Attendance was up slightly at the Walt Disney theme parks in the United States over the past three months, the company reported today.
Revenue jumped 6 percent year-over-year during the third quarter of Disney's fiscal year, which ran from April 1 through June 30, 2018. Operating income was up 15% for the period. Attendance was up just 1 percent, although Disney noted that this year's Q3 included only one week of the Easter holiday season, where last year's Q3 included both weeks of the Easter season. That drove a week of traditionally high attendance into the second quarter and cost Disney 1 percent of additional growth in attendance for the third quarter.
Per capita spending in the parks was up 5 percent, with per room revenue in the hotels up 8 percent. However, room occupancy was down 2 percent, in large part due to Disney taking rooms out of service for refurbishment, according to Disney executives. Disney reported an occupancy rate of 86% in its on-site hotels during the quarter.
Here is the Parks and Resorts declaration from Disney's press release:
Parks and Resorts revenues for the quarter increased 6% to $5.2 billion and segment operating income increased 15% to $1.3 billion. Operating income growth for the quarter was due to increases across key operations. Results include an unfavorable impact due to the timing of the Easter holiday relative to our fiscal periods. One week of the Easter holiday fell in the third quarter of the current year whereas both holiday weeks fell in the third quarter of the prior year.Higher operating income at our domestic parks and resorts was due to increased guest spending, partially offset by increased costs. Guest spending growth was due to increases in average ticket prices, food, beverage and merchandise spending and average daily hotel room rates. The increase in costs was due to labor and other cost inflation, partially offset by lower marketing costs. At our cruise line, growth was driven by higher passenger cruise days, which was primarily due to the Disney Fantasy dry-dock in the prior-year quarter.
The increased operating income at our international parks and resorts was due to growth at Shanghai Disney Resort and Hong Kong Disneyland Resort. Higher operating income at Shanghai Disney Resort was due to lower costs and attendance growth, partially offset by decreased guest spending. The decrease in guest spending was driven by lower average ticket prices, partially offset by higher food and beverage spending. At Hong Kong Disneyland Resort, the increase in operating income was primarily due to higher occupied room nights, average ticket prices and attendance.
Even though Star Wars Galaxy's Edge is debuting at Disneyland and the Walt Disney World resorts next year, "the launch of the Disney DTC ('direct to consumer,' i.e. streaming video) product is the biggest priority for the company in 2019," CEO Bob Iger said in an investors' conference call following the release of the earnings report. Expect a huge publicity push to anyone Disney has contact with - including annual passholders and DVC members - as that Netflix-style service prepares to launch in last 2019.
Iger also said that the company expects some "revenue yield" opportunities with the opening of the Galaxy's Edge lands. Get ready for more AP changes, new ticket packages, and prices increases.
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$71 billion for Fox, I hope it doesn't mean more cutbacks at the parks. I don't really care about Disney DTC, I care about the parks. They spend $71 billion on Fox and they can't build a third theme park in Anaheim? They spent (only) $5 billion on Shanghai Disneyland. It's interesting that Fox was worth $71 billion, Pixar $7 billion, and Marvel and Lucasfilm each was $4 billion. I guess Fox had much more assets. But I hope DTC's not a bust like Disney's Go Network.
The problem with adding a third park in Anaheim isn't the cost of building it. It's where to put it.
Not only where to put it, but how to get people there. Unfortunately, they can’t do it piecemeal anymore. They have to spend billions for the whole project and infrastructure (transportation, parking structure, park, and hotels). I’m not sure they’re that committed.
Toy Story Lot is logical, but they need another parking structure and tram/train service. They need more Disney hotel resorts. Somehow, other hotel projects popped up on Katella Blvd so they’ll be closer than Disney’s hotels. This is what happens when Disney hesitates.
I thought I read somewhere that the city of Anaheim put expansion restrictions on the Disneyland Resort. With the amount of money Disney has spent to get DCA up to a mediocre theme park I'd be shocked that they'd be considering a third park regardless of where to put it. However, if that were the case, SWGE would being build elsewhere down the road, anchoring the new park.
