Disney Parks Revenue up

[HauntedPirate]

I'm not sure what his plans are for length-of-stay but I think he's 100% correct about increasing prices. Looking at a calendar, I'd have to guess that fiscal Q2 (January through March) is the slowest quarter for WDW since it doesn't have Christmas (Q1) or summer vacation (Q3 and Q4). They were at 88% occupancy in their slowest quarter. For all intents and purposes, that's fully booked. People are missing out on vacations because their dates aren't available. When quantity demanded = quantity supplied, that means it's time to raise prices.*

Also worth noting, Iger didn't bring up length-of-stay, the analyst from J.P. Morgan did. He may have just been answering off-the-cuff.

Alexia S. Quadrani - JPMorgan Securities LLC: Hi. Thank you very much. My first question is on the parks. There's a lot of excitement around the expansion of Animal Kingdom later this month. Can you talk about what the levers are for further financial growth at the parks sort of in general, not just in Orlando? I guess when you look at how far you've come in terms of margin expansion over the last, say, five years, I guess I'm trying to want to put the drivers specifically for the next leg of – is it attendance, price, longer stays or perhaps all of the above?

Robert A. Iger - The Walt Disney Co.: The answer would be all of the above. We have a lot of investment activity actually across the globe in that segment. You mentioned Avatar, which opens just in a couple of weeks. We're building two Star Wars Lands, as you know, in Orlando and in Anaheim. We're opening a new hotel in Hong Kong. We opened Iron Man recently. We just announced a $1.4 billion expansion of the Hong Kong Park. We intend with our partner, OLC, to continue to grow our business in Tokyo. And of course, we've talked about what we're doing in Paris, which is all aimed at long-term investment and long-term growth, and then we had a quarter of profitability at Shanghai. I mentioned in my comments that we're just days away from Shanghai hitting 10 million people in attendance, which is nicely ahead of where we thought we would be because the year anniversary is in June. And we are already building to expand there. So we think we've got opportunities to continue to grow that.

And of course, we've got two new cruise ships in the works and a number of other plans as it relates to our hotel business. So we think that we've got room on pricing there. It's not just about taking pricing up. It's just about being more strategic at how we price, particularly how we manage demand, and we've taken a number of steps there. We think we can expand length of stay with some – across the globe actually with some of these investments. We have some nice pricing leverage with our hotels. We actually are comping nicely in hotel rates, particularly in Orlando as a for instance, but we have an opportunity to expand. And again, our global footprint continues to grow, particularly when you consider expansion in Hong Kong, in Paris and ultimately in Shanghai.

So I think there are a lot of levers here. We also have a business that has been great at managing its costs. They'll go up somewhat this coming quarter with the quarter that we're in because of some of the investments we've talked about, but they've managed their costs to continue to improve margins. And we don't see any reason why that can't continue.

So this doesn't sound like "get people to stay longer at WDW and raise their prices." The length-of-stay comments seem to be referring to the international resorts and the pricing comments seem to point towards something like more strategic price seasons.

Thanks for finding the transcript and posting this, it provides great context to the comments around room pricing and length of stay.

I think we all know that room pricing will continue to go up, up, and away, particularly as we get closer to SWL opening and with the expected removal of value/moderate/deluxe resort classifications. From my reading of his comments, it sounds like they believe that room prices are actually a little low. Since we are DVC members, this does not directly impact my wallet, but then again sometimes my wife will fly down with a kid or two and pay cash for a room (I don't get nearly as much vacation time as she does) for a long weekend or something.

I'm also disheartened to hear/read Iger talking more about "managing costs" to "improve margins". It's like he's the living embodiment of an old obscure Eisner quote - Fool the guest into thinking they are having a good time. And when he mentions "levers", I believe he's keeping ticket price increases in his back pocket as a quick bottom-line/margin booster if PRGS continues to be flat. I wouldn't be shocked if ticket prices saw another increase in Q3 2017 (maybe around August?) before the annual February increase.

 

[CaptainAmerica]

Thanks for finding the transcript and posting this, it provides great context to the comments around room pricing and length of stay.

