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The Question of Crowds

Yesterday, Disney CEO Bob Chapek went on CNBC and confirmed that park capacity is still limited to 25%, which has sparked a great deal of discussion.


Breaking it down, I suspect that Bob Chapek is accurately describing park capacity limits. What it leads me to question, is how accurate Disney's Q3 financial reporting was, since that will help us to piece together information that may be helpful for year-end (which closed on September 30th) and what to expect for Disney's FY 2021.


During Q3 reporting, Disney indicated that the parks were making a small profit (which is believable) and that the return of the parks and the release of Mulan would greatly improve their current financial position.


What's happened since then is very telling.


First and foremost, by all accounts, Mulan was a complete flop at the $29.99 USD price tag on Disney+ and lack of warm reception in China. It's clear, Mulan will not likely re-coup its stated $200 million production budget.


Similarly, the Parks, Experiences and Products division running the Disney Parks has laid off 28, 000 North American Cast Members. This comes after a drastic scale back of planned and ongoing capital projects in the parks. There have been almost unprecedented product sales in the parks (such as 30% off AP discounts on 50% off or buy one get one merchandise), discounts on vacation packages, just to name a few of the deals to be had these days. On the DVC front, members can now pay by credit card and the number of liens on defaulted contracts is shockingly low, all signs that the Disney Vacation Club is not as lucrative in 2020 as it has been in previous years.


So, with great deals to lure vacationers down to Orlando (likely not happening due to travel restrictions and concerns about flying) not having much of an impact (hence resort openings keep getting delayed or not announced at all), it's pretty clear that for the balance of 2020, we're likely going to see Walt Disney World guests made up predominantly of locals (who aren't going to stay on property for most of their visits) and those who can travel by car.


So why do crowds seem bigger than before if the capacity remains the same? Simple. There have been more people going to the parks than there was when they first opened. That said, Disney now has a huge problem. Keeping those crowds coming.


With no real crowds expected at Christmas (no parties, no parades, no fireworks, no gingerbread houses are really going to hurt guest traffic) and Universal Studios offerings better at lower prices, it's clear why the layoffs have begun and the cuts made where they are (if you're driving to Disney, you don't need Lyft vans and 25% capacity means you don't need seasonal and part-time Cast Members). It also helps to explain merchandise sales (Disney buys in gargantuan quantities that will never sell at those crowd levels (especially when locals know to wait till limited release merchandise hits the Character Warehouse), room discounts, and why so much is still not open (there's no room to have 100% of everything open for 25% of the guests), and hours changing the way they are (I suspect people are leaving the parks and going home for dinner instead of staying or driving over to Disney Springs to eat after a day at the parks).


Clearly all of this is going to have to be addressed when the Q4 financial results meeting occurs next month. There will likely be no lipstick on a pig moment during these results and helps to explain why Disney is pivoting its studio leadership to focus more on streaming services, since that's the way forward in the near-term, with lack of travel to parks likely for most, if not all, of 2021 likely to happen. Disney clearly knows that until there is a vaccine widely available and travel restrictions are reduced or eliminated entirely, the parks, resorts, DVC sales, and cruise line will not be anywhere near business as usual.


So, when Q4 results are released, it will be a somber, eye-opening moment. Disney knows the numbers (hence Investor Day disappeared) and a company not used to pivoting on a dime and having to compete for business, now has to find a way to do so.


This new reality for a company nearly 100 years old is going to lead to an interesting FY2021 and likely much debate and discussion on the future of the Walt Disney Company.





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