Disney Confirms Suspicions, Raises Expectations
The Walt Disney Company has learned something from several years of chaos.
No corporation should seek the kind of attention that Disney almost unintentionally garnered in recent years.
Photo: Disney
So, CEO Bob Iger has tried something different lately.
Rather than turning Disney earnings calls into hype machines, Iger has listened to his new CFO, Hugh Johnston.
Bob Iger – 2023 Annual Shareholder Meeting
The two of them have adopted more of a buttoned-up approach to these calls, which makes them quite boring.
However, that’s the right call because Disney is a business. It has events like San Diego Comic-Con and the D23 Expo for hype.
Photo: PepsiCo
Nobody should be salivating at the bombshell announcements during what’s a government-mandated accounting report.
Still, we did get some news during this particular earnings call, even if Disney was trying to avoid it.
Photo: Disney
Disney confirmed our suspicions but also raised expectations. Here’s what we just learned.
The Parks Weren’t As Crowded
Those of you who read my Walt Disney World Wait Times articles – thank you, by the way – know that I’ve tracked a recent phenomenon.
For whatever reason, the summer crowds never quite materialized, at least according to the wait time estimates.
Cinderella Castle
However, as I repeatedly stated, we’re never quite sure whether that’s attendance-based or due to Disney improving efficiency.
Well, the latter may be true, but the former is the real concern. Disney officials confirmed that attendance was flat.
Magic Kingdom
Specifically, American theme park attendance fell, although revenue grew two percent.
Johnston, Disney’s money person, referred to it as “a slight moderation in demand.”
Tower of Terror
That cautionary aspect is that Disney added something else. The company believes this trend may continue for a few quarters.
Johnston provided specifics as to why. Theme parks, which have long been considered a bellwether for the overall economy, are struggling.
Frontierland crowds
That’s happening because younger consumers and especially families are feeling the pinch of a wobbly global economy.
Perhaps the best demonstration of this occurred on Wall Street Monday, when a mini-market crash transpired.
Peter Pan’s Flight
The market has since recovered, almost as if the whole thing never happened, but it’s a sign that disposable income is shrinking.
Johnston explains, “The lower-income consumer is feeling a little bit of stress. The high-income consumer is traveling internationally a bit more.”
EPCOT
Disney expects both trends to continue, which circles back to the recent discussion about families taking on more debt to travel.
As I said at the time, much of that story is largely exaggerated, but there’s no disputing that current interest rates are impacting the overall economy.
Tree of Life
That consumer behavior is impacting Disney, especially at its American parks. Thankfully, Disney Experiences is well-diversified.
The WNBA Might Save the Day
All glory to Caitlin Clark and Angel Reese.
That was the underlying message as Disney discussed its new licensing rights deals for the NBA and WNBA.
Photo: Yahoo
Analysts understandably wondered when Disney would start footing the bill for the increased NBA payments.
They also questioned how Disney would turn a profit at such lofty licensing prices.
Photo: AP
However, one of the analysts had done their homework and identified a likely growth driver, which is the WNBA.
Those of you who frequently read MickeyBlog know we’ve chronicled the dramatic increase in viewership numbers for women’s basketball.
Photo: AP
Well, Disney identified this growth a while ago and has capitalized.
While there’s some contract language that allows for a later renegotiation, the new 11-year (!) WNBA deal is a bargain.
Photo: Jeffrey Becker/USA TODAYSports/NPSTrans/troppic
While the league more than tripled its licensing rights, it still took less than market value.
This oddity occurred because the NBA owns 60 percent of the WNBA and effectively decided for its younger sibling.
Photo: Disney
So, Disney should offset any potential rate increases by capitalizing on the undervalued asset of the WNBA.
In addition, Disney gained more than a decade of clarity regarding rights fees, just like with college football.
Credit: Disney
So, Disney has clearly identified its highest-cost payments for investors through the mid-2030s.
This was a nice piece of business, and the potential marketing tie-ins are myriad and reputationally positive.
Photo: People
As Iger states, “We know that that’s been an advertiser’s delight and also an audience’s delight.
It also reflects the growing value of basketball and the growing value of women’s sports.
Credit: Michael Hickey/Getty Images
There’s a large WNBA component to this.” So, Disney is financially invested in Clark/Reese becoming the next Bird/Magic basketball feud.
Disney Entertainment Is the New Disney Experiences
We called this one earlier, but it’s important to evaluate what Disney said here.
Disney just released three months of earnings. Inside Out 2 was only available for two weeks, yet it single-handedly changed the story.
Image: Pixar
If not for Inside Out 2 coming out in June, Disney Entertainment might have suffered a quarterly loss. Instead, it was up four percent.
However, that’s just the tip of the iceberg.
Image: Pixar
With Deadpool & Wolverine and more than half of Inside Out 2 counting next quarter, Disney’s in business.
Seriously, that division will be massive next quarter, and Disney knows it. That’s why they were oddly relaxed during the call.
Photo: Marvel
Disney Entertainment could feasibly have its best quarter since Avatar: The Way of Water, a top-three title of all time.
I say that because Inside Out 2 has already reached the top ten of all time, while Deadpool 3 should finish in the top 20.
Photo: Collider.com
The Ryan Reynolds movie needs $1.33 billion for that, and it should cross $1 billion this weekend. So, the top ten is possible for it, too.
To a larger point, Disney trumpeted its multi-platform IP business model.
Photo: Marvel
The impending release of Inside Out 2 drove renewed demand for Inside Out, something we’ve chronicled with the streaming charts.
Here’s the staggering stat:
Image: Pixar
“Surrounding Inside Out 2’s release, the original Inside Out (2015) helped drive more than 1.3 million Disney+ sign-ups and generated over 100 million views globally since the first Inside Out 2 teaser trailer dropped.”
That’s why Disney relies on IP so heavily. It’s a synergy machine. I apologize for the corporate-speak, but it really is.
Image: Pixar
Love it or hate it, the Disney Flywheel works.
The Moving Target
Finally, I’ll just quickly mention that the streaming division, Direct-to-Consumer, turned a profit.
That was a huge surprise since Disney had cautioned streaming would dip this quarter.
Photo: Disney
Instead, led by Inside Out demand (see? SEE???), streaming eked a profit, thereby negating years of hand-wringing over losses.
Overall, Disney raised expectations by forecasting future growth with Disney Entertainment, DtC, and ESPN.
Photo: The Walt Disney Company
So, what is everyone talking about today? You guessed it!
They’re ignoring streaming (and Disney Entertainment) to stress over theme park attendance.
Main Street, U.S.A.
It’s always something.
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Disney set about raising prices for theme park admission as well as for food and hotel stays. The complaint has been long lines and crowds. That was solved with price increases, and now there are complaints about lower park attendance. Disney can’t win for losing in the financial district.