I think we all know that room pricing will continue to go up, up, and away, particularly as we get closer to SWL opening and with the expected removal of value/moderate/deluxe resort classifications. From my reading of his comments, it sounds like they believe that room prices are actually a little low. Since we are DVC members, this does not directly impact my wallet, but then again sometimes my wife will fly down with a kid or two and pay cash for a room (I don't get nearly as much vacation time as she does) for a long weekend or something.

I'm also disheartened to hear/read Iger talking more about "managing costs" to "improve margins". It's like he's the living embodiment of an old obscure Eisner quote - Fool the guest into thinking they are having a good time. And when he mentions "levers", I believe he's keeping ticket price increases in his back pocket as a quick bottom-line/margin booster if PRGS continues to be flat. I wouldn't be shocked if ticket prices saw another increase in Q3 2017 (maybe around August?) before the annual February increase.

I believe the "managing costs" comment was backward-looking. It reads like a shout-out to WDP&R leadership for having done a good job managing costs so far.

 

[HauntedPirate]

Uh, unemployment is very low.

Ummm...

Inflation is non-existent.

What?!?!?!

Obamacare has allayed much of the fear of debilitating medical expenses to a large share of the population.

Anymore banging of my head against desk from comments like these will result in unconsciousness. I'm going back to reality now.

 

[HauntedPirate]

I believe the "managing costs" comment was backward-looking. It reads like a shout-out to WDP&R leadership for having done a good job managing costs so far.

You're right, it was definitely a shout-out to management. But he did also say, "And we don't see any reason why that can't continue."

 

[larryz]

Disney has no incentive to artificially inflate occupancy.

I'm sure industry analysts would disagree with you.

 

[LuvtheGoof]

Ummm...



What?!?!?!



Anymore banging of my head against desk from comments like these will result in unconsciousness. I'm going back to reality now.

Really? Inflation for the past year is 2.38%.

Unemployment is at 4.7%

Both are considered low.

 

[LuvtheGoof]

I'm sure industry analysts would disagree with you.

Disney executives are not stupid. They would not be building new hotels if they didn't think people would be able to stay in them.

 

[larryz]

Obamacare has allayed much of the fear of debilitating medical expenses to a large share of the population.

Well, it certainly changed my vacation behavior.

Apparently, Iger's strategy is to keep the cost of a Disney vacation on par with yearly health insurance deductibles.

Used to be that my yearly deductible was about the cost of a Disney vacation -- $4000. Now it's $11,000.

Contrary to Iger's plan, however, I've decided to bank my vacation money against potential medical costs instead of blow it for 6 days of Disney fun.

 

[larryz]

Disney executives are not stupid. They would not be building new hotels if they didn't think people would be able to stay in them.

Objection -- conclusion not supported by facts in evidence.

 

[ford91exploder]

Uh, unemployment is very low. Inflation is non-existent. Obamacare has allayed much of the fear of debilitating medical expenses to a large share of the population. Although people in some places may be afraid to use their vacations, that seems to be a minority from my viewpoint. Talk to fellow guests at WDW, and you'll see that the vast majority of them have jobs and are on vacation from those jobs. Call various businesses and government offices to talk to a specific person, and you'll find that at various times of the year that person is on vacation for a week or more out of town.

I don't know what alternate universe you're living in, but I find that most people take vacation days every year. Yes, in precarious or ultra-competitive job situations, people forego their vacations, but that is an exception to the norms. Personal history: From 1999 until late 2003, I took no vacation because I had an infant son and I was starting a business. I've been making up for it since, with an average of three to four weeks of vacation per year since. Those early years were awful, but I did it to get my business on firm ground.

Everyone needs a long sanity break. Not getting away can lead to mental anguish, messed up kids, failed marriages, and general misery. I force my employees to take vacations every year because I know what happens to office tension and morale when they don't get them. Long weekends are nice, but I do not want to look back on my family years without seeing some great longer trips in there. I would recommend that anyone who's stuck in such a non-vacationing job situation should find a more human place to work. Jobs are out there right now because of the good economy. Businesses are begging for good workers, and most of those good workers want to be able to get away for a few weeks every year. Demand it, and you should get it. Make a humane switch.

