TWDC Q2 Earnings & Conference Call

[PhotoDave219]

I love my magic bands and my Disney experience. I also love being a stockholder and the great returns I have made I only wish I owned more but I am not rich enough. on the other hand I did buy into the DVC last year and have enough points for 1 long trip and 2 short ones every year. I didn't buy direct from Disney so that didn't help the profits but my going 3 times a year and eating and buying things will. All that is needed is for Disney to keep improving and growing. many here may not care about the money invested into Disney Springs but once that is done and MM+ and related expenses are done there will be much more coming to WDW.
Star Wars is coming and will be a great addition.

Just step back and take an impartial look at what is currently being built at AK and Disney Springs and the road expansions and tell me that you do not expect some more major additions. It would make no sense to spend all that money on the infrastructure and land outside the original borders if they were not going to do more. Finally adding another major park My Disney Experience cost almost nothing.

So you're looking for a quick return on your investment rather than long-term growth and performance. I understand.

We have a different viewpoint. I don't one performance of the week or performance of the quarter. I want 10 or 20 year domination.

Don't get caught up in the minutia thinking that my magic plus is what we are mad about - it's just a symptom of Disney's horrible corporate governance.

 

[alphac2005]

Quoting from the release:

"Higher operating income was due to growth at our domestic parks and resorts driven by increased guest spending at Walt Disney World Resort, higher attendance at Disneyland Resort and increased occupied room nights at both resorts. Higher guest spending was due to higher average ticket prices and food, beverage and merchandise spending. These increases were partially offset by higher costs which were driven by spending on MyMagic+ and labor and other cost inflation, partially offset by lower pension and postretirement medical costs."

Yes, MyMagic+ was an anchor on earnings.

Gross margin for the quarter was 12.8%.

Under Eisner, who usually ran a P&R margin in the 20's, 12.8% would have been a disaster.

Under Iger, it's going to be spun as a great quarter.

Don't forget that we've had two rounds of ticket price increases since last year's Q2, inflating earnings.

Thank you, higher WDW prices!

Coming from the B2B and B2C side of business, you're so right, a 12.8% margin is awful for a specialty business or one that has such unique content/product/etc., that their margins should be sky high. Costco does 16+%. You start getting any lower and you're in the margins business with most big box stores. Terrible. We could go on forever breaking down specific components and their margins within a business such as the Resorts, but simply put, there is no reason that the margins should hover at least in the low 20's considering unless you have an inept team and flawed business plan.

12.8% is now pure evidence of how quickly the theme park problems are coming to the foreground let alone that Disneyland and other interests are masking the WDW debacle(s). I'd love to know what the numbers at WDW are. Why do I feel like all the other theme park properties are creating that low margin that would have otherwise been nary a profit if it was only WDW.

 

[El Grupo]

What lower margins mean is that P&R is considerably less effective at making money than it once was, which has only resulted in this:

View attachment 52914


Ticket prices closely followed Median Household Income during the years when gross margins were the greatest.

P&R has forgotten how to make money without raising prices.

P&R is lead by a group of effective administrators with no vision, whose idea of organic growth is higher ticket, food, beverage, and merchandise prices.

Just a guess, but I suspect most companies followed a similar consumer pricing trend over the last decade.

 

[asianway]

Coming from the B2B and B2C side of business, you're so right, a 12.8% margin is awful for a specialty business or one that has such unique content/product/etc., that their margins should be sky high. Costco does 16+%. You start getting any lower and you're in the margins business with most big box stores. Terrible. We could go on forever breaking down specific components and their margins within a business such as the Resorts, but simply put, there is no reason that the margins should hover at least in the low 20's considering unless you have an inept team and flawed business plan.

12.8% is now pure evidence of how quickly the theme park problems are coming to the foreground let alone that Disneyland and other interests are masking the WDW debacle(s). I'd love to know what the numbers at WDW are. Why do I feel like all the other theme park properties are creating that low margin that would have otherwise been nary a profit if it was only WDW.

P&R cashes huge royalty checks from Tokyo that are pure profit. That props up the number quite a bit

 

[El Grupo]

Quoting from the release:

"Higher operating income was due to growth at our domestic parks and resorts driven by increased guest spending at Walt Disney World Resort, higher attendance at Disneyland Resort and increased occupied room nights at both resorts. Higher guest spending was due to higher average ticket prices and food, beverage and merchandise spending. These increases were partially offset by higher costs which were driven by spending on MyMagic+ and labor and other cost inflation, partially offset by lower pension and postretirement medical costs."

