Disney’s Parks Struggle, Exposing a New Trouble Spot

In the ongoing saga of Disney’s corporate challenges, a new problem has emerged: American consumers, worn down by persistent high inflation, now have less disposable income for leisure activities, putting Disney’s theme park revenues at risk.

This past Wednesday, Disney revealed subpar results for its theme parks for the quarter ending June 29. The parks saw a revenue rise of just 2 percent from the previous year, reaching $8.4 billion, while operating income fell by 3 percent to $2.2 billion. The company attributed these lackluster results to a “moderation of consumer demand” that was more severe than anticipated, coupled with escalating costs. This downtrend in demand might affect future quarters, according to Disney.

The company also mentioned it is taking vigorous steps to control its costs.

Over the last ten years, theme parks have become increasingly critical to Disney’s finances. They have served as the cash generators funding Disney’s expensive ventures into streaming services and offsetting losses from its declining cable TV sector. Last year, Disney’s theme parks and cruise ship operations, grouped under Disney Experiences, accounted for 70 percent of the Walt Disney Company’s operational profits, a significant increase from 30 percent a decade earlier.

Robert A. Iger, the CEO of Disney, has highlighted theme parks and cruise ships as vital for the company’s growth. Last year, the company announced plans to invest about $60 billion over the next ten years in expanding its parks and Disney Cruise Line, doubling the investment of the previous decade. Josh D’Amaro, the chairman of Disney Experiences, is expected to announce several specific expansion initiatives this Saturday at a fan convention in Anaheim, California.

However, there are concerns about a potential U.S. economic recession. Furthermore, the global travel boom that followed the pandemic has mostly subsided. Last month, Comcast reported that its Universal theme parks saw a revenue drop of 11 percent last quarter, with pretax earnings tumbling by 24 percent.

Iger has been navigating Disney through a turbulent period marked by activist investors attempting to shift the company's strategic direction. This year, activist Nelson Peltz waged a proxy battle for board seats, sharply critiquing Disney’s approach to streaming, succession planning, and its declining stock value. Disney has managed to ward off these challenges, though its stock has dropped 27 percent since early April.

“If Disney fails to turn around this negative trend, it may face another activist challenge,” stated Paul Verna, a media analyst at Emarketer, in an email last week.

The rest of Disney’s quarter showed more promise. Company-wide revenue rose 4 percent from the previous year to $23.2 billion, slightly surpassing Wall Street’s forecasts. Adjusted per-share earnings climbed 35 percent, exceeding expectations, prompting Disney to raise its full-year earnings growth forecast from 25 percent to 30 percent.

The film sector contributed to the quarterly success. “Inside Out 2,” released in June, garnered $1.6 billion globally, revitalizing Disney-owned Pixar. “Kingdom of the Planet of the Apes,” from Disney’s 20th Century Studios, was successful in May, earning nearly $400 million. After the quarter, Disney released “Deadpool & Wolverine,” which saw record ticket sales.

ESPN reported a 4 percent increase in operational income, totaling $1.1 billion, with significant growth from international markets. While domestic advertising sales on ESPN’s cable channels rose by 17 percent, increased costs and other factors restricted the growth of domestic operational income to 1 percent.

Disney also saw improvements in its streaming operations. Its trio of services—Disney+, Hulu, and ESPN+—generated $47 million in operational income, a turnaround from a $512 million loss the previous year. This marks the first profitable quarter for Disney’s direct-to-consumer segment, which was not expected to happen until later in the year.

Disney+ ended the quarter with 153.8 million subscribers globally, a slight increase from the previous quarter. As Disney focuses on making streaming profitable, it has introduced several price hikes, with more planned for the future. Starting October 17, the ad-free Disney+ will increase to $16 a month, up from $14, and an ad-supported version will rise to $10. Next month, Disney+ plans to launch “continuous playlists,” a feature offering channels similar to traditional TV, with content from ABC News, preschool shows, and more.

Hulu will also see subscription price increases soon.