Can Disney win over Wall Street with more theme park cash?

Company does big announcement meant to push up stock price.

In related news, water is wet.

The youtube channel Modern MBA recently made a great video about how seasonal theme parks have been a poor investment because they require huge amounts of capital investment just to keep the same attendance levels. In Orlando Disney has been able to substantially increase their attendance over the years as global tourism, Florida, and the south in general have been growing, but they made the parks so crowded that people starting disliking them, so they changed strategy to manage the crowd levels but get higher spending people there. Now its so exorbitantly expensive to visit with all of the price increases and upsells that has angered many people. In both scenarios Universal has been the biggest winner.

Disney has been in this pickle for a long time on how to manage prices, crowd levels, and guest experience. So now what do you, go back to what you were doing before by allowing the parks to be packed to the gills? Disney has reached insane pricing levels and pretty much tapped out the low hanging fruit ideas like selling front of line access, more hard ticket events, more alcohol, and now they are even offering an upscale real estate "storyliving" design service. I think its possible that they continue to raise the attendance caps over the years to the point where they're pretty much useless except for the really insane weeks (Christmas/New Years, 4th of July etc). Six Flags has pretty much already abandoned their strategy that they were so confident about a few years ago.

Good article, Robert. Consider too that this announcement is fabricated in the sense that Disney was already going to spend big on theme parks in the next decade. They're making news simply to make it.

But that's good business, because as you say, it's a signal to the street that Disney is starting to turn the ship. In recent years this announcement would have concerned Disney+, but now that streaming is a sinkhole, they are smart to turn the focus back to their core business.

Watching Hollywood wake up to the reality of streaming is a hoot. For years they had it so good with cable, and then their own avarice drove them to forsake that established form and lure people to a business model that just doesn't hold up, and actually undermines their theatrical business. I've always thought streaming was a scam on the consumer and I look forward to its continued failure. If you want to see the street react positively to an announcement, publish the 8-K that discloses Disney's retreat from streaming.

another great breakdown, Robert. you're on a roll.

Robert, good analysis...I watched CNBC this morning, but have not had time to read the report, but I have a question that may have been asked before. How much of the spending is actually already "encumbered," but not necessarily allocated or expended? (I am not using actual numbers, just some numbers for ease of math). Let's say that the new cruise ships will cost $10 billion, they haven't already spent $10 billion on the ships, but that $10 billion is part of the $60 billion, right? Same with the new lands in multiple foreign parks (Frozen, Hong Kong and Zootopia in Shanghai -- please, for the love, this is not a post about a war with China and Fox News). Take some portion of this capex spending out of the total because it has not been expended. Other posts have pointed out the costs of maintenance and repairs have soared due to inflation. It is a big number, but it might not be such a big impact. Remember the large cost associated with the development of Genie and Genie+. But, any new spending is good.

The Disney panic over Universal's success since the HP expansion is fun to watch. Epic Universe sent them into a frenzy, and now it's only a year and a half away from opening.

Disney+ losing subscribers left and right (20 million from a peak in Q4 2022) and the downward trend is continuing.

Stock had dropped $3 a share today, and over $100 a share from March 2021.

And when Universal finishes forcing Disney to buy out its share of Hulu, Disney will have paid for Epic Universe, too.

"And when Universal finishes forcing Disney to buy out its share of Hulu, Disney will have paid for Epic Universe, too. "

Exactly.

Its a throw away and ultimately meaningless figure - most of which has already been allocated and probably includes the increased costs to do anything new/keep the same in the current climate. Doesn't look like the market was fooled by this and it shouldn't have been!

I think the market would have reacted differently if actual details of new expansions were listed and a plan for a 5th gate was actually discussed for WDW. ...

Universal build Volcano Bay and then Epic in such a relatively short period of time in Florida - everyone is now looking over and asking what have Disney doing in comparison - other than growth from increasing prices rather than expansion (which has a limit). How would the market have reacted if Disney were honest and said they are not planning any concrete expansions in Florida - due to Epic bringing in extra footfall which they will benefit from?

