Disney reports largest quarterly earnings in its history

[ParentsOf4]

Disney doesn't seem to be having problems selling the points even with the direct sale price going up. They don't make any money from the resale market so that probably doesn't concern them too much. The major dropoff in resale seemed to start around 2008 when the economy tanked too so that is a contributing factor. I agree that the over build will continue to drive resales down which is not great for current owners. This is especially the case for less desirable locations like OKW considering the newest units with the longest contracts are at BLT, GF and most like Poly next. These are the flagship resorts on the MK monorail so they have a natural appeal.

WDW is potentially facing at least 2 concerns with the DVC resale market:

• As the gap between direct and resale prices continues to grow, this will (and I think already has) adversely impact direct sales. DVCs are big money makers for WDW. It's one of the reasons why WDW used to exercise ROFR so much more frequently prior to 2009 and why WDW has built so many of them. The fact that they aren't exercising ROFR nearly so much anymore suggests they are sitting on excess inventory at many locations. I still think the DVCs at GF will be a huge success but I'm not sure where they go after that. How do they "raise their game" once they've built a DVC next to their flagship resort? The only thing I can think of is to build a DVC right next to a theme park with its own special entrance, like the Grand Californian. Unless they do something like that, it's possible that the DVC well will run dry after GF.
• Excess inventory represents lower park attendance, meaning less revenue from ticket, food, and merchandise sales. It's in WDW's best interest to keep the DVCs 100% occupied by a clientele with deep pockets. From Disney's financial perspective, the person who pays $30,000 for a direct sale DVC is very different than the person who pays $10,000 for a resale. The person who pays $30,000 to purchase from Disney is more likely to want a top-of-the-line experience and is more likely to spend more money at the parks. The person who pays $10,000 on the resale market is more value-conscious and is looking to spend their money more carefully. As is true with most industries, more money can be made with less effort from the free-spending consumer than the value-conscious consumer.

IMHO, profits coming out of WDW in the last 10 years or so have been propped up by increased prices, cuts in services, and DVCs. These only work for so long. Eventually, people grow tired of paying more for less. WDW management needs to figure out another way to generate increased revenue.

 

[GoofGoof]

What Disney managament overseeing WDW (whether you believe it's Burbank or TDO) has failed to do is figure out how to create the excitement of WWOHP or Carsland. These people are being paid insanely large sums of money to keep WDW the undisputed industry leader. In the last decade or so, they've failed miserably to do that.

I like to compare our passion for WDW to sports fans so I'll use an American football analogy. What Disney management at WDW has done is recruit some good linesmen and perhaps a defensive back or two. I don't think they've landed a top-rate wide receiver. They certainly haven't landed a big-name running back or QB in the last decade. They had the QB (Harry Potter) but lost it due to their own ineptness. Meanwhile, they are now charging $7 for a hot dog and $9 for a beer, while letting the stands slowly rot and the bathroom facilities degrade.

Disney management is being paid top-dollar to put together a winning team. They are also charging the consumer top-dollar as if they had the winning team. As fans of WDW, we have the right to expect a top-rated team for the money we are being asked to pay.

IMHO, WDW is still "better" than the competition. But the competition is gaining while WDW is slipping. This happens a lot in industry. The leader gets lazy while the competition gets hungry. The leader has to continue to put together a successful business strategy to maintain its position. So far, WDW leadership has mostly given us water downed attraction upgrades, increased prices, and reduced offerings. I want Disney management to stop taking WDW (and us fans) for granted, to stop coasting on past success, and to turn WDW into the once-again undisputed leader in vacation destinations.

Fundamentally, I think everyone who has enough passion to post on these discussion boards wants WDW to be "better". How could you not want WDW to be better? Even the most ardent supporter of the current WDW still has things they would like to see changed. The big argument that seem to occur repeatedly on these threads is whether WDW as it exists today is "good enough". Having seen WDW during its perceived golden age, I know WDW can be "better" so I'm not willing to settle for the current state of WDW.

