Walt Disney Co (DIS)

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Disney's New Plans Rejected
By: 24/7 Wall St. | August 27, 2022

The results of the experiment known as The Walt Disney Company continue to be rejected by Wall St. Its latest move to recover its once-stellar image among investors is to raise prices at its theme parks. According to The Wall Street Journal, “Walt Disney used to call Disneyland his “magic kingdom.” These days, Walt Disney Co. has a new magic trick: wringing every last dollar out of each visitor to its profitable theme parks.” It is a damning assessment.
Disney has been in the price raising business recently. The price of the Disney+ streaming service without ads will increase $3 on December 8 to $10.99. That is a highly risky 38% jump. Despite success in subscriber growth, Disney management has started to worry that a more competitive streaming market means that adding new subscribers will be a harder climb, particularly when it has to replace those it loses.

To add to Disney’s struggles, highly aggressive hedge fund Third Point has taken a position in the company and pressed for major changes in its strategy. The fund’s primary request is that Disney spin off ESPN. Although it is a modest suggestion, given Disney’s size, it calls into question that vision of CEO Bob Chapek.

The best sign of skepticism about Chapek’s current plan is that Disney shares continue to substantially underperform the market.

One real risk in the Disney plans to raise prices as a means to become more profitable is that these increases are thrown into the teeth of a U.S. economy beset by raging inflation. Recently, Fed Chair Jerome Powell strongly indicated that the Fed will continue to raise rates aggressively to tame inflation. It was viewed as an admission that high inflation will besiege the economy for many quarters. Disney wants to take more dollars from people already struggling with the cost of living.

So far, Disney has not moved to sharply decrease its costs. That is good for its employees. However, the plan to pressure the consumer with higher prices needs to work for Disney to balance its budget.

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