Yes, MyMagic+ was an anchor on earnings.

Gross margin for the quarter was 12.8%.

Under Eisner, who usually ran a P&R margin in the 20's, 12.8% would have been a disaster.

Under Iger, it's going to be spun as a great quarter.

Don't forget that we've had two rounds of ticket price increases since last year's Q2, inflating earnings.

Thank you, higher WDW prices!

The irony about this is that, during the early to mid 90s, I used to work for one of the Disney divisions that consistently had a margin in the 20s, while several others in the company were apparently falling below that benchmark.

How did our division do it? Beancounters often made cutbacks in the overall product and kept raising prices. For this strategy, the Senior Management of the division were rewarded with promotions to the corp. office (one or two eventually answered directly to Eisner).

The trend of product cutbacks, staff reductions, etc. in order to meet Wall Street pleasing goals may have not been as obvious then. But it was well underway.

 

[Chef Mickey]

Yes… That's exactly what is being said.

Wall Street wants a very large return on investment in a very short amount of time. They do not care about what the company's going to be in five years, they care about getting their profits next quarter.

I had this very conversation with a corporate CEO at the grand Floridian. He's one of those CEOs the comes and cleans up a mess After previous management has screwed everything up. He's a big believer in telling Wall Street to go pound sand… Or something similar.

Disney management has direct self interest in the stock price being as high as possible… Because stock is part of the executive compensation.

I don't agree with that, I feel that the management team should be given a flat bonus if they meet stock price goals. Basically, you get a $50,000 bonus instead of several million after cashing in stock options.

Now how did all this happen? Well, back when Roy Disney brought in Michael Eisner and forced out Ron Miller and card Walker (saving the company at the time) Eissner asked for stock options to be part of his compensation and the board signed off on it. It was 1984.

It has grown worse over time as Wall Street demands record profits every quarter and management is more than willing to make that happen because it lines of their pockets as well. Everyone gets rich excepts the animators to make the films… Or the frontline cast to check you into your hotel… or anybody who actually does any real work.

This company needs real corporate governance reform… But it will never happen. Wall Street controls most of the voting stock… So they're going to get what they want when it comes time for shareholders votes, they're going to keep the gravy train coming…

So how does this get fixed? Slowly. First, we need a new CEO that has a vision for the company. The CEO that is not content with the status quo and wants to be the best entertainment company out there. A CEO who is ruthless enough to take on Universal and spend the money to go head-to-head rather than just excepting things the way they are.... Which is losing market share in Central Florida.

Also, more balance on the Board of Directors is desperately needed. We need people who are more in touch with society then they are in touch with their servants at their mansions.

Essentially, we need corporate leadership that is willing to take this company To where it once was and should be. If the company is set up for long-term continual reinvestment, you will be a Wall Street darling because of long-term stability and room for growth in segments they once felt were "mature". If you keep investing and innovating, They will be on your gravy train only this time it will be on your terms and not theirs. That's what Apple did under Steve jobs.

We have to stop letting the tail wag the dog.

Such is my opinion.

Pretty well said. Iger is a salesman and a wallstreet darling, just like Disney stock. However, the numbers do support the stock price. Great growth on the top and bottom lines, improving margins, and a lot of talking points like Frozen and ESPN. Not trading at a crazy multiple when looking at that company PEG.

However, I've still stated before that the park margins ARE terrible and though they've improved, there is a ton of waste. Iger is a margins guy or at least trying to be. He is all about getting more butts in and sucking as much as he can out of each of them. However, it seems his style of management isn't yielding a better product and could harm the long term prospects of parks and resorts. I also don't think they are controlling spending very well because margins are still poor. They aren't being cheap, but they are wasting a ton of money and not investing it back in the parks. As others have stated, Parks and Resorts will be a more gradual decline, so studios and broadcasting get more attention because of their higher margins and better overall profitability.

I haven't really studied margins of competitor theme parks, but I'm willing to bet that WDW in particular has pretty poor margins if you look at just that piece. Even the poor margins reported by Disney Parks and Resorts as a whole are probably propped up by Tokyo Disney and even Disneyland.