I couldn't agree with you more about wanting more and wanting it to be better. Even the biggest fans of the current state of the parks still want more. I think that I am just more optimistic that we are heading in that direction than most. Call it blind faith or snorting pixie dust, but thats my opinion. I like the new additions and refurbs and I think FLE and Avatar will be big upgrades. I am also optimistic more will come (DHS upgrade). As the economy starts to get better (hopefully) WDW is in perfect position to start another building cycle. Historically they went through periods of expansion followed by lulls. I am not expecting a 5th gate or really anything on the scale of Potterland or Carsland, but solid additions to the already great parks. Again, I think that what Uni and DCA have done were necessary for them to survive and compete and now they set the bar higher so WDW has to respond to stay on top.

To borrow your sports analogy Disney already had Tom Brady at QB (MK). They could have traded up and drafted Andrew Luck (Harry Potter Land) but they chose to use those picks to focus on rebuilding their secondary (DCA), linebackers (DVC) and defensive line (Disney cruise line). With the defense shored up they should now focus on bringing in some complimentary players to add to the already top rated offense (FLE and Avatar Land). Unless you are the Yankees you cant just spend money on every position every year so you have to pick and choose what gets top priority. My point is that Disney didnt need Potter as much as Uni did and WDW didnt need Carsland as much as DL did so they focused their resources elswhere. Even with the huge attendance growth at Uni due to Potter, WDW is still the leader. Maybe some day in the future they wont be, but UNi is not really close to knocking them off that top spot.

 

[mark12112]

Hopefully a good portion of these record profits will make their way to WDW.

http://www.orlandosentinel.com/the-...hird-quarter-earnings-20120807,0,745102.story

 

[GoofGoof]

WDW is potentially facing at least 2 concerns with the DVC resale market:

• As the gap between direct and resale prices continues to grow, this will (and I think already has) adversely impact direct sales. DVCs are big money makers for WDW. It's one of the reasons why WDW used to exercise ROFR so much more frequently prior to 2009 and why WDW has built so many of them. The fact that they aren't exercising ROFR nearly so much anymore suggests they are sitting on excess inventory at many locations. I still think the DVCs at GF will be a huge success but I'm not sure where they go after that. How do they "raise their game" once they've built a DVC next to their flagship resort? The only thing I can think of is to build a DVC right next to a theme park with its own special entrance, like the Grand Californian. Unless they do something like that, it's possible that the DVC well will run dry after GF.
• Excess inventory represents lower park attendance, meaning less revenue from ticket, food, and merchandise sales. It's in WDW's best interest to keep the DVCs 100% occupied by a clientele with deep pockets. From Disney's financial perspective, the person who pays $30,000 for a direct sale DVC is very different than the person who pays $10,000 for a resale. The person who pays $30,000 to purchase from Disney is more likely to want a top-of-the-line experience and is more likely to spend more money at the parks. The person who pays $10,000 on the resale market is more value-conscious and is looking to spend their money more carefully. As is true with most industries, more money can be made with less effort from the free-spending consumer than the value-conscious consumer.

IMHO, profits coming out of WDW in the last 10 years or so have been propped up by increased prices, cuts in services, and DVCs. These only work for so long. Eventually, people grow tired of paying more for less. WDW management needs to figure out another way to generate increased revenue.

Agreed that they have nowhere left to turn except maybe a small wing at Poly. It is their most popular hotel so it would draw great interest. After that the road is less clear but they are still selling SSR so who knows. Possible additions outside WDW but those have been much less successful than the WDW properties. I still think that even people buying in from the resale market are the kind of people they are looking to attract. Steady cash flow and ticket and meal sales.

 

[ParentsOf4]

To borrow your sports analogy Disney already had Tom Brady at QB (MK).

I knew you were going to suggest this.

The reason why the sports analogy doesn't fully work is that WDW needs to stay "fresh" in order to compete in the marketplace, just like any consumer product. They can't survive for long if they continue to sell last year's model. WDW doesn't have Tom Brady; they have Joe Namath at QB.

 

[GoofGoof]

I knew you were going to suggest this.

