Written by Kevin Baxter
Published: August 16, 2004 at 3:09 AM
Disney has announced company earnings for the Third Quarter and things were mostly good. The company's profits rose 20%, mostly from the theme parks, which sounds great, right?
Well, attendance at the parks was up 20% over last April/May/June but hotel occupancy was only up 7%. The article doesn't mention that the Disney hotels - especially those in WDW - are where Disney makes most of their profits. 20% at the parks is no chump change, but 7% higher than an extremely flat 2003 Third Quarter isn't that big a deal.
Apparently it is to Michael Eisner, who had the nerve to claim the $11B in investments (mostly in the parks) the company has spent since 1997 is starting to pay off. Say what? Clearly the creation of AK, DCA and WDSP are included in that $11B, but it would take more clever accountants than those Disney employs to prove they are paying off. Then there's Fox Family, which is also not paying off. What investments really are paying off?
Take away those clever accountants and things don't look all that great. New accounting standards have forced Disney to include assets it controls on the books, which means the Paris parks and the upcoming Hong Kong Disneyland are now included in the financial reports. If the consolidation of these assets is removed, then profit only rose 15% instead of the 20% reported.
But market analysts are finally starting to read between the lines themselves. They have long complained about Disney's accounting methods, and this consolidation seems to be making matters worse. One analyst for RateFinancials rated Disney's balance sheet "below average" for clarity and disclosure.
And that disclosure seems to be the new focus for these analysts. For example, after adding the foreign parks to the report, liabilities rose by $3.69B. Could be true. But assets rose by the same exact figure. Hmmmm. Even stranger, revenue and costs balanced perfectly even though the Paris parks are losing money and the Hong Kong park hasn't made any yet.
So what to believe? An analyst at Morgan Stanley sees very slow growth after 2004. There are still too many problem areas and Disney relies far too much on one sole division - the cable channels. The defection of both Miramax and Pixar will hurt the mostly profitable movie division. Even worse, the division that has historically driven profits - the theme parks - is expected to have slow growth between 2005 and 2009. I think this is the most prescient of the analyses as WDW will most likely never reach its heights of the 1990s. There is just too much competition now and little desire on Disney's part to spend money properly to fight off the competition. The parks will simply never be a weeklong destination again and Disney needs to adjust to that or they will lose their dominance, at least in Florida.
Walt Disney World
Tokyo Disney Resort