I just don't want Disney to get comfortable because the numbers look good from a high level. I don't want them to think because their attendance is the highest and growing that they've accomplished their goal. Sigh. Now I'm depressed.

As a shareholder, I'm happy. As a fan, I'm disappointed because all the numbers get me thinking about how much more the parks could be. Alas, parks and resorts are probably 3rd most important to management, and WDW is probably down that list even more. They are just letting the machine run.

 

[PhotoDave219]

The irony about this is that, during the early to mid 90s, I used to work for one of the Disney divisions that consistently had a margin in the 20s, while several others in the company were apparently falling below that benchmark.

How did our division do it? Beancounters often made cutbacks in the overall product and kept raising prices. For this strategy, the Senior Management of the division were rewarded with promotions to the corp. office (one or two eventually answered directly to Eisner).

The trend of product cutbacks, staff reductions, etc. in order to meet Wall Street pleasing goals may have not been as obvious then. But it was well underway.

Yes. And its an awful strategy.

 

[ParentsOf4]

The irony about this is that, during the early to mid 90s, I used to work for one of the Disney divisions that consistently had a margin in the 20s, while several others in the company were apparently falling below that benchmark.

How did our division do it? Beancounters often made cutbacks in the overall product and kept raising prices. For this strategy, the Senior Management of the division were rewarded with promotions to the corp. office (one or two eventually answered directly to Eisner).

The trend of product cutbacks, staff reductions, etc. in order to meet Wall Street pleasing goals may have not been as obvious then. But it was well underway.

There were plenty of opportunities for profit enhancement in the 1990s.

WDW's Old Guard believed in Walt Disney's philosophy of providing value to the customer. When Eisner and Wells started weeding out the Old Guard (they pretty much were gone by the mid-1990s), there was room to make cuts and increase prices and still provide customers with value.

Those days are gone. Today, Disney management cuts to the bone. Today, Disney's management increases prices far faster than people can afford to pay for them. WDW is beginning to price itself out of its core market.

You mention bean-counters. Let's recall what Walt Disney said:

"Everybody thinks that Disneyland is a goldmine but we have had our problems. You've got to work it and know how to handle it. Even trying to keep that park clean is a tremendous expense. And those sharp-pencil guys tell you, 'Walt, if we cut down on maintenance, we'd save a lot of money.' But I don't believe in that. It's like any other show on the road; it must be kept clean and fresh."

There is no one left at Disney who believes in Walt's philosophy.

Disney's executive management needs to identify ways to drive value back into the parks and hotels in order to enhance revenue. Instead, they've gotten so used to cutting quality and raising prices that they know no other way.

As the Detroit auto industry learned, you can cut quality and increase prices only so far before the paying customer starts to rebel.

P.S. One more thing. Prior to Eisner and Wells, P&R margins consistently were in the high teens, despite the incredible value they provided to their paying customers. Today's margins are lower despite quality cuts and much higher prices.

Walt Disney and his minions looked at theme parks unlike anyone else and were highly profitable in doing so.

Today's Disney management looks at theme parks the way "those sharp-pencil guys" do.

Even back in the 1950s, there were those telling Walt do to what today's Disney management does, but Walt really knew how to run Disneyland much better than "those sharp-pencil guys".

 

[Chef Mickey]

Maybe, maybe not. A lot of MM+ expenses will be depreciated over time. Things like door locks and band readers may be expensed over 5 to 7 years. Other things like wi-fi gear and Ipads over 2 or 3 years.

The ongoing operational expenses will probably drop but I wonder how much. Until they figure out how to not keep sending multiple sets of MBs to returning guests I would imagine they're producing 30,000 to 40,000 of these every week.

Labor also is a big issue the way I see it. Just an anecdote, this past Sunday, mid afternoon, I walked around Future World and did some counting. Between 4 FP+ locations and 1 MM+ Service Center, I counted 62 CMs. Add in entry gate personnel, attendants at FP entrances, back office support, and 3 more parks and the numbers have to be astounding. That's a lot of bodies to assist with a program that doesn't produce any direct revenue on its own. Maybe this was all anticipated, maybe it wasn't.

This labor number will drop for sure, but given that every single day of the year as far as the eye can see, tens of thousands of first timers will enter the parks, FP+ is always going to be labor intense.

