Disney plans to spend $60 billion on parks and cruises

Disney theme parks are expected to generate profits estimated at $10 billion this year, compared to $2.2 billion a decade ago. That’s not bad for a 68-year-old company, especially considering the devastation wrought by the pandemic just two years ago.

But how much prosperity is left?

Last month, when Robert Iger, Disney’s chief executive, referred to the theme parks division as a “major growth driver” on an earnings conference call, Wall Street frowned. Disneyland in Anaheim, California, has long been viewed as reaching its limit, with little room for expansion. Walt Disney World near Orlando, Florida, has become a question mark, given that Mr. Iger said the company’s legal battle with Florida Gov. Ron DeSantis could jeopardize $17 billion in planned expansion at the resort over the next decade. Disney’s overseas parks — with the exception of Tokyo Disney Resort, from which it receives royalties but does not own them — sometimes struggle to turn a profit.

Disney on Tuesday provided a clearer picture of the opportunity it sees, which can only be described as enormous: The company revealed in a security filing that it plans to spend nearly $60 billion over the next decade to expand its domestic and international parks and to build the continued construction of the Disney Cruise Line. That’s double what Disney has spent on its parks and cruise lines over the past decade, which itself was a period of dramatically increased investment.

In the past decade, Disney has opened Shanghai Disney Resort, doubled its cruise line capacity, and added rides based on intellectual properties such as “Star Wars,” “Guardians of the Galaxy,” “Tron,” “Spider-Man,” and “Avatar”. ” and “Toy Story” to its local parks. Disney has also poured money into its parks in Paris and Hong Kong, with themed expansions tied to “Frozen” and other Disney films scheduled to open soon. Three more ships are on the way, bringing Disney’s fleet to eight Ships, and Disney is almost finished building a ship New port On one of the Bahamas islands. (Disney already has One private island port.)

If this is what $30 billion could buy, imagine what $60 billion could bring.

“There are much fewer limits to our theme park business than people think,” Mr. Iger said in an email.

“The growth trajectory is very compelling if we do nothing beyond what we have already committed to,” he continued, referring to attractions and ships that have been announced but not yet operational. “By significantly increasing our investments – building big, being ambitious, maintaining high quality and standards and using our most popular intellectual property – they will be strongly strengthened.”

Disney shares fell 3 percent on Tuesday on the news, to about $82. Analysts said some investors were concerned about the company’s ability to generate free cash flow at a time when its television business – traditionally a major source of cash – has been hurt by streaming services.

Disney already has a significant amount of debt, largely due to the pandemic. The company suspended its semi-annual shareholder dividend in 2020 to conserve cash, but is expected to resume paying dividends later this year.

“We are incredibly aware of the financial foundation of the company, the need to continue to grow in terms of the bottom line, the need to invest wisely so that we can maximize returns on invested capital, and the need to maintain balance for the group,” Mr. Iger said Tuesday afternoon in an interview. A variety of reasons.” Blog post.

Disney is expanding investment after a period of trouble in almost all of its divisions. Cable TV, including ESPN, has become a shadow of its former self, the result of cable cuts, poor advertising and rising costs for sports programming. Disney had a disappointing summer at the box office, with films like “Indiana Jones and the Dial of Destiny” and “Haunted Mansion” generating much lower ticket sales than expected. The company’s Disney+ streaming service continues to lose money; Mr. Iger said it would be profitable by the fall of 2024, but some investors are skeptical.

In contrast, Disney’s parks and cruise businesses have been a bright spot, supporting the entire company in many ways. In the fourth quarter, Disney Parks, Experiences and Products generated $2.4 billion in operating income, an 11 percent increase from the previous year. Disney Media and Entertainment Distribution reported operating profit of $1.1 billion, down 18 percent.

Spending per guest at Disney parks has increased 42 percent since 2019, due in part to higher prices for tickets, food, merchandise and hotel rooms.

However, increased investment in theme parks brings increased risks. It’s a company that will always be sensitive to factors beyond Disney’s control: fluctuations in the economy, gas prices, hurricanes, earthquakes, and U.S.-China tensions. Disney has dramatically beefed up security, deploying undercover guards and installing metal detectors, but these crowded resorts — the Disney parks attracted an estimated 121 million visitors last year — could become ghost towns if a violent event occurs.

People who focused on such risks ignored the resiliency of theme park fans, said Josh D’Amaro, president of Disney Parks, Experiences and Products. He noted that customers came back when Disney parks reopened during the pandemic.

“Every time there was a crisis or concern, we were able to recover faster than anyone expected,” he said.

Mr. D’Amaro declined to specify how the company planned to spend the $60 billion. But he gave hints, noting that Disney films like “Coco,” “Zootopia,” “Encanto” and others have not yet been integrated into the company’s complexes in meaningful ways.

“Imagine bringing Wakanda back to life,” he said, referring to the fictional kingdom of Black Panther. “In terms of bringing the latest Disney-Marvel-Pixar intellectual property to the parks, we’re nowhere close to scratching the surface. We’ve learned that integrating Disney IP dramatically increases our return on investment.”

Mr. D’Amaro noted that Disney owns 1,000 undeveloped acres across its existing theme park resorts. (For comparison, he said, that’s the size of seven Disneyland.) He said one of the biggest areas of opportunity includes the original Disneyland, which opened in 1955. If the company can Impress the city of Anaheim To change the plan approved in the 1990s, which determined where hotels, parking lots and attractions could be built, Disney intends to redevelop the lands adjacent to Disneyland, significantly expanding its capacity. Disney also plans to transform the parking area south of the park into a themed shopping, dining, and hotel area.

Disney released 17,000 pages Environmental impact study for the project last week. The Anaheim City Council is expected to vote on the changes in mid- to late 2024.

The size of Disney’s investment in Florida may depend on the courts, as the company fights Mr. DeSantis and his allies for control of Disney World’s growth plan. Angered by Disney’s criticism of Florida’s education law, Mr. DeSantis last April ended the company’s ability to run its 25,000-acre resort as if it were a district. However, Disney maintains that previous contracts maintain its ability to control development.

“We want to continue to grow and invest and have ambitious plans in Florida,” Mr. D’Amaro said. “For the benefit of our guests, our team members and the Central Florida economy, we hope the conditions are in place for us to do so.” He declined to give further details.

At this time, Disney has no plans to build parks in new countries or cities. (In the past, the company has looked to build a theme park in India, for example, and expand beyond Hong Kong and Shanghai in China.) Instead, the company will focus on developing new ports for its ships.

Starting in 2025, a new cruise ship — the largest in the Disney fleet to date, seating more than 6,000 guests — will be built. Based in Singapore. Disney’s ships have become increasingly sophisticated, incorporating characters and artwork from franchises like “Frozen,” “Star Wars” and Marvel’s Avengers into the restaurants and entertainment areas.

“It’s like bringing a theme park to a new part of the world,” D’Amaro said of Disney Cruise Line, which was recently at 98 percent capacity.