The Magic Kingdom recently announced that they will jack up prices for its leading Disney World theme park. Initially, it’s not the news that Disney (NYSE:DIS) shareholders necessarily want to hear and there’s legitimate concern about how it will affect Disney stock.
The iconic company raises prices for its flagship park every year. The difference this time was the magnitude, which is a whopping 25% from a week before the price hike takes effect. Naturally, this has stakeholders in Disney stock concerned.
This isn’t the only lift in attendance fees. Over the past eight months, Disney has steadily ramped up costs. Taking the new prices into account, the cash outlay to visit Mickey in Orlando has jumped 28% over the past year. Perhaps not surprisingly, DIS stock has been choppy since breaking out near the middle of June.
Of course, theme-park lovers and just casual observers voiced their outrage on social media. Many felt that the company was taking them for a ride (in a negative manner). Add in the “family-friendly” environment, and these price hikes represent poor optics.
But the worse part is the competition. Specifically, what’s bad news for the Disney stock price is great news for rivals Comcast (NASDAQ:CMSCA) and SeaWorld Entertainment (NYSE:SEAS). The former owns the Universal Studios brand of theme parks, while SeaWorld has its own offerings of aquatic-based entertainment.
Moreover, both rivals compete fiercely in Orlando’s theme-park arena. Thus, angry consumers easily have viable options, at least on paper. And let’s not forget that Disney is in a tough spot, having acquired 21st Century Fox’s entertainment assets. They can’t afford to impede any of their revenue streams.
Disney Stock Can Afford the Price Hike
Investors shouldn’t dismiss the importance of Orlando for the longer-term outlook. The Floridian entertainment capital consistently attracts record numbers of tourists. And we’re not just talking about domestic visitors: two years ago, Orlando welcomed more than six million international tourists.
Disney can get away with their Disney World price hike. First, Disney absolutely dominates the theme-park industry. In fact, it’s almost comical the magnitude of superiority. According to a report from USA Today, Disney World ranked as the most popular theme park in the world.
But it gets even better. Out of the top 10 theme parks in the world, Disney properties hold a whopping eight slots. The other two? Universal Studios Japan, ranked in the fifth spot, and Chimelong Ocean Kingdom, which ranks tenth.
Comcast’s flagship Universal Studios Florida Theme Park stands just outside the top ten. SeaWorld doesn’t even crack the top 25. So no, a price hike will not affect DIS appreciably.
Second, it’s true that the Magic Kingdom spent a pretty penny for their high-profile Fox acquisition. Plus, not all their assets are really assets; ESPN comes readily to mind. However, in the entertainment space, you gotta pay to play.
When you consider the incredibly robust synergies available for Disney, management chose wisely. Where else are you going to get experiences related to the Star Wars franchise, or the library of children’s classics? Disney is a fully legal monopoly, and the consumers will find some way to pay for it.
The Bottom Line on Disney Stock
On the surface, the rising cost to attend Disney World seemingly helps the competition. They can use it as a marketing opportunity to perhaps troll Disney. However, the competition is too far behind in terms of popularity to worry shareholders .
More critically, Disney’s rivals must figure out how to respond to the price hike. Disney already has a ravenous fanbase, and because they own lucrative entertainment franchises, they will not suffer significantly from this temporary outrage. Thus, the competition must do more than merely exist.
Do they lower prices to add fuel to the fire? If so, they risk hurting their margins. And let’s face it: neither Comcast nor SeaWorld are necessarily killing it with margins.
On the other hand, they could lift their own admission rates. After all, Comcast and SeaWorld are no slouches in terms of brand recognition and power. Of course, going that route would eliminate the PR victory that Disney provided. But no matter what happens, it appears that Disney stock will get a pass.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