Well said. I predict a complete redesign of FP+ due to the issues you've mentioned. I don't know how it will look, but all the support staff and costs of producing the hardware will perhaps not be enough to offset the potential "increased guest spending." It's going to confuse first time guests forever and it will off a lot of repeat guests if they don't tweak it.

I have only used it in beta testing and I can already see the pain in the it will become. I want to be more spur of the moment. I want more than 3 per day. I want them at multiple parks. I want to be able to not worry about booking a ride like a dining reservation or not wanting the time options I'm given.

I think they're going to have to consider opening up a portion of the fast passes for "on site only." Meaning, you can still get a fast pass for an attraction on the day of if you physically show up to the ride, like the old system. It's too disappointing and all or nothing to only allow people to book online.

 

[BigTxEars]

We have 1000s of people paying $100 per head to get into the MK right now to then stand inline for hours and hours to do a simple M&G. This occurs a day after day after day, I would suggest that somebody is doing something right at WDW to draw in guest and drive revenue

I am perfectly happy with the direction the parks are headed. I am looking forward to everything from the new 7D Mine Train to the new DTD as well as Avatarland and expanded offerings at AK at night. I am not even a huge SW fans but I am excited to see what they will do with the license. I think Epcot is going to get some needed love soon as well

Universal is adding on which is great as well. It's a plus for us as we would prefer to vacation at WDW and then do a side trip to Universal as well.

Lots to look forward to being a regular visitor to the Orlando area

 

[bhg469]

I love my magic bands and my Disney experience. I also love being a stockholder and the great returns I have made I only wish I owned more but I am not rich enough. on the other hand I did buy into the DVC last year and have enough points for 1 long trip and 2 short ones every year. I didn't buy direct from Disney so that didn't help the profits but my going 3 times a year and eating and buying things will. All that is needed is for Disney to keep improving and growing. many here may not care about the money invested into Disney Springs but once that is done and MM+ and related expenses are done there will be much more coming to WDW.
Star Wars is coming and will be a great addition.

Just step back and take an impartial look at what is currently being built at AK and Disney Springs and the road expansions and tell me that you do not expect some more major additions. It would make no sense to spend all that money on the infrastructure and land outside the original borders if they were not going to do more. Finally adding another major park My Disney Experience cost almost nothing.

Star wars is on the way? You know this for sure because I do not see any progress for the parks related to Disney and if there is anything, its slated for Disney land. Star wars may be on the way, but I'm not thinking I'll be happy if its not here until 2020

 

[Chef Mickey]

We have 1000s of people paying $100 per head to get into the MK right now to then stand inline for hours and hours to do a simple M&G. This occurs a day after day after day, I would suggest that somebody is doing something right at WDW to draw in guest and drive revenue

I am perfectly happy with the direction the parks are headed. I am looking forward to everything from the new 7D Mine Train to the new DTD as well as Avatarland and expanded offerings at AK at night. I am not even a huge SW fans but I am excited to see what they will do with the license. I think Epcot is going to get some needed love soon as well

Universal is adding on which is great as well. It's a plus for us as we would prefer to vacation at WDW and then do a side trip to Universal as well.

Lots to look forward to being a regular visitor to the Orlando area

I wish I shared your level of enthusiasm, but you are looking at this with rose colored glasses. I still love Disney. Don't get me wrong.

However, parks are not where they need to be...specifically WDW. Did you go to WDW 20 years ago? It can be so much more and it HAS been so much more. That's what hurts the most.

Margins should be improving more with the price increases so it shows poor control in spending by management.

I think WDW can improve and they are going to have to improve if they want to stay on top. They are taking some steps and people here are too hard on them. SDMT is a good start. We'll see if we can get Star Wars and Avatarland going.

I believe the problem bubbling under the surface is the expansion of the parks to avoid unmanageable crowds. We can reduce the experience to torture and fighting just to ride the attractions, eat the food, or watch the fireworks and parades. That will ruin the experience in the long run.

 

[CDavid]

We have 1000s of people paying $100 per head to get into the MK right now to then stand inline for hours and hours to do a simple M&G. This occurs a day after day after day, I would suggest that somebody is doing something right at WDW to draw in guest and drive revenue

What somebody is doing right isn't so much what they they are doing today as it is what they did 20, 30, or even 40 years ago. Those simple Meet & Greets, popular as they are, aren't what drives Magic Kingdom attendance; The park taken as a whole is what continues to "draw in guest and drive revenue", and while the M & G's are part of that, the Magic Kingdom's success is built upon what a very different philosophy from The Walt Disney Company built in the 1970's and 80's. Most of the hallmark Magic Kingdom experiences were created more than two decades ago. It was those attractions and experiences which established the foundation for a park which today commands hundred dollar entrance fees.