I think the other factor relating to a 3rd gate in Anaheim, as Stevo has mentioned, is political support. Any 3rd gate will drastically reshape the landscape directly around DLR, and doing this will require significant concession from the local authorities. This is compounded by the opposition that any further expansion will receive from other interested parties. This recently shot down any short term aspirations Disney had in restructuring the Eastern entrance.
I feel that Disney is happy to wait for a more supportive local government before they push forward any plans for opening a third gate. In the meantime they can gradually purchase more land in the area.
As a guest, DL is enjoyable due to crowds even on a high volume day. WDW is not. They have the space to fix this is Orlando. That is where they need to be building additional parks.
This is yet another earnings report that has a lot of mixed messages that can be interpreted a lot of different ways, but it looks like trouble could be ahead for Iger.
First, attendance over Q3 (Disney's Q3 since their fiscal year runs October-September) is obviously flat because both DL and WDW didn't debut their new additions until very late in the quarter (TSL at DHS officially opened on June 30,, while Pixar Pier opened halfway through June). Luckily though, the comparison to the previous year's quarter did not come with the full affect of PtWoA (opened late May 2017), so a true comparison of attendance won't come until the next quarter's numbers are revealed.
Second, Robert gives Cedar Fair a hard time for blaming tepid attendance on the weather, but does not similarly question Disney's excuse for lower occupancy on room renovations. There weren't a lot of resort renovations going on earlier this year with only Coronado Springs seeing a significant reduction in availability. This is coupled with an increase in availability at other resorts over the same time last year with the new Poly bungalows, and Caribbean Beach and Port Orleans renovations.
Next, even if you take the numbers at face value without trying to spin them, it indicates that Disney visitors are probably near their breaking point, and double digit growth in operating revenue can probably not be sustained. The notion of redoing season passes and admission pricing schemes will be like trying to squeeze blood from a rock. If you do believe the Disney line that occupancy was a result of room renovations, then why should we believe that Disney will ever stop renovating rooms and actually have 100% available for occupancy? Also, at what point can Disney no longer squeeze more guests into the parks and resorts - based on empirical evidence, they're probably getting pretty close?? So, if you can't squeeze more people into the existing parks and resorts, and people can't/won't keep paying 10% more for their trips year after year, what is going to sustain the expected growth? Dessert parties, upcharge dinner shows, pay FP??? And at what point do guests say enough is enough??? Lot's of questions left unanswered here...
Finally, the whole streaming service nonsense is nothing but a red herring. Iger has been throwing this stick out for business reporters to chase for almost a year now, but there's absolutely nothing to talk about. Disney spent $71 billion for Fox (and it's massive debt burden) supposedly to help provide content for its streaming service, but then Iger talks about how Disney's service will be carefully curated to offer "quality over quantity" in contrast to Netflix's constant barrage of content. It's completely hypocritical to state that the new service is going to be more limiting yet turn around and validate a $71 billion (edited - thanks Anton) acquisition by stating Disney needed more content to feed it's upcoming streaming service. Which one is it Bob??? Iger even went as far to state that the quality over quantity would be reflected in a comparatively lower price for Disney's service over Netflix. If that's the case, how in the world is the entertainment division going to support the massive cost of the Fox acquisition along with the significant costs for servicing the additional debt assumed on top of Disney existing debt? This whole streaming service looks like Iger's exit plan as he rides of into the sunset after its launch, which irreparably damages the fortunes of Disney forever.
I think Disney is nearing critical mass in a number of areas, but the problem is that the entertainment division cannot survive without the excess revenue generated by the parks and resorts division. Also, the parks and resorts as a whole is a mature business with only limited room for growth without employing disruptor techniques (pursuing new parallel markets, upending business models, and/or massive non-organic growth), which is what the entertainment division is doing, but accumulating serious debt and taking on huge risks in the process. The two primary divisions are on the complete opposite ends of the business spectrum yet cannot live apart. As the market has indicated with a 2% drop in Disney stock so far today, there's a rocky road ahead for Iger over the next year. Disney cannot simply tread water and continue to kick the can down the road expecting the streaming service to be the silver bullet. The company as a whole is over-leveraged by relying too much on non-organic growth, and is trying to get by on its stable, organically grown theme park revenue. However, taking on so much Fox debt could cause the entire company to take on water, and some drastic decisions will need to be made before Disney will be able to capitalize on the Fox acquisition.
