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Disney’s fight with DeSantis masks a bigger problem: Its business is struggling

May,20,2023 << Return list

      Disney’s battle with Florida’s Republican governor and soon-to-be presidential contender, Ron DeSantis, is playing out like a reality TV show. And while Disney’s tactical maneuvering — most recently, abandoning a $1 billion office project near Orlando — has dominated headlines, that partly overshadows a less-cinematic reality: Disney’s business is struggling.

The company’s latest salvo in the back-and-forth with DeSantis came Thursday, when it pulled the plug on its Lake Nona office complex. The project would have transferred some 2,000 high-paying jobs from California to Florida. Now, the mass relocation is off, and Disney said it would even help the 200 or so employees who’d already made the move come back to California if they want to.

There are a couple ways to read that news. For Team Disney, the move is just the latest in which the company is relentlessly dunking on a relatively inexperienced politician who picked a fight with the wrong conglomerate. If you’re on Team DeSantis, shutting down Lake Nona reflects the desperation of a company whose stock is tanking and whose core businesses face serious headwinds.

There’s a bit of truth on both sides.

A spokesperson for DeSantis said Thursday it was “unsurprising” that Disney would cancel the project “given the company’s financial straits, falling market cap and declining stock price.”

He’s not wrong. But Disney’s financial problems have much more to do with its money-guzzling streaming business and its rapidly dwindling profit from traditional cable TV.

Its streaming business (Disney+, Hulu and ESPN+) remains unprofitable, and operating income from its cable and broadcast networks fell 35% on lower ad revenue in the first quarter of this year.

Disney’s traditional safety net, the reliably profitable parks division, is still a bright spot from a financial perspective. But fans are deeply unhappy with recent pricing and logistics changes, saying they feel and nickel-and-dimed. Disney recently lowered park prices in response to customer outrage, but that didn’t exactly help its profit crunch problem.

“You need a PhD to plan Disney World vacation anymore — they’ve made it so, so complicated,” said Pete Werner, who runs the travel agency Dreams Unlimited Travel as well as  WDWInfo.com, one of Disney’s oldest fan sites. “The parks and resorts have always been good for them,” he said. “That can change, and that will change if they don’t change direction of the parks soon.” 

Investors seem to share those concerns. Disney’s stock is down more than 5% this year, while the S&P 500 is up 2%. Rivals such as Comcast (up 16%) and CNN parent company Warner Bros. Discovery (up 28%) have rocketed higher.

The news of the Lake Nona cancellation came the same day Disney announced it would shut down its Star Wars hotel, known as the Galactic Starcruiser, which is barely a year old. Fans had immediately balked at the price for the resort, where guests paid around $4,800 to $6,000 per cabin for an immersive two-night experience. That price point proved to be a tough sell, Werner said, and Disney began offering discounts in January.

With the parks in particular, he said, Disney is “almost surgical” with cuts.

Given the parks’ importance to Disney’s bottom line, it wasn’t about to let one of its cost-intensive resorts limp along at a loss.

Disney’s CEO Bob Iger, back for his second stint at the helm, has his work cut out for him. He may be winning the PR battle at the moment with DeSantis. But the real work — solving Disney’s existential threats — will take more than a crack team of high-paid lawyers and communications professionals to solve.

Source:CNN