Could they? We assume Disney incompetence, but in the end we don't know all of the variables. Was the great movie ride built because they saved money by not filling in a swam to build World Drive?!? Who knows, maybe. My point is that we don't know even 1/4 of the story behind the decisions. We look at results and assume the decision process, but we don't know. Utilities, wetlands issues, and millions of other tiny details, legal issues, laws, expense issues, etc make those decisions.
I have 3 Browns on my Fantasy football team. You could look at it and say "why in the heck would you put 3 terrible Browns players on your Fantasy team" Well, it was a judgement call based on what I perceived as the needs of the team at the time. I spent more on my QB than others might have, forcing me into spending less on receivers, I picked a player that I was certain to be in position for a big year. I made decisions that seem foolish now, but made total sense at the time. Pick me up and put me back in time, I would likely end up making many of the same decisions again, even though I know they won't work out, because the reality of the variables would force me to repeat history.
Was the film portion of MGM dumb and a failure, sure it was. Was trying to replicate the Universal Hollywood concept wrong..nope. At the time that was the best alternative to the typical theme park. The best way to avoid having a second magic kingdom on property. Now, things have changed a lot. Univ Hollywood is copying the Universal Orlando concept, and so is Disney. People with the best of intentions can make all the right decisions and still not have it work.