The reason why the sports analogy doesn't fully work is that WDW needs to stay "fresh" in order to compete in the marketplace, just like any consumer product. They can't survive for long if they continue to sell last year's model. WDW doesn't have Tom Brady; they have Joe Namath at QB.

Not Namath!!! The last time I saw broadway Joe he was drunk hitting on Suzy Kolber on MNF We are not that bad off yet. At least give me Peyton Manning.

 

[WDW1974]

The FLE begins the great WDW revival. A moderate step but a necessary one. Test Track and comprehensive refurbs have been announced. Extra personnel are being brought in. Resources are available that were not previously. I contend this was management's intent all along. They know they have to respond and they will. It has always been that way at WDW.

Except it isn't and it hasn't ...

 

[Pumbas Nakasak]

Forget it, re read the link. But the theme parks are making more because they are charging more. Thats a shocker.

 

[Bolna]

WDW is potentially facing at least 2 concerns with the DVC resale market:

• As the gap between direct and resale prices continues to grow, this will (and I think already has) adversely impact direct sales. DVCs are big money makers for WDW. It's one of the reasons why WDW used to exercise ROFR so much more frequently prior to 2009 and why WDW has built so many of them. The fact that they aren't exercising ROFR nearly so much anymore suggests they are sitting on excess inventory at many locations. I still think the DVCs at GF will be a huge success but I'm not sure where they go after that. How do they "raise their game" once they've built a DVC next to their flagship resort? The only thing I can think of is to build a DVC right next to a theme park with its own special entrance, like the Grand Californian. Unless they do something like that, it's possible that the DVC well will run dry after GF.
• Excess inventory represents lower park attendance, meaning less revenue from ticket, food, and merchandise sales. It's in WDW's best interest to keep the DVCs 100% occupied by a clientele with deep pockets. From Disney's financial perspective, the person who pays $30,000 for a direct sale DVC is very different than the person who pays $10,000 for a resale. The person who pays $30,000 to purchase from Disney is more likely to want a top-of-the-line experience and is more likely to spend more money at the parks. The person who pays $10,000 on the resale market is more value-conscious and is looking to spend their money more carefully. As is true with most industries, more money can be made with less effort from the free-spending consumer than the value-conscious consumer.

IMHO, profits coming out of WDW in the last 10 years or so have been propped up by increased prices, cuts in services, and DVCs. These only work for so long. Eventually, people grow tired of paying more for less. WDW management needs to figure out another way to generate increased revenue.

Great analysis! I would however add a third concern about DVC: It is a danger for normal resort occupancy. First of all anyone buying into DVC won't book a normal resort room anymore. So DVC takes away future business from the other resorts. And with the increased inventory renting DVC points has become much easier than in the past - there are now companies specialising on bringing DVC owners and renters together. So not only do they need to find new buyers, they also need to find new people to stay in those resort rooms that now aren't going to be booked by the new DVC owners and those who figured out how great it is to rent DVC points.

I think the true problem is that TWDC's Parks & Resorts division unfortunately is in a way "addicted" to DVC by now. They can't stop it anymore because if they would stop building them, they would lose a large part of their usual revenue - which they would have to make up somewhere else if they don't want to shock Wall Street.

In a way I think the GF DVC might be their way of trying to get out of the problem as there has been talk that the DVC points there will be sold at a considerable premium (just as BLT was always higher priced than SSR or AKV). And my guess would be that you would need more points to stay at a GF accommodation than any other DVC property (which means an additional - hidden - price increase as you need to buy more points). But just as you said, where do they go afterwards to repeat the same strategy?