I live in Farm country where the 2000 recession NEVER went away its a little less grim now but its still not pretty.

Most people who work for a public company in the US are AFRAID to take vacation because the fear is if company can live without you for two weeks. They can live without you permanently when the numbers need a boost.

Last year was the first year on record when less than half of employees with vacation time took any of it.

I suggest you look at the REAL unemployment number which is the BLS U6 which includes all unemployed and economically underemployed workers this number is currently 9.4%.

As opposed to the Happy Talk number which the Media pushes which is 4.4% this is the U3 statistic Which magicially if you are unemployed after 4 weeks of looking for work you are no longer considered unemployed

Back in the 80's the switch was made to make U3 the official unemployment number because it made the administration look better WRT the REAL U6 number.

 

[larryz]

I live in Farm country where the 2000 recession NEVER went away its a little less grim now but its still not pretty.

Most people who work for a public company in the US are AFRAID to take vacation because the fear is if company can live without you for two weeks. They can live without you permanently when the numbers need a boost.

Last year was the first year on record when less than half of employees with vacation time took any of it.

I suggest you look at the REAL unemployment number which is the BLS U6 which includes all unemployed and economically underemployed workers this number is currently 9.4%.

As opposed to the Happy Talk number which the Media pushes which is 4.4% this is the U3 statistic Which magicially if you are unemployed after 4 weeks of looking for work you are no longer considered unemployed

Back in the 80's the switch was made to make U3 the official unemployment number because it made the administration look better WRT the REAL U6 number.

Mark Twain would approve of this statement.

 

[CaptainAmerica]

I'm sure industry analysts would disagree with you.

Disney gets a lot more scrutiny as a media company than a lodging company. Occupancy of 85% versus 88% wouldn't move the stock price one bit.

 

[Kingtut]

Really? Inflation for the past year is 2.38%.

Unemployment is at 4.7%

Both are considered low.

Only if you truly believe these numbers - the inflation measurement no longer address's the ability to maintain a constant standard of living or a fixed basket of goods. This is the sort of thing the general public expects and understands but is not actually what the CPI actually measures anymore.

The headline U3 number doesn't address those who have quit looking for work because they can't find any job or those who are working part time because they can't find full time employment. The official U6 number is almost twice as high and that still does not include long term discouraged workers who the government simply defined out of existence and stopped counting years ago.

I don't want to argue here but you need to know when the numbers have been "adjusted" and don't measure what you would ordinarily expect them to.

 

[Frank the Tank]

You just can't make up your mind... first it's ESPN is a dinosaur and isn't in the streaming game (wrong: they've actually been one of the early adopters). Then it's they aren't streaming their content like NFL games (they can't - streaming rights are not part of their broadcast rights). Now it's they don't have the skills or toolsets (wrong: they've had online only channels for years).

Verizon has had the rights mobile streaming rights for years and has it LOCKED UP (since 2010.. and in 2014 had to pay a billion for the next extension). Only recently has the NFL started letting some other NFL produced stuff be streamed... and those deals have been scraps the NFL is throwing out to test the waters.. in small increments and very limited.

What ESPN has not done is make premium content an a la carte offering outside of your cable subscription. That doesn't mean they haven't been in the streaming game or can't be. ESPN360 is more than 10 years old.

The 'ESPN isn't streaming XYZ league games' is not simply a topic of ESPN not thinking about streaming.

Agreed. I think a lot of problems that I have about the "ESPN is going to die!" proclamations and critiques of them holding back on going over-the-top full or a la carte bore is that many people fail to understand what heights ESPN is coming from. ESPN isn't some type of ancillary business for Disney that is suddenly having expense issues. Instead, up until just a couple of years ago, ESPN was effectively providing more profits to Disney than the entire rest of the company *combined*. Even with reduced subscriber numbers, the projected 2017 subscriber revenue for just the main ESPN channel is $7.57 billion... and that is *before* they even sell a single ad (which happen to be the most expensive ads in the entire industry, as I'll explain in a moment):

http://awfulannouncing.com/espn/espn-757-billion-subscriber-fees-fs1-116-billion.html