$71 million?
I’m just glad Comcast didn’t do the cash offer billions of dollars buy out of Fox, I would much rather them use that money now on an amazing new theme park and resort in Orlando and still,have money available to ride our any potential slow downs In the economy. I do think Disney will start to cut back on some furure projects because of the Fox deal.
Spot on Russell!
I am a frustrated former Disneyland fan and I think they're about to see a market correction even with the introduction of SWGE. I probably won't bother to go there for quite some time after that opens. I know more people that dropped their APs than renewed over the past year, regardless of SWGE.
Good analysis by Russell Meyer. Fox acquisition another bad decision by Iger? After Iger (Louis XV) the deluge?
Wow ... Pretty good price for Fox!
@TH Creative
Comcast made clear they were willing to go to $90 BILLION, but their stock sank like a rock after analysts pointed at the debt load a $90 BILLION bid would result in.
Roberts was once again, BEATEN by IGER!
Disney, Comcast/NBC U, Warner Media/AT&T, New FOX, SONY Studios have all announced streaming services.
The major cable providers have announced streaming services.
They will join the market leaders Netflix, Amazon and Hulu.
This seems like solid evidence people still "feel the magic of Disney" regardless of the crowds, price increases, and construction over the past year. I think that reflects people's belief they are purchasing a superior product at a premium price. And I believe that's good for the entire industry. If Disney remains the standard by which all others are measured, then everyone has a template on success.
So hooray for good Disney numbers! If Disney can continue to weather the speed of change in the 21st century, then I think we are all gonna be ok.!
Russell, I think you hit the nail on the head. The streaming service was driving that boat, but is is steaming into uncharted waters. Everyone wants to knock Netflix's down, and they probably should be knocked down, and the studio system allowed this to happen just as the music system did as well. I wish it were not the case, but there it is. What is critical, and I mean critical, is that all these studios that are starting up their own streaming services cannot do is cut back theatrical releases and physical releases and have streaming only productions like Netflix. That is killing the industry and will be the death knell. At least Amazon is releasing its films in theaters and on physical disks. Disney, however, has shown a reluctance to do this and is beginning to cut corners on even its largest franchise films. Disney/Fox can be in the driver's seat for the future of motion pictures as we know it. The will either keep it on the road or drive it right off the cliff.
Robert and everyone else. Unless, the anaheim angels decide to move away, opening up that huge batch of land just 3 miles away, why would disney build a third park in anaheim? They have tons of land (for zero cost, since they already own it) in proven parks in orlando.
Additionally, the government in florida does not do as many things to deter construction, vs california/anaheim.
Additionally, the minimum wage is much higher in anaheim, than florida
Additionally, in florida disney has even more autonomy than their competition, since they are the only ones who possess their own municipal government on their land.
Additionally, flights to orlando have become much more affordable than they have historically.
Additionally, disney has tons of room to build a second park in china. The only downside being china owns 50 percent of the profits, but they also pay 50 percent of the cost.
Additionally, disney is hopeful they can turn around eurodisney, now that they own 100 percent of it.
Why would they have motivation to build a third park in anaheim?
Russell and JC---On dec 26, 2014 FOXA shares hit a then all time high of 38.89. It then went downward from then, until the bidding war with comcast started late last year. Which is why I and Mr buffet started accumulating FOXA stock in 2015. (Oddly, he sold out in early 2017, even though I would presume he has social contacts with both Mr. Murdoch and Mr. Iger. Maybe, Mr buffet has more integrity than most any other person to NOT ask both seperately, if they had interest in a merger. I would think, just to inquire if there was any interest (seperately) without being told anything concrete, would not be an insider trading violation.
Now. One has to factor in that the SP 500 has gone up a lot since dec 26, 2014, so really FOXA shares at the agreed upon price is more than a fair price. It is only because fox is fairly large that it did not go higher. That limited the competition to just one other company.