 

[Bolna]

All this talk about how to interpret this earnings report and the discussion about what effect the new ships really had made me wonder whether it would be worth it to do a detailed comparison between the situation now and what effect the first cruise ships had to the company when they first started. The older annual report I found on the Disney website is from 1999 - but that is just the year when the Wonder had her debut, so I guess it is a good year to compare. After reading parts of it (including Michael Eisner's letter to the shareholders which was quite fascinating and the long list of things that opened in that year at WDW!) I found this bit about the comparison of 1998 and 1999 with regard to parks & resorts quite interesting and thought I put it in the thread for everyone to see:

THEME PARKS AND RESORTS
1999 vs. 1998
Revenues increased 10%, or $574 million to $6.1 billion, driven by growth at the Walt Disney World Resort, reflecting $153 million from increased guest spending and record attendance, as well as increases of $202 million from Disney Cruise Line, $101 million from Anaheim Sports, Inc. and $36 million of increased guest spending at Disneyland. Increased revenues at Disney Cruise Line reflected a full period of operations of the company’s first ship, the Disney Magic, which launched in the fourth quarter of the prior year, and a partial period of operations of the company’s second ship, the Disney Wonder, which launched in the fourth quarter of the current year. The increase at Anaheim Sports, Inc. reflects consolidation of the operations of the Anaheim Angels, following the company’s second quarter purchase of the 75% of the Angels that it did not previously own.

Operating income increased 12%, or $158 million to $1.4 billion, resulting primarily from revenue growth at the Walt Disney World Resort and a full period of operations at Disney Cruise Line, compared to pre-opening costs for the majority of the prior year. Costs and expenses, which consist principally of labor, costs of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment and marketing and sales expenses, increased $416 million or 10%. Increased operating costs were driven by higher theme park attendance, a full year of operations of Disney’s Animal Kingdom and Disney Cruise Line, and increased ownership in the Anaheim Angels.

The one thing I found interesting that with regard to the increased income there is a reference that with regard to DCL, there is not only the added income of the Wonder, but also an absence of the pre-opening costs. I think this is something which has to be taken into account with regard to the current Park & Resorts bottom line as well.

If anyone is interested to have a look at the annual report, it can be found here.

 

[Computer Magic]

But, I adamantly insist that they should not boost profits by cutting quality or raising prices without adding benefit. For the bulk do Disney's history, they made quite a profit by giving more, not by cutting more.

Totally agree. Having a MBA myself, there are better ways to make a profit w/o cutting more. Sure the short term stock price looks good but what happens when there's nothing left to cut? Building a better product and reinvesting into their product will ensure long term profitablity. Iger is looking short term as his tenure which will end in a few years. What's the saying, "If you build it, they will come". Dumping down on Disney to make the books look good will place them at a disadvantage long term.

Those looking at the stock short term gains better cash out while it looks good. Disney is only profitable due to entities Disney bought such as Pixar and Marvel. They sure didn't do it with their own John Carter movie.

 

[GoofGoof]

Totally agree. Having a MBA myself, there are better ways to make a profit w/o cutting more. Sure the short term stock price looks good but what happens when there's nothing left to cut? Building a better product and reinvesting into their product will ensure long term profitablity. Iger is looking short term as his tenure which will end in a few years. What's the saying, "If you build it, they will come". Dumping down on Disney to make the books look good will place them at a disadvantage long term.

Those looking at the stock short term gains better cash out while it looks good. Disney is only profitable due to entities Disney bought such as Pixar and Marvel. They sure didn't do it with their own John Carter movie.

You bring up an interesting point about where the Walt Disney Company really makes their money. Without the acquisitions of ABC/ESPN, Pixar and now Marvel the company would not be doing nearly as well as it is. Most likely they would have been bought by someone else (Comcast?). We often here "what would Walt have done" or "what would Walt think of the current state of things". But would Walt have made the moves to bring on these new lines of business? We will never know. At the end of the day it was Eisner and his lackey Iger who made these things happen.

 

[Computer Magic]

You bring up an interesting point about where the Walt Disney Company really makes their money. Without the acquisitions of ABC/ESPN, Pixar and now Marvel the company would not be doing nearly as well as it is. Most likely they would have been bought by someone else (Comcast?). We often here "what would Walt have done" or "what would Walt think of the current state of things". But would Walt have made the moves to bring on these new lines of business? We will never know. At the end of the day it was Eisner and his lackey Iger who made these things happen.

