- We have studied Disney from before Bob Iger first became CEO in 2005 and his return is a chance for him to “course correct” some of Disney’s approaches and priorities, which if not corrected would weigh on his legacy as some of the corrections are to initiatives that he started.
- The most significant changes that impact related CRE and consumer services are: (1) the re-prioritization for the streaming business (and industry) and (2) reinvest in the theme parks and improve upon the parks’ consumer value.
- As it relates to streaming, Iger has shifted the priority to “profitable growth” from “total number of subscribers.” To achieve profitability in streaming, Disney intends to decrease the “amount of fuel” that’s being tossed upon the “streaming bomb fire” – a fire that is quickly “melting the icecubes” movie exhibition and linear-TV. Iger, ‘We’re going to rebalance a bit because… movie theaters still can provide us with a significant amount of monetization capability. They enable us to amortize the cost better over multiple platforms and create some marketing cloud.”
- If one can get “movie quality” at home, why go to the theater? The priority shift to profitability means that less production money will be going into streaming (by Disney and its competitors) with cuts to both the “production quality” and the number of productions. Fewer production dollars means less dazzling streaming-only shows and movies. For example, Marvel’s show Andor cost $20M per episode and we felt it could have been a movie. The Guardian called it "one of the smarter shows in the galaxy". The Polygon, ”Andor is a damn gorgeous spectacle." Andor also received a very high 91% approval rating on Rotten Tomatoes; by comparison AVATAR: The Way of Water got a 76%.
- Additionally, Iger changed the studio business structure to allow the creators / producers to set the distribution and marketing plans. This suggests more productions moving first into the theatrical window for 6+ week exclusives, before appearing on Disney+. These changes will take time to work through. 2023 was already going to be a good year for the box office; looking forward, the outlook for the 2024 and 2025 box office has now been uplifted.
- As it relates to the Parks, we estimate that overall attendance to the Florida and California parks during Q4 2022 was 80% of 2019’s level as Disney is restricting attendance to improve the park experience and as international visitation is adversely impacted by the strong-$. And so, there is still 20% left more to go in recapturing family vacations – be it different days of the week or through park expansions.
- Iger voiced two important comments and changes for the parks. (1) the admission pricing schedules have been re-adjusted to create more affordable choices for visitors – a change that broadens access to the parks, and by association, the overall Anaheim and Orlando experience and ecosystems. And (2), Iger views the parks as a “growth” business; implied by that is more capital allocated to increase the number of attractions, the size of the parks, and potentially a new park (Texas anyone?). Coming alongside Iger’s new priorities is a new Avatar-inspired experience for Disneyland. Recall that Pandora – The World of Avatar was opened at Animal Kingdom in May 2017.
- Iger, “If you look at the results when we put Pandora and Animal Kingdom from year-to-year, they were stunning in terms of how many more people visited Animal Kingdom.“ We estimate that Animal Kingdom grew visitation from 11M to 14M from 2016 through 2019 as a consequence of Pandora. Disney averages $280 in revenue per admission; thus 1M incremental admissions is worth $280M in very high-margin revenue.
