Walt Disney Co (DIS) is easily the most impressive entertainment company in the world. Its empire spans so many iconic franchises, brands and characters that the portfolio itself seems as if it was plucked from the world of fiction.
Disney World, Disneyland, Star Wars, Indiana Jones, Disney Cruise Line, ESPN and many other networks and ventures are among its assets.
Then you’ve got rights to all the classic Disney characters, like Mickey and Goofy, in addition to modern Disney classics like Aladdin, The Lion King and Frozen.
Pixar (Toy Story, Finding Nemo, Inside Out) and Marvel (Spider-Man, X-Men, Avengers) also serve as nice fallbacks. You’d think owners of DIS stock would be sitting pretty.
Instead, Disney shares are down 6% in the past year. That’s largely due to growth concerns with its Media Networks division, ESPN specifically. People are increasingly cutting the cord and ditching cable packages with expensive ESPN programming. Naturally, DIS is doing what it can to combat these issues, but it appears part of that strategy is cranking up fees at its parks and resorts … and that has some customers livid.
First Park Tickets, Now Resort Rates?
Back in October, Disney announced price hikes for several of its theme park passes. As Fortune reported:
“Disney has eliminated its $779-a-year, “premium” pass, which offered unlimited access to its Disneyland and California Adventure parks in Anaheim, Calif., and replaced it with two options: an $849 “signature” pass that offers access 350 days a year (peak periods around major holidays are blocked out) and a “signature plus” card with unlimited access for $1,049.”
In a way, DIS stock owners need this, especially if cable subscribers are increasingly dwindling. While Media Networks accounted for 44% of revenue in FY 2015, Parks and Resorts was the next-most important division, hauling in $16.1 billion, or 31% of all Disney revenue.
October’s hike was followed by more major changes to theme park pricing just last month. Tickets will now cost more during times of high demand — about 20% more. One-day tickets at peak times in Disneyland soared from $99 to $119 for adults, and from $105 to $124 at Orlando theme parks.
But DIS isn’t stopping there. It just raised the cost of its resort dining plans about 5% to 6% across the board. Oh, and it’s seriously considering instituting an additional per-night resort fee. That’s right, Disney “sent out a survey to some visitors about potential $15-per-night fees that would cover Disney Magical Express, MagicBands, priority Fast Pass resort planning, Extra Magic Hours, parking and Wi-Fi.”
Needless to say, customers are pushing back with angry emails and the like.
There’s no doubt that DIS has done a cost-benefit analysis on this stuff. It likely has a team of actuaries working around the clock to determine maximum pain points, and how to squeeze out every last dollar of revenue it can so the Disney stock price can rebound to prior highs.
Bottom Line for DIS Stock
So while the consumer in me sympathizes with the occasional (or, for that matter, devoted) Disney patron who’s getting gouged, I don’t actually think the pushback in consumer behavior will be enough to bring down Parks & Resorts revenue.
Can you really imagine 20% fewer people going to Disney theme parks during the peak holiday dates? Me neither.
In fact, while I feel evil saying it, I think the increases will be great for that division. Frankly, these are probably good changes for Disney stock owners.
Wouldn’t you charge more at times when demand is high and no one else can compete with you?
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
