Disney CEO Is Taking Business Disruption Seriously

“Once upon a time” might be a popular way to kick off fairy tales, but looking to the past is no way to run a multi-billion-dollar business.

Bob Iger, chairman and CEO of The Walt Disney Co. told an audience last week that the entertainment giant has been taking new steps to address the forces disrupting various parts of its operations.

“I think the most important thing one has to do when they’re contending with change is to admit that it’s occurring and to assess very carefully what the impact of the change is on all the businesses,” Iger said during the Bank of America Merrill Lynch 2017 Media, Communications & Entertainment Conference.

Iger said that at a board retreat in June, Disney decided to have each unit present to the board of directors how their business were being disrupted and how they were dealing with that.

“It was great for the business unit heads because it got a further commitment to recognizing the change, embracing the change and doing something about it,” he said. “What emerged from that meeting, which didn’t surprise us, is that if you look at change and disruption across all of the Disney businesses — from parks and resorts to motion picture business, to theme parks, to media — the most dramatic change or the biggest impact from disruption is being felt by the media networks.”

This year’s financial results will reflect some upheaval. Iger said during the conference that earnings per share for fiscal 2017 — which ends in a couple of weeks — will be roughly in line with results from the previous year. That’s due in large part to costs at ESPN and the lack of a big Star Wars movie this year.

Even though the theme parks and resorts division had a “tremendous” year, it is ending with some turbulence. Hurricane Irma, which hit the Florida Keys Sunday morning and worked its way north, forced the company to close its four Orlando-area theme parks Sunday and Monday. Other operators in Central Florida — including Universal Orlando Resort, SeaWorld Orlando, Busch Gardens, and Legoland — also shut down.

Iger said late last week, days before the storm reached Florida, that Disney had already seen some impact in the form of cancellations in Orlando and cruises that had to be called off or shortened.

Shanghai Disney Will Help Financials

But 2018 should be better, Iger said, attributing some of that anticipated improvement to having another year with Shanghai Disney Resort up and running.

The resort, which opened in June of 2016, has been “nicely profitable” in its first year — which Iger called “a big deal.” More than 13 million people have visited so far, and an expansion to add a Toy Story land in the spring is already underway. There is more land available for additional expansion.

“We’ve been talking with our partners in Shanghai about that expansion, what it will be and when it will come, but it’s enormous opportunity for the company on top of what has already been an enormous success,” Iger said.

The Disney brand has experienced a halo effect in China, he said, which creates additional opportunities for other parts of the business — and for more parks.

“Ultimately, it opens up more possibilities in terms of other theme parks on the mainland, but we’re way early for that,” Iger said.

More Lands

Disney is already considering more versions of its latest addition, Pandora — The World of Avatar, which opened in May at Animal Kingdom. Iger said the new land has been a big success that has transformed the park. One new ride, Avatar Flight of Passage, is now the highest-rated attraction at Walt Disney World, he said.

“So it’s been a great investment for us, and we have rights to build other Pandora lands at other parks,” Iger said. “So we think that given the success that we’ve seen and the fact that Jim Cameron will eventually get a movie out, there’s some other opportunities there.”

Much of the investment recently at Disney parks has been centered around brands that Disney acquired in recent years including Pixar, Marvel, and Star Wars.

A Toy Story land is opening in the spring in Orlando, and Star Wars lands will open in California and Orlando in 2019. The company has already said that the California location will open first; Iger said that one will be finished during fiscal 2019, while the Orlando land will be ready later in the calendar year.

“They are huge and I think very exciting in terms of how we’re using technology to create really interesting attractions and experiences,” Iger said.

A roller coaster based on Guardians of the Galaxy is also coming to Epcot in Orlando as part of an overhaul of that park, and a new Marvel land is moving in to California Adventure Park.

“So there’s a lot going on, clearly,” Iger said. “Given our margin expansion in that business and given the incredibly strong increase in return on invested capital in that space, which just come mostly from putting capital into franchises and branded content, our returns have been better. We feel the investment that we’re making in capital in that business domestically and internationally is a good investment for the company, a good growth strategy.”

Airbnb-Type Disruption

That strategy includes investing in the hotel business, which is not immune from disruption. Iger acknowledged that evolving consumer behavior when it comes to lodging and competition from other players are forcing Disney to take a more creative approach to its hotel business.

“You have to consider a lot of competition in the marketplace — some disruption, modest, but Airbnb-type disruption,” he said. “And more competition. Clearly, Universal has been in an expansive mode fairly recently.”

Disney and Universal both have an interest in getting visitors to stay on resort property, where they stay longer and spend more on food, drinks, and merchandise. Disney has far more options for guests who want to stay onsite, but Iger said the company also differentiates itself by putting intellectual property, or IP, into hotels. The company earlier this year announced an immersive Star Wars-themed hotel for the Orlando resort.

“As we expand, we’re expanding to strengthen our competitive position,” he said. “The Star Wars hotel is maybe one example of building IP into a hotel experience….You just have to look at this as part of a whole and, in part, as a means of contending with more competition in the space.”