Disney’s Change in Tide

From March 2021 onward, shareholders in Disney have witnessed the descent of this renowned legacy corporation's shares, plummeting from an all-time peak just above $200 per share to a ten-year nadir in the vicinity of $79—a substantial decline of approximately 61%. Throughout this period, investors grappled with the adverse effects of leadership transitions, including concerns related to Iger's succession plan, the valuation metrics associated with Disney+, the waning prominence of linear television, and an array of other challenges.

Despite the apparent turbulence in the stock's trajectory, Disney has strategically cultivated and acquired assets that have yet to be fully reflected in its current valuation. In a comprehensive earnings filing dated November 8, 2023, Iger delineated a strategic roadmap for reinstating the venerable company to a premier position in the industry. Within the same filing, Disney reported a notable surge of 7 million Disney+ subscribers in Q4, sustained domestic revenue stemming from the ESPN acquisition, and a remarkable 30% uptick from the preceding quarter in Disney's Experience Suite, encompassing the Disney Cruise Line, Disney Vacation, and Disneyland Resort. Furthermore, Iger highlighted that the ongoing restructuring and cost-efficiency initiatives are poised to surpass the initially targeted $5.5 billion, reaching closer to $7.5 billion—a substantial 36.36% increase from an already ambitious cost-cutting plan.

Disney's leadership has articulated, "We anticipate a substantial growth in free cash flow in fiscal 2024 compared to fiscal 2023, reaching levels akin to those observed prior to the pandemic." Strikingly, investors appear to be grappling with a form of market-induced caution, reminiscent of post-traumatic stress disorder (PTSD), as evidenced by multiple references in the release from both leadership and Iger regarding the anticipated availability of free cash flow. Curiously, the dividend, once seemingly off the table, now looms as a probable resurgence. It would not be unforeseeable for Disney to imminently declare the reinstatement of a quarterly dividend.

I can hear Justin Trujillio (the infamous oil field social media phenom) now, “The dividend is back, baby!”

Bob Iger’s Four Key Building Opportunities

Goal #1: Achieving significant and sustained profitability in the streaming business

The solution: Disney stands as one of the preeminent global brands. Iger and company should lean into that international recognizability and focus on growing outward in, rather than inward out. Competitors such as Netflix and others have a solid base in the U.S. and are looking for growth opportunities in emerging markets. Applying this backwards approach to acquiring sustained subscribers should allow a change in current market share trends. 

Goal #2: Building ESPN into the preeminent sports platform

The solution: Disney recently streamlined its operations by parting ways with more than 20 on-air personalities. Despite their widespread recognition, the decision was driven by the need for cost efficiency within Iger's new strategic vision. ESPN, at its core, is about the sports themselves rather than an overemphasis on punditry, exemplified by a daily barrage of LeBron James stories in pursuit of viewership. Embracing a roster of fresh faces and young content creators will enable Disney and ESPN to cast a wider net, appealing to a diverse audience of incoming sports fans. Once one attains a certain level of passion for sports, the need for persuasion diminishes, as the inherent love for the games becomes the primary motivator to tune in.

While the company has refrained from official statements, speculation is burgeoning around the potential for Disney to explore collaborations with industry leaders like DraftKings, FanDuel, and PENN Entertainment introducing 'LIVE Betting' features directly on its platform. Picture this: you're engrossed in a live sports event, and the desire to place a spontaneous wager on the score or the next play strikes. An alliance with a dedicated betting platform would seamlessly integrate this capability, allowing users to place bets right from their television screens. As the success of in-app and real-time wagers continues to unfold, envision the possibility of signing up for AI-driven "quick bets" that anticipate unfolding events. A discrete notification for a "quick bet" could materialize in the top corner of your screen, offering a dynamic and interactive experience. Disney stands to gain a share of the revenue generated through this innovative approach, while the betting platforms stand to benefit from heightened exposure through ESPN's extensive streaming audience.

Goal #3: Improving the output and economics of our film studio

The Solution: Shift the focus from quantity to cinematic brilliance! Disney, renowned for prolific production, now calls for a nuanced approach in an era of instant gratification. Integrate captivating 'hype campaigns' and patience into releases. While Avatar, Marvel, and Star Wars dominate as top-grossing films, the enduring appeal of classics like Toy Story and The Incredibles attests to a market encompassing both nostalgic adults and their children. Augmenting the classics with new sagas remains an efficient and resonant strategy in the cinematic symphony. 

Considerable controversy has surrounded the integration of AI in the entertainment industry, particularly in the aftermath of the resolved WGA strike. Primary concerns revolve around the potential replacement of actors and writers, as well as the use of intellectual property for AI training. Nevertheless, Disney can strategically harness AI to enhance efficiency and minimize time wastage. For instance, AI-powered data analytics can facilitate recommendations for casting, script selection, and budget allocations. Taking it a step further, the application of AI extends to analyzing prevailing market trends and audience preferences. This judicious use of AI not only respects WGA boundaries but also streamlines processes that once demanded days, weeks, or even months for completion.   

Goal #4: Turbo charging growth in the Parks & Experiences segments

The Solution: This sector stands to reap substantial benefits from the integration of Artificial Intelligence. By incorporating AI data analytics into the cruise line operations, significant advancements can be achieved. This includes optimizing fuel costs by mitigating human errors in travel paths, forecasting potential adverse weather patterns that may impact onboard guest experiences, and curbing both physical and electrical waste during excursions. As fuel, electrical consumption, and physical waste represent key expenditure areas for Disney during each excursion, any reduction in these factors is poised to yield a tenfold improvement in revenue. This strategic implementation of AI not only enhances operational efficiency but also underscores a commitment to sustainability and guest satisfaction.

Anticipate the forthcoming revolutionary transformations poised to unfold through the integration of AI and AR technologies within the parks. While the current limitation of AR lies in the unwieldy design of headsets, strategic investments in specialized AR companies hold the promise of rendering the experience as convenient as donning a pair of glasses, akin to those used for 3D encounters. It is conceivable that Iger may forge partnerships with innovative startups proficient in crafting streamlined headsets, instigating a paradigm shift in entertainment experiences. Envision the thrill of navigating a roller coaster or a water attraction, immersed alongside lifelike Avatars. Disney's commitment to iconic characters and human actors remains unwavering, yet the realm of AR attractions offers a seamless integration, allowing patrons to savor the best of both realms.

While the immediate future may not herald the introduction of AR in the upcoming fiscal year, the implementation of data analytics, waste reduction initiatives, and AI-driven enhancements for streamlined guest experiences will constitute the most impactful avenues for cost reduction. This, in turn, is poised to foster substantial margin growth across all categories within the 'experience and entertainment' sector.