can go into any restaurant on the planet and strike up a conversation with strangers. Most if not all of them will know of the upcoming themed land.
With maximum awareness already, Disney’s just going to let this one play out on social media for the most part. They’ll let clickbait headlines tell everyone when to show up, and people will come. Frankly, I’ve never heard Robert Iger sound more confident about anything than he is about Star Wars Land. It must be spectacular!