It is too easy for current management to rest on its laurels when they know guests' will continue to pay - up to a limit which it seems we may be fast approaching - for past success. Which do you think will still be the more popular and compelling park experience ("attraction") in ten years - a Frozen M&G, or an over fifty year old Haunted Mansion or forty year old Spaceship Earth?

Yes… That's exactly what is being said.

Wall Street wants a very large return on investment in a very short amount of time. They do not care about what the company's going to be in five years, they care about getting their profits next quarter.

I had this very conversation with a corporate CEO at the grand Floridian. He's one of those CEOs the comes and cleans up a mess After previous management has screwed everything up. He's a big believer in telling Wall Street to go pound sand… Or something similar.

Disney management has direct self interest in the stock price being as high as possible… Because stock is part of the executive compensation.

I don't agree with that, I feel that the management team should be given a flat bonus if they meet stock price goals. Basically, you get a $50,000 bonus instead of several million after cashing in stock options.

Now how did all this happen? Well, back when Roy Disney brought in Michael Eisner and forced out Ron Miller and card Walker (saving the company at the time) Eissner asked for stock options to be part of his compensation and the board signed off on it. It was 1984.

It has grown worse over time as Wall Street demands record profits every quarter and management is more than willing to make that happen because it lines of their pockets as well. Everyone gets rich excepts the animators to make the films… Or the frontline cast to check you into your hotel… or anybody who actually does any real work.

This company needs real corporate governance reform… But it will never happen. Wall Street controls most of the voting stock… So they're going to get what they want when it comes time for shareholders votes, they're going to keep the gravy train coming…

So how does this get fixed? Slowly. First, we need a new CEO that has a vision for the company. The CEO that is not content with the status quo and wants to be the best entertainment company out there. A CEO who is ruthless enough to take on Universal and spend the money to go head-to-head rather than just excepting things the way they are.... Which is losing market share in Central Florida.

Also, more balance on the Board of Directors is desperately needed. We need people who are more in touch with society then they are in touch with their servants at their mansions.

Essentially, we need corporate leadership that is willing to take this company To where it once was and should be. If the company is set up for long-term continual reinvestment, you will be a Wall Street darling because of long-term stability and room for growth in segments they once felt were "mature". If you keep investing and innovating, They will be on your gravy train only this time it will be on your terms and not theirs. That's what Apple did under Steve jobs.

We have to stop letting the tail wag the dog.

Such is my opinion.

Quoting just so I can say well said.

 

[PhotoDave219]

What somebody is doing right isn't so much what they they are doing today as it is what they did 20, 30, or even 40 years ago. Those simple Meet & Greets, popular as they are, aren't what drives Magic Kingdom attendance; The park taken as a whole is what continues to "draw in guest and drive revenue", and while the M & G's are part of that, the Magic Kingdom's success is built upon what a very different philosophy from The Walt Disney Company built in the 1970's and 80's. Most of the hallmark Magic Kingdom experiences were created more than two decades ago. It was those attractions and experiences which established the foundation for a park which today commands hundred dollar entrance fees.

It is too easy for current management to rest on its laurels when they know guests' will continue to pay - up to a limit which it seems we may be fast approaching - for past success. Which do you think will still be the more popular and compelling park experience ("attraction") in ten years - a Frozen M&G, or an over fifty year old Haunted Mansion or forty year old Spaceship Earth?



Quoting just so I can say well said.

Innovation and investment are the real keys to sustained, long term Wall Street success.

Complacency is a sure bet to drive your customers away.

 

[BigTxEars]

I wish I shared your level of enthusiasm, but you are looking at this with rose colored glasses. I still love Disney. Don't get me wrong.

However, parks are not where they need to be...specifically WDW. Did you go to WDW 20 years ago? It can be so much more and it HAS been so much more. That's what hurts the most.

Margins should be improving more with the price increases so it shows poor control in spending by management.

I think WDW can improve and they are going to have to improve if they want to stay on top. They are taking some steps and people here are too hard on them. SDMT is a good start. We'll see if we can get Star Wars and Avatarland going.