Streaming has destroyed cable and cinema, as well as being unprofitable. So many things Disney has to correct and throwing this figure around without details is pretty much meaningless.

It would be difficult to overstate the importance of the D23 2024 event to be held in Anaheim (August 9-11). The parade of PowerPoint promises almost has to end. Definitive, detailed expansion plans (with opening target dates [at least years]) related to parks and cruise ships need to be unveiled. Promises made to Norman Peltz (dividend payments) probably need to be kept. Continued good stewardship regarding the management of debt (post-Hulu) must be maintained. And, I dare say, the identity of Mr. Iger's successor (or successors) should be all-too-apparent.

Less than a year after D23, Epic Universe will open. And I suspect, before that D23 event, Universal Orlando will announce new attractions planned (2026/2027) for USF and IOA -- although I have zero inside information and I have heard no whispers about any such expansion(s).

The next twelve months will be interesting ... Assuming, of course, we don't go to war with China.

(Chuckle)

the_man3: "Disney has...pretty much tapped out the low hanging fruit ideas like selling front of line access, more hard ticket events, more alcohol,..."

Oh, I doubt that. The Halloween and Christmas parties have been very successful, so much so that I'm would expect more hard ticket events with overpriced alcohol in the future for about every American holiday on the calendar.

I concur with TwoBits ... The workshop/classes that they ran during Food & Wine were very popular upgrades as well. They should absolutely bring them back.

@TH - I understand why those F&W experiences weren't offered immediately following the pandemic closures, but I'm absolutely shocked Disney has not brought those special events back. I mean Disney was charging $12+ (they were free LONG ago when the Festival was still in its infancy) to attend a 30 minute wine/beer/spirit tasting where the winery/brewery/distillery provided all the samples - the only costs to Disney was for staff to hand out the samples, manage the lines and tasting area, and administering the tickets. It was easy money, so it has absolutely baffled me that Disney has not brought these back. The exclusive dinners and other accessory events didn't have the same margin because they were far more elaborate, but as a comparison, I recall that Victoria & Alberts hosted a F&W Festival event that was very much like the traditional Chef's Table, yet they were charging $500/person, when you could reserve a standard Chef's Table experience for I believe $275 (plus $100 for wine pairing) at the time. Now, reserving V&A's Chef's Table is nearly impossible, so perhaps the F&W Festival event was giving guests a chance to get in without going through the regular reservation system and allow multiple parties to get into a room typically reserved for just 1 per night, but they were definitely getting a better margin from the F&W Festival event than they were from a normal service.

At the very least, Party for the Senses with tickets at $150+ had to rake serious money for Disney, particularly when they could get outside chefs/restaurants and wine/beer distributors to manage some stands instead of Disney staff. I know it was a massive undertaking in terms of planning, coordination, and customer service, but there's no way Disney was not clearing 25-30% of pure profit from those weekly events during the EPCOT F&W Festival.

As impressive as $60 billion sounds, I would guess probably a quarter of that at most will actually go toward new attraction development. Split that evenly across five resorts, and that pretty much means each resort gets two or three developments on par with Galaxy's Edge (or around a half dozen stand-alone headliners), which is not all that different from how things have been recently. Think about it like this: In the past decade...

-Magic Kingdom has added two major attractions and two minor attractions, as well as made upgrades to existing attractions here and there
-Epcot has added two major attractions and one minor attraction, overhauled four existing attractions, created a new nighttime spectacular, opened a new premium restaurant, and significantly expanded their seasonal events
-Hollywood Studios has added two entire themed lands and refreshed a couple of their shows
-Animal Kingdom has added an entire themed land and updated many of their entertainment offerings

That probably represents ~$7 billion in investment at todays prices, and while I have no idea how everything will be allocated, it wouldn't surprise me if less than that goes toward brand new experiences. Instead, I'd expect each resort to get about ~$3 billion in genuine new stuff and another ~$2 billion in major refurbishments/overhauls/upgrades, with the rest going to non-park development and/or general infrastructure upkeep. Could a new park be included in that $60 billion? Yes, but if it is I'd suspect it would be planned for one of the international destinations rather than as an additional gate in California or Florida.