The big cheese at Walt Disney (DIS 0.92%) is battling many different factions these days. It started more than a year ago when many theme park enthusiasts began criticizing CEO Bob Chapek for raising prices, charging for experiences that used to be complimentary, and employing a park reservations system made to limit the number of guests -- mostly annual pass holders -- visiting Disney World and Disneyland on any given day.
A new battlefront emerged earlier this year when Disney and Chapek were in the crosshairs of right-leaning Floridians coming after "woke" Disney. Now Chapek is coming under fire from shareholders after a poorly received quarterly report last week. Even CNBC's Jim Cramer was telling viewers that the media giant's board should send Cramer packing after Disney's recent financial performance.
The pitchforks are being sharpened and the torches are being lit, but where's the battering ram? Let's size up the war that Chapek is fighting on a growing number of fronts -- and why he may just stick around longer than you think.
Image source: Disney.
It all started with a mouse
Let's start with the first two camps that turned on Chapek before pivoting to last week's Wall Street kerfuffle. Disney pass holders -- and, spoiler alert, I am one of them -- are fanatical about their gated attractions. When Disney World reopened in the summer of 2020, and Disneyland followed in the springtime of 2021 it wasn't business as usual. There were capacity constraints and staffing challenges. With fewer guests going through the turnstiles, costs to operate a year-round theme park spiked in absolute terms and even more so on a relative basis. Things had to change.
Limiting annual pass sales on both coasts and installing a park reservations system designed to keep attendance levels in check and maximize revenue per visitor weren't popular moves, but they were financially necessary. Disney was always going to have to generate a lot more money to keep its theme parks operating on this end of the COVID-19 crisis. If it could find a way to increase revenue per visitor to the point where it could make more with fewer guests, it would help the theme parks thrive without stressing the system.
A lot of regulars may not like the new math, but it's working -- for now. As many as half of the guests visiting a Disney park are paying $15 to $25 for an expedited queue system that was included before the pandemic shutdown. Using park reservations to prioritize higher-paying guests on single-day tickets or resort stays is also turning its gated attractions into a profit center at a time when the company needs it the most.
Last week's report was rough, but not for Disney World and Disneyland. Domestic theme parks saw a 44% increase in revenue with the segment's operating profit nearly tripling over the past year. Revenue per capita is up 40% since 2019.
Shifting briefly to the fracas with politicos, time has cooled the rhetoric between Florida governor Ron DeSantis and one of his state's largest employers. It also helps ease that friction that just about every major media company is also embracing diversity, inclusion, and representation in their content.
This leaves us with Cramer and the Wall Street army that was baffled by last week's financial results out of the House of Mouse. The same Disney+ platform that investors cheered when it launched three years ago is burning through a lot of money as it disrupts its fading legacy cash cows. Feeding its streaming services has come at the expense of bigger wins in theatrical distribution.
An internal memo that made the rounds late last week detailed that layoffs and hiring freezes are on the way. Winter is coming, but Disney's obviously not the only blue chip to pare back in this iffy economic times.
How much of this is Chapek's fault is naturally open for debate. The problem is that all three groups battling Chapek are aiming at different targets. Theme park enthusiasts are upset about the one division that is cranking out record results for its investors. Shareholders are upset at the finances of the one division that's booming in popularity, as Disney+ has gone from zero to 164.2 million global paying subscribers in less than three years.
Making things even more tricky is that this summer, Disney's boardroom extended Chapek's run as CEO through 2025. Cutting the helmsman loose now would be costly and also an admission that it made an expensive mistake back in June. The move would only shift the crosshairs to the boardroom absent a flashy replacement, which makes it more likely that executives will take the same approach to the entertainment stocks bellwether that they did the other two times that Chapek ruffled feathers. They will probably ride it out until a change at the top becomes inevitable.