I believe the problem bubbling under the surface is the expansion of the parks to avoid unmanageable crowds. We can reduce the experience to torture and fighting just to ride the attractions, eat the food, or watch the fireworks and parades. That will ruin the experience in the long run.

I do not consider myself wearing rose color glasses at all. It's about the value we get for our money and how we spend our vacation time, both limited commodities. We have done WDW and a number of other vacations and we keep returning to WDW as we find it to be what we enjoy the most. To the point where we bought into it long term via DVC this year. Although I will sat DCL is a awesome second choice

The crowds at WDW are a fact of life at this point, nothing to be done to keep the folks from coming to WDW from across the world so trying to expand the parks (i.e. Avatar) or move the crowds smarter (i.e. FP+) is the way to go IMO. I wish as much as the next guy for a 5th gate, I hope to have one someday. But it not being there now is not going to keep me from enjoying the parks and all they have to offer right now.

I am not worried about margins, I do that at work. Not going to do it on vacation. The folks at Disney know a thing or two about running the parks and to me they are doing fine. They get paid to worry about margins at WDW, not me Beside they have so much more information than any of us regarding their business model and numbers that it's silly to try and debate it on the internet IMO. I know people like too and that's fine but it is not something I want to do.

I look at WDW at a simple choice, do I like what I get in return for my money or not? If yes then I go, if no then I don't. At this point we certainly do, and we feel like that will continue thus the DVC purchase. If at some point we do not then we will sell the DVC and move on to something else. Vacations are relaxing, not stressful so I have little tolerance for taking vacations that stress me out. One of the reason I like going to WDW is that it can be all inclusive, or at least very much so. Room, tickets and dinning all paid for in advance. With the FP+ and MBs even more so IMO. Just arrive and spend a week kicking around doing what we want to do in a place that makes us smile, a lot....

That is good stuff to us

 

[BigTxEars]

What somebody is doing right isn't so much what they they are doing today as it is what they did 20, 30, or even 40 years ago. Those simple Meet & Greets, popular as they are, aren't what drives Magic Kingdom attendance; The park taken as a whole is what continues to "draw in guest and drive revenue", and while the M & G's are part of that, the Magic Kingdom's success is built upon what a very different philosophy from The Walt Disney Company built in the 1970's and 80's. Most of the hallmark Magic Kingdom experiences were created more than two decades ago. It was those attractions and experiences which established the foundation for a park which today commands hundred dollar entrance fees.

It is too easy for current management to rest on its laurels when they know guests' will continue to pay - up to a limit which it seems we may be fast approaching - for past success. Which do you think will still be the more popular and compelling park experience ("attraction") in ten years - a Frozen M&G, or an over fifty year old Haunted Mansion or forty year old Spaceship Earth?



Quoting just so I can say well said.

I think the fact that 1000s of people are paying $100 for the ability to then stand in line for 3+ hours to get a picture taken is a pretty good indication that WDW is just nailing the first rule of business right now in a big way.

Who knows where WDW will be in 5 years, 10 years or more. None of us do that is certain. But then I am not overly worried about it either. Like I said if it falls off the edge of the cliff as some seem to think then I will move on. I personally do not think so which makes me even less worried. But either way it's not something I stress over. The day I start stressing over WDW is the day I stop enjoying going there and thus won't go there anymore. It's a vacation to us, not life or death.

 

[BigTxEars]

Innovation and investment are the real keys to sustained, long term Wall Street success.

Complacency is a sure bet to drive your customers away.

True.

And I would say MM, MB and FP+ are innovations as no one else is the industry is doing anything like them. And investment is all over the parks. From MK, DTD, AK already getting huge investments and sure looks to me like Epcot and DHS are heading towards some as well

 

[Kman101]

So you enjoy endless streams of people? Who just stand there literally on top of you with little to no care about you? People who literally push you in queues and rush you and you literally can't take a picture of anything? I'm glad someone does. But to me that's not a relaxing vacation. You can't even take a picture of say, the Liberty Square sign because they have kids climbing all over it and people desperate for a place to escape the crowds and sit down.

They have a clear overcrowding problem.

 

[alphac2005]

As the Detroit auto industry learned, you can cut quality and increase prices only so far before the paying customer starts to rebel.