Also. the price is actually somewhat lower than 71 billion, because disney is going to sell all of the (I think 23 if memory is correct) sports networks to satisfy the federal govt. It is assumed, that enough companies are hungry for live sports content, that Disney will get a fair price from those even though they must sell. Conventional thought, is the govt will give plenty of time to get rid of them, to get a fair price. So. it is not a fire sale.
Also. People are cancelling cable subscriptions, at a rapid pace. So. This was not really a choice. Disney HAS to start a video subscription service, or the stock will tumble big time as ESPN and the disney channels-the cable networks gets drastically chopped in value. To replace them is not optional.
Yes. If disney had started on the streaming service road like 5 years ago, they could have built their own film studio and perhaps struck licensing agreements for the streaming service with a multitude of studios.
Disney prob did not do this 5 years ago, because they have been uncomfortable taking on a comcast level of debt, ever since walt died.
So. 71 billion for fox is not too much. A better question is why do they need the sky (mostly) european cable system. which they are in competition which comcast for too. (full disclosure, I own more SKY than FOXA). They have until aug 22, to match or beat comcast's bid. (they also own 33 percent of sky, through the fox purchase). Sky has some additional content, but not all that much. They could strike licensing deals with any number of other studios, as an alternative. If debt is really an issue, disney can refrain from making another sky bid, and even (if they want) reduce the fox purchase price further by selling the 33 percent sky stake to any number of potential buyers. comcast, being exhibit number one, if they don't try to offer a under market price.
As long as disney learns to ignore any twitter/fb outcry about disney making R rated movies with bad lanquage and sex, the fox purchase is a necessary one. Because disney and comcast failed to address the netflix challenge for too long.
If disney really wants to get into the overseas internet subscription business, they could buy all or part of LBTYA (which I also own some of), for a lower price than SKY.
The issue with building too many high quality theme parks (compared to your other businesses) is that if (god forbid, we all prey not) either another 9/11 or a world war erupts, they are guaranteed to lose huge money.
Disney wants to hedge their bets against such horrific events, by keeping different (but somewhat related) businesses in balance to one another.
Is JC being sarcastic? Googling, the only studio to release a movie that was in the top 20 budget expenses all time, is disney with infinity war. Black panther did not make that list, but did make the list of most profitable movies of 2018. the beast live action remake was the most profitable of 2017. By the way, 2015 disney had one of the biggest 20 losers of all time with tomarrow land. Luckily, the force awakens was also released that year.
For those other's out there who complained about solo. It looks like it will likely make slightly more than antman 2. And. I don't hear people complaining about ant man 2, being a flop. Just because SOLO did not make nearly as much money as any other star wars film. It still looks like SOLO will still make several million (or maybe 40 or 50 million dollars worldwide). There is still time in the year, but currently SOLO is the 7th highest grossing film world wide for 2018. And, compared to other blockbusters the budget was not that overly expensive.
Interesting piece, Robert, and an equally interesting response, Russell.
As far as the renovations issue, Disney’s been pulling this card out for some time now; they commonly pull rooms out of availability to up their occupancy rates when bookings get slow.
In the past few years, they’ve also gotten into the habit of pulling more and more hotel rooms and converting them into DVC villas as part of a DVC expansion - to the point that now we’re even going to see DVC development in what was part of a Moderate resort. Eventually, it’s going to have to stop- there are only so many people who can afford to buy into DVC, expanding economy or not (and I’m not sure how much longer the economy’s gonna keep expanding in any case).
As far as the discussion on Disney’s streaming service, I’m surprised nobody’s mentioned the service they already have - Hulu, which with the Fox deal done they’ re majority owner of. Disney could easily curate content for its own service while making more ABC and Fox content on Hulu, or even chuck the whole idea of a Disney streaming service in favor of offering more content on Hulu. Would either of these be enough to knock Netflix off the top of the hill? We’ll see...
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If success begets success it strikes me that Disney will continue it's dominance of the Orlando market for the next half decade. With new gate crashers coming to MKP (TRON), EPCOT (Guardians, Ratatouille and probably more) DHS (Galaxy's Edge) and DSTP (NBA Experience and Cirque) -- and as momentum continues to build toward the 50th [2021] -- it's unlikely that TEA/AECOM will have to change its report template any time soon.