As investors and analysts watch to see if rising rates and runaway inflation dampen consumer spending, which could push the US into a recession at some point, the World of Disney (DIS) may prove a barometer. economic useful.
“Disney really is, in many ways, a consumer tracker,” Steven Cahall, a senior analyst at Wells Fargo Securities, told Yahoo Finance Live (video above). “If you think of someone who has kids and a family, they’re probably spending some of their money at Disney every year. People who go on cruises or go to theme parks will probably make some money going to Disney every year.” If you’re a sports fan, you probably interact with ESPN and spend some money every year.”
“So when we see the markets go down on the risk of a recession, Disney will track some of that down to a point,” Cahall added.
As consumers and businesses face higher costs across the board, the Walt Disney Company is in the midst of negotiations over where it can shift spending across its theme park, merchandise and content divisions before consumers back down.
Disney executives were pleased with the recovery of the parks and resorts business in the second quarter, despite additional pressure on margins from higher wages, supply chain constraints and coronavirus capacity constraints.
“We feel very good about consumer demand and what we’re seeing in prospective bookings and everything else in attendance levels,” Disney CFO Christine McCarthy said during the earnings call. “We pay close attention to all the recent inflationary pressures, and it covers everything from merchandise to food and beverage.”
Visitors take photos at Hong Kong Disneyland, Thursday, April 21, 2022. (AP Photo/Kin Cheung)
Disney’s value proposition for streaming subscribers
On the direct-to-consumer side, Disney’s strategy came under scrutiny this quarter as programming and production costs for streaming services like Disney+ rose. Still, Disney managed to add nearly 8 million subscribers to its platform, while Netflix took a hit.
On the earnings call, Disney CEO Bob Chapek noted that the company was introducing a new tier with advertising for Disney+ at a lower price to prevent churn from consumers looking to cut costs. (Chapek also hinted that he would increase the price of the main Disney+ offer over time.)
“We’ve been very comfortable with the price-to-value ratio we’ve offered,” Chapek said during the fiscal second quarter earnings webcast. “And as you know, as we increase our investment in content, we think that will give us the ability to adjust our pricing while still maintaining that strong value proposition.”
Stormtroopers at the photocall for the new Disney+ limited series “Obi Wan Kenobi” at the Corinthia Hotel on May 12, 2022 in London, England. (Photo by Gareth Cattermole/Getty Images for Disney)
According to Nielsen data, 57% of streaming video-on-demand (SVOD) subscribers have at least three services, suggesting that some consumers may want to pause some services if the price becomes too excruciating. And for the 17% who sign up for five or more services, those price increases can be felt much faster.
Cahall pointed out that Hulu, which is currently owned by Disney, has been successful in offering different levels of advertising in its subscription model.
“I don’t know if you’ll see two-thirds of subscriptions going to an ad-supported model, but it will certainly make it attractive to people who might find the direct subscription fee too high,” he said. saying. “And from a Disney perspective, it’s all kinds of found money, you know? So this is just incremental subscriptions at no incremental cost to them as they are already a big advertising company.”