I think Walt and Roy would have taken a different path. I don't think they would have aquired ABC/ESPN or that hockey team... I also don't think Pixar would have ever existed as Walt and Roy would have been years ahead of the technology. I also think Walt and Roy might have lost the company because Walt was a risk taker. That could have cost them. Just my opinion. I'm no nostradamus.

 

[prberk]

I remember reading people making jabs at Disney saying the cruise line would "sink the company" and things like that.

But I also remember this one article in Entertainment Weekly around 1996 or early 1997 that talked about how Titanic was going to be a huge flop that would bankrupt everyone involved and ruin the careers of James Cameron and Leonardo and everyone. I'll never forget that article and what utter horse manure it turned out to be.

One of my favorite things in the world is watching malcontents and naysayers have to eat their words when something they have dumped on turns out to be a huge, phenomenal success.

I remember that EW article. I still have it, and keep it right alongside the one later showing their success.

I also remember that Walt mortgaged his own house to get Snow White made (because the bankers would not finance it)... and that Walt had to make a TV deal in the 1950s to get his park financing (because the bankers would not finance it).

So, there are clearly times when the dream, executed well, is beyond the vision of the financiers (and MBAs) but yet is spot on. As Walt and his company demonstrated, it is possible for dreamers to understand salesmanship, too; and a whole lot more likely than the other way around.

 

[Computer Magic]

I remember that EW article. I still have it, and keep it right alongside the one later showing their success.

I also remember that Walt mortgaged his own house to get Snow White made (because the bankers would not finance it)... and that Walt had to make a TV deal in the 1950s to get his park financing (because the bankers would not finance it).

So, there are clearly times when the dream, executed well, is beyond the vision of the financiers (and MBAs) but yet is spot on. As Walt and his company demonstrated, it is possible for dreamers to understand salesmanship, too; and a whole lot more likely than the other way around.

I've often wonder at what point did the people named "Disney" not own 51% of the company. Where others outside the name became the controlling interest? Remember how Steve Job lost Apple.

 

[heatherkatheleen]

Hopefully a good portion of these record profits will make their way to WDW.

http://www.orlandosentinel.com/the-...hird-quarter-earnings-20120807,0,745102.story

Might I suggest they put a small fortune aside for a Splash Mountain refurb?

 

[Bob]

Might I suggest they put a small fortune aside for a Splash Mountain refurb?

Good call!

 

[tomman710]

I think they have too many MBAs in the C-suite.

I think another problem may be the current Board of Directors...too many of them don't see big picture and just look at day to day stock prices. I think their influence then infects the rest of the Disney management.

My advice would be to do a round of executive level firings and get rid of most of the Ivy League MBAs they have on staff. For the last few decades, the same schools have been churning out MBA graduates who get into group-think because they were taught by the same professors who really don't know what they are doing. Get some new blood in there from different schools and promote to the C-suite people from more creative disciplines so that those in the "let's reduce costs as much as possible today" school of thought are mitigated by more "big picture" types.

The whole company was started by people who barely went to college and who were artists at heart. A little more of them and fewer Harvard MBAs would do Disney a world of good.

There are a few of us (maybe more and I'm sure I am not the only one on here) with MBA's that would actually care about the product and have executive level experience ... however ...

as I was once told by an executive recruiter, "if you haven't worked for Coke or Pepsi, we aren't interested."

 

[GoofGoof]

There are a few of us (maybe more and I'm sure I am not the only one on here) with MBA's that would actually care about the product and have executive level experience ... however ...

as I was once told by an executive recruiter, "if you haven't worked for Coke or Pepsi, we aren't interested."

At least 2 of us...

 

[WildcatDen]

Is it an odd coincidence that I have never seen JT and Spirit in the same place at the same time? You don't think. . . naw, couldn't be. . . hmmm

Everytime they get "into it", I picture that scene in Lord of the Rings where Smeagol and Gollum are having that 'Inner" struggle. And I do not mean the inner struggle from consuming a sack of White Castles. . .