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Saturday, May 18, 2024

Amid Challenges, Disney Announces $60 Billion Investment in Parks and Cruise Ventures

Profits at Disney’s theme parks are expected to reach $10 billion this year, up from $2.2 billion ten years ago. Not bad for a company that has been around for 68 years, particularly in light of the destruction caused by the pandemic just a few short years ago.

When Disney CEO Robert A. Iger mentioned the parks segment as “a key growth engine” during a conference call discussing the company’s profits last month, investors frowned. The Disneyland park in Anaheim, California, has long been considered to be at capacity. Mr. Iger has said that the company’s legal fight with Florida’s governor, Ron DeSantis, might threaten the company’s $17 billion in planned development at Walt Disney World in Orlando, Fla., over the next decade. Outside of Tokyo Disney Resort, which Disney does not control but from which it gets royalties, Disney’s international theme parks have had a hard time breaking even.

On Tuesday, Disney provided a more detailed description of the enormous business opportunities it sees: In a regulatory filing, the firm said it will invest around $60 billion over the next decade to develop more Disney theme parks across the world and to grow Disney Cruise Line. That’s twice as much as Disney spent on theme parks and cruises in the last decade, which was a time of massive increases in spending overall.

Disney stock dropped by 3% on Tuesday when the news broke, reaching about $82. Although the company’s television division has historically been a big source of cash, analysts say some investors have been concerned about the company’s capacity to create free cash flow as a result of the competition from streaming services.

Disney had accumulated considerable debt even before the epidemic hit. Semiannual dividend payments to shareholders were halted in 2020 so that the corporation could save cash, but are likely to resume later this year.

Disney is increasing its investment after a period of difficulty across almost all of its businesses. Due to cord cutting, inadequate advertising, and escalating sports programming expenses, cable television, especially ESPN, is a shell of its former glory. Disney’s summer box office was much lower than expected, with films including “Indiana Jones and the Dial of Destiny” and “Haunted Mansion” underperforming. Disney+, the company’s streaming service, is still losing money, despite Mr Iger’s assurances that it would break even by the autumn of 2024.

Disney’s parks and cruise industry, on the other hand, have been a bright light, supporting the rest of the corporation. Recent results show that operating income from Disney Parks, Experiences, and Products was $2.4 billion, up 11% from the same period last year. The operational profit for Disney Media and Entertainment Distribution was $1.1 billion, a fall of 18%.

Higher rates for admission, dining, retail, and lodging have contributed to a 42% rise in annual per-guest spending at Disney theme parks.

However, with more money going into theme parks comes more danger. This industry will always be vulnerable to events beyond of Disney’s control, such as fluctuations in the economy and the price of petrol, natural disasters, and tense relations between the United States and China. Despite Disney’s extensive security measures, including the use of undercover guards and metal detectors, a violent incident could turn these bustling resorts into ghost towns.

Disney Parks, Experiences, and Products Chairman Josh D’Amaro noted that by focusing on such threats, people were forgetting about the resiliency of theme park visitors. He said that once Disney parks reopened during the epidemic, visitors flocked back in droves.

Mr. D’Amaro would not comment on the $60 billion in spending plans for the corporation. Nonetheless, he dropped clues by mentioning that popular Disney films like “Coco,” “Zootopia,” “Encanto,” and others have not been fully integrated into the company’s theme parks.

Mr. D’Amaro pointed out that among all of Disney’s current theme park resorts, the company has 1,000 acres of undeveloped land. (He used the size of seven Disney theme parks as an analogy.) According to him, one of the most promising regions is the original Disneyland, which first opened in 1955. Disney plans to reconstruct property close to Disneyland in an effort to dramatically increase capacity if the business is successful in persuading the City of Anaheim to alter a plan developed in the 1990s that restricts the location of hotels, parking lots, and attractions. Disney is also planning to transform a parking lot to the south of the park into an entertainment and hotel complex.

Last Monday, Disney published a 17,000-word report on the project’s environmental effect. It is anticipated that the Anaheim City Council would decide on the proposed amendments in the latter half of 2024.

Disney’s fight with Mr. DeSantis and his supporters over Disney World’s expansion plan has reached the courts, which may determine the company’s level of investment in Florida. Disney’s longstanding power to self-govern its 25,000-acre resort as if it were a county was terminated in April by Mr. DeSantis, who was angered by the company’s criticism of a Florida education law. Disney, though, insists that existing contracts will continue to provide it veto power over future projects.

Disney has no current plans to expand into any further nations or towns. (The firm has considered going beyond Hong Kong and Shanghai in China and perhaps constructing a park in India.) Instead, the business will put its energy into creating new ports where its ships can dock.

In 2025, Disney will station its largest cruise ship to date, with room for over 6,000 passengers, out of Singapore. Restaurants and lounges aboard Disney’s ships now often include artwork and characters from the company’s many properties, such as “Frozen,” “Star Wars,” and “Marvel’s Avengers.”

David Faber
David Faber
I am a Business Journalist of The National Era
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