To put that monthly revenue figure into perspective, that translates into over $630 million per month in revenue from only the main ESPN network. (It's even higher when you add in ESPN2, ESPNU, ESPNews, SEC Network, etc.) There are only 4 movies in history that have had a higher domestic gross (Star Wars: The Force Awakens, Avatar, Titanic, and Jurassic World) than what the mothership ESPN network pulls in with just subscriber fees every single month just for existing... and once again, that's *before* a single ad is even sold. Essentially, a month of ESPN without any even any ads brings in more revenue to Disney than even an Avengers movie or any of the most successful Pixar or Disney Animation films of all-time.

Then, you need to put on top of that the fact that advertising rates for sports programs are the highest of any type of program by far. That's because sports are one of the few categories (if not the only one left) where viewers actually still watch them LIVE... which means that they actually watch the commercials as opposed to streaming programs on-demand or time-shifting on DVRs. (For all of the references that I've seen on this board about falling sports ratings, those programs have actually held up VERY well compared to every single other type of program on TV. Sports are basically the only reason to watch TV live at this point and ad buyers know it.) On top of that is that ad buyers pay the most for the hardest to reach consumers... and for various reasons (which has been true throughout history), the hardest to reach consumers are actually age 18-49 males. Guess what type of program is great at drawing age 18-49 males consistently better than any other type of program? Sports, of course. All of these factors allow ESPN to charge among the highest ad rates in all of television... and that is once again on top of the insanely high subscriber revenue that they draw in.

THAT is the context that people need to understand before they can start evaluating ESPN's importance to Disney properly. The issue that investors have with cable subscriber reductions is that ESPN is the most valuable cable channel by far (they charge about 5 to 6 times more than the next most expensive channels of TNT and Fox News), so they're losing over $7 in revenue for each person that cuts the cord compared to much lower numbers for other cable networks. It's not that ESPN is losing money. That's far from the truth as ESPN is literally the biggest profit machine in the history of the entire entertainment industry (and still is today). It's that ESPN had been enjoying the equivalent of drug dealer monopoly profits for so long that investors thought that it would last forever, but now ESPN is going to have to deal with "normal" profits going forward. The movie and music industries already went through this 10 to 15 years ago, so now it's TV's turn.

Whether ESPN eventually needs to go over-the-top with its main network (not just with ancillary programming as currently planned) is debatable and would be the subject of an entirely different discussion. However, the revenue picture that I've outlined above is why Disney has no incentive to willingly go to that over-the-top model until there's a complete breaking point. ESPN actually has one of the most built-out streaming and mobile infrastructures of anyone in the industry. They could switch to an a la carte model more easily than probably anyone from a technical standpoint... but that doesn't mean it makes financial sense. The amount of revenue that ESPN still receives from subscribers is still so insanely large (once again, a month of ESPN makes more for Disney than The Avengers did domestically) that Disney is probably better off with a basic cable subscriber model even if today's overall cable subscriber numbers are cut in half. Sports are really the "killer app" when it comes to TV because they're watched live (meaning ad buyers trust that the ads will be seen by their target audience) and they're exclusive (e.g. if I want to watch a particular game that ESPN has the rights to nationally, then I *have* to tune in to ESPN at a specific time, whereas I can switch between CNN, Fox News and MSNBC for news or can stream TV programs on Netflix, Amazon or Hulu instead of watching them live).

 

[ford91exploder]

Only if you truly believe these numbers - the inflation measurement no longer address's the ability to maintain a constant standard of living or a fixed basket of goods. This is the sort of thing the general public expects and understands but is not actually what the CPI actually measures anymore.

The headline U3 number doesn't address those who have quit looking for work because they can't find any job or those who are working part time because they can't find full time employment. The official U6 number is almost twice as high and that still does not include long term discouraged workers who the government simply defined out of existence and stopped counting years ago.

I don't want to argue here but you need to know when the numbers have been "adjusted" and don't measure what you would ordinarily expect them to.

I know the derivation of the numbers and if you use the workforce participation numbers ACTUAL unemployment is probably somewhere in the 15-19% percent range.

