My family is what you might call a Disney (DIS +0.15%) family, but lately, we've been questioning our commitment to the House of Mouse. While the company has been getting attention lately for its recent Disney+ day event, investors should be paying attention to the negative chatter among the company's biggest fans. Here's why the good news at the moment could be bad news for the future.
Disney customers are seeing price hikes galore
Disney is a public company, which means it has an obligation to maximize profits for its shareholders. As a lifelong investor, that makes complete sense to me. However, the best way to do that usually includes taking care of other stakeholders, like employees and customers. Right now, Disney is leaning hard on its customers by raising prices.
Image source: Getty Images.
The most recent hikes are at the company's streaming operations, where Disney is increasing prices across the board. It is introducing a paid ad-supported version of Disney for $7.99 a month and increasing the ad-free service's price by nearly 38%. The Hulu service with ads will see a 14% price increase, and the ad-free service price will jump 18%. ESPN's streaming service will see an increase of 43%.
Disney has also shifted toward what amounts to congestion pricing at its parks. Listed base prices may be roughly the same in Florida's Disney World, but prices can rise dramatically on days that are historically high in traffic. That said, the company has also been increasing base prices at select parks (Disneyland, for example) and hiking what it charges for food and souvenirs.
To be fair, all of these price increases are likely to be great news for profitability, especially since the company really isn't offering much additional value. And yet, having spent years enjoying all that Disney has to offer, I believe investors should be worried.
Just because Disney can, should it be raising prices so much?
The big question I have is simple: Why? In a recent media interview, Disney CEO Bob Chapek explained that "We read demand." And that, "If consumer demand keeps up we'll act accordingly." The translation here is that the company plans to hike prices because it believes it can get away with it. That's about the most un-Disney thing I've ever heard.
NYSE: DIS
Key Data Points
Disney's first park in California, for example, was opened with founder Walt Disney saying, "To all who come to this happy place: welcome. Disneyland is your land." The price of going was set so that young families could bring their children, which were the baby boom generation. It was meant to be available to all.
However, as prices go ever higher simply because some are still willing and able to pay ever more, Disney is effectively closing its parks to those who lack the financial resources to pay hundreds, if not thousands, of dollars on a vacation. And that's just for the park ticket, since even at the base price a family of four would have to pay over $400 for a single day's visit. There are also hotels, food, and Disney merchandise that add to the bill.
Disney lovers have noticed, and gripe about it openly on Disney-themed blogs, in videos, and on messaging apps. I know because I've read and watched them. And I agree. In fact, it's fairly common to see parkgoers with shirts that "joke" about how expensive it is to visit a Disney park. One of the biggest contentions of late is the Disney Genie app, which charges a per-person fee for a ride scheduling service that basically used to be free (FastPass) and now requires extra payment to skip lines at top attractions.
Upsetting, perhaps even alienating, your most loyal fans is usually a bad idea.
This pricing issue is something to watch
I'll freely admit that Disney's audience extends well beyond the most loyal, so it will probably be able to increase prices without any impact -- at least for a little while. There will come a point, however, when it pushes too hard for profits, and the anger building among the diehards is potentially the canary in the coal mine on that front. Few would complain about reasonable price increases, but right now it seems like Disney is making a money grab simply because it can get away with it. For a company that caters to families and family values, that seems like a misguided short-term approach that could lead to a negative long-term outcome. Even if you have a more positive outlook than I do, this is an issue that you should keep in the back of your mind as you examine the company's quarterly updates over the next few years.