An important takeaway here is in Detroit's downward spiral, they churned out awful small vehicles claiming that there wasn't profit to be made and focused on high profit trucks and SUVs. Then reality hit. Quality mattered and the consumer wasn't going to buy the latest uninspired, virtually thoughtless vehicle. Trends and consumer behavior has radically changed in the past half-decade plus as fuel efficient vehicles (in particular compact and subcompacts) have become huge, something that was only thought to be a European thing. SUVs and truck profits made for (then) easy present business decisions to make huge profits, but those in charge and with any common sense knew that dirt cheap oil was never going to last. The market wasn't going to let it.

Fast forward to today and American car manufacturers have a large variety of quality compact and subcompact vehicles that not only are very popular, but also highly profitable for their respective companies. The stable pillars of The Walt Disney Company consists of ESPN and the theme parks. Nearly all other components are cyclical, except you could argue that the acquisition of Pixar has allowed the studio side to have stable profits even if the live action side has a down quarter or year. We've gone through the many issues of subscriber cost on the ESPN side and with so much M and A activity, we could be down to only four major television providers in the country and there will be downward pressure on the profit side with ESPN. We've seen concrete proof quarter after quarter deep in the financials that the theme park side continues to weaken in the margins.

My company was one of the first that then gambled on online advertising and had a rather hearty advertising budget that rivaled what businesses would spend on television ad spots, day after day, quarter after quarter. When Google announced that they were buying YouTube, the genius crowd on Wall St. widely panned the decision and moaned that Google was overpaying. Those of us that were on the ground floor of the fundamental shift in advertising knew (as if we didn't already) that the financial crowd was mainly comprised of greedy narcissists that in realty didn't really know much about business and the market was merely a high-class version of Vegas for people to make a living. YouTube is the most successful acquisition that Google has ever made and the returns compound quarter after quarter. The takeaway is that it's going to be bad for Disney down the road. They've kept the fat cats happy, but the numbers bare a hard truth that's going to be tough to swallow down the road. They've keep the money crowd quite happy, but they will turn and call for heads to roll. Unfortunately, they don't take the time to see that it's well past time for heads to roll.

 

[jlsHouston]

Yes… That's exactly what is being said.

Wall Street wants a very large return on investment in a very short amount of time. They do not care about what the company's going to be in five years, they care about getting their profits next quarter.

I had this very conversation with a corporate CEO at the grand Floridian. He's one of those CEOs the comes and cleans up a mess After previous management has screwed everything up. He's a big believer in telling Wall Street to go pound sand… Or something similar.

Disney management has direct self interest in the stock price being as high as possible… Because stock is part of the executive compensation.

I don't agree with that, I feel that the management team should be given a flat bonus if they meet stock price goals. Basically, you get a $50,000 bonus instead of several million after cashing in stock options.

Now how did all this happen? Well, back when Roy Disney brought in Michael Eisner and forced out Ron Miller and card Walker (saving the company at the time) Eissner asked for stock options to be part of his compensation and the board signed off on it. It was 1984.

It has grown worse over time as Wall Street demands record profits every quarter and management is more than willing to make that happen because it lines of their pockets as well. Everyone gets rich excepts the animators to make the films… Or the frontline cast to check you into your hotel… or anybody who actually does any real work.

This company needs real corporate governance reform… But it will never happen. Wall Street controls most of the voting stock… So they're going to get what they want when it comes time for shareholders votes, they're going to keep the gravy train coming…

So how does this get fixed? Slowly. First, we need a new CEO that has a vision for the company. The CEO that is not content with the status quo and wants to be the best entertainment company out there. A CEO who is ruthless enough to take on Universal and spend the money to go head-to-head rather than just excepting things the way they are.... Which is losing market share in Central Florida.

Also, more balance on the Board of Directors is desperately needed. We need people who are more in touch with society then they are in touch with their servants at their mansions.

Essentially, we need corporate leadership that is willing to take this company To where it once was and should be. If the company is set up for long-term continual reinvestment, you will be a Wall Street darling because of long-term stability and room for growth in segments they once felt were "mature". If you keep investing and innovating, They will be on your gravy train only this time it will be on your terms and not theirs. That's what Apple did under Steve jobs.

We have to stop letting the tail wag the dog.

Such is my opinion.

I can't believe you wrote this line: " we have to stop letting the tail wag the dog" I say this all the time to drivers. I'm the dog and you're the tail and I tell the tail to wag, not the tail wags me..haha I love it!