On par with Europe without the safety net

I laugh when people tell me how great the economy is these days. Yet CEO's tell us we need additional imported workers when we dont have sufficient jobs for those already here.

 

[ford91exploder]

Well, it certainly changed my vacation behavior.

Apparently, Iger's strategy is to keep the cost of a Disney vacation on par with yearly health insurance deductibles.

Used to be that my yearly deductible was about the cost of a Disney vacation -- $4000. Now it's $11,000.

Contrary to Iger's plan, however, I've decided to bank my vacation money against potential medical costs instead of blow it for 6 days of Disney fun.

Yes because the ACA was a giant hoax create 'insurance' with deductibles so high they equal about 25% of the average americans take home pay.

 

[elhefe4]

I live in Farm country where the 2000 recession NEVER went away its a little less grim now but its still not pretty.

Most people who work for a public company in the US are AFRAID to take vacation because the fear is if company can live without you for two weeks. They can live without you permanently when the numbers need a boost.

Last year was the first year on record when less than half of employees with vacation time took any of it.

I suggest you look at the REAL unemployment number which is the BLS U6 which includes all unemployed and economically underemployed workers this number is currently 9.4%.

As opposed to the Happy Talk number which the Media pushes which is 4.4% this is the U3 statistic Which magicially if you are unemployed after 4 weeks of looking for work you are no longer considered unemployed

Back in the 80's the switch was made to make U3 the official unemployment number because it made the administration look better WRT the REAL U6 number.

U6 is currently 8.6% when adjusted for seasonality. You can't just look at these numbers in a vacuum. Sure, the U6 number is going to be higher than U3, because it includes a broader pool of people. You have to compare apples to apples. If you consider the point before the 2000 recession to be a good time for the economy, it had U6 unemployment of about 7% so I'd say things are going pretty well at this point, especially considering U6 was as high as 17% after this most recent recession.

https://www.bls.gov/news.release/empsit.t15.htm
http://www.macrotrends.net/1377/u6-unemployment-rate

 

[csmat99]

The point being is the lack of streaming is not ESPN being some dinosaur... its not their choice to make. They have to license that separately and the NFL has only been throwing out crumbs at a time.

There proposition for a twitter is very different than another competitor. Every network has the ability to stream. Espn has been on non cable boxes for ages... and has been aggressive in the fantasy+app space as well. They are on virtually every iptv platform.

What someone like a twitter has to gain fromTNF is very different from someone like ESPN. Walking away from something is not always a bad thing. Especially when the NFL is playing micromanager.

Yes, ESPN has the ability to stream (btw it sucks) but you must login to your cable/sat provider first. Comcast is the player ESPN needs to worry about. They already have regional sports channels in almost all the major markets and carry the local broadcast rights to some of the biggest teams in NBA like the warriors and in baseball as well. They also hold leverage when ESPN does finally try and offer streaming directly to customer.

 

[seascape]

Any hotel company will tell you 80% occupancy is w jat they shoot for and when it goes over 85% its time to start planning for expansion. Disney needs more rooms now. Universal is adding another 4,000 to the 6,200 they currently have. They will keep building and wind up with 15,000 on the property they own. They will also according to everyone here build one or two more gates on the land they purchased to go with the 5,000 more hotel rooms. Universal knows the market will continue to grow. Even the vast majority on the site know it. Its a minority who think Universal will grow and WDW will shrink. WDW will continue to grow and prosper. Look at all they are doing now and will be announced soon at Epcot. All 4 gates are being expanded and attendance is growing. 2016 was a bad year but just think, 2017 Pansora, 2018 Toy Story Land, 2019 Star Wars, 2020 The Rat and more in Epcot. 2021 the 50th with something new at MK ans 2022 a new Country and more in Epcot. How many more people will want go vacation at WDW witj all that?

 

[flynnibus]

Yes, ESPN has the ability to stream (btw it sucks) but you must login to your cable/sat provider first.

Because they arent selling a stream only subscription - i already covered that. That's moot anyway when talking about what they are making available today or in the past via streaming.