Disney Reports Q2 Results – Blu-Ray Modest; Disney Parks Traffic Increases
Too bad for blu-ray; they won the battle against HD-DVD and lost the format war.
Disney released its quarterly report today. The analyst question session offered an interesting perspective on the stumbling blu-ray marketplace. Bob Iger described Blu-Ray players as too expensive, which is an obstacle to adoption of the new HD format. He also said the HD marketplace is therefore immature, but that as prices come down adoption may increase. It will take “some time” for the platform to penetrate. On the bright side for Disney (down side for consumers) the cost of a blu-ray disc is up to $5 higher than a DVD and “we’ll see if the pricing comes down.” In response to a separate question, Iger expressed a belief that Apple may be a go-to source for movies and TV in the future. There was also some discussion of digital delivery and that the sales are basically positive. However, physical copies of movies are very important to Disney because its customers want to own a tangible product so their children can play the movie repeatedly. Nonetheless, this falls right into the current thinking the downloads are a major competitor to blu-ray, even though Disney plans to offer blu-ray movies.
[The entertainment media have repeatedly reported that the HD format war has ended with Blu-ray as the winner. Actually, the real format war has just begun and this analyst discussion is proof. Consumers are still very satisfied with standard DVD and don't see a reason to buy a new player - especially when the new player is $400. Digital downloads are just around the corner, offering point and click convenience. Blu-ray has a looong way to go and may not make it as a profitable format.]
Disney Parks Going Strong!
The numbers surrounding the Disney Parks have a larger implication than just the company’s results as it can be used to project the health of consumer spending and the general economy.
Refreshingly, the Parks have been left untouched by the increase in gas prices. Disney attributed its domestic operating income growth to the increased traffic and spending at Walt Disney World (WDW). Traffic has increased at WDW by 5%. Interestingly the increase was not attributed to increases at Disney Parks generally. Traffic at Disneyland and California Adventure resorts is not as robust as WDW. Disneyland resort traffic is basically flat, occupancy is down about 4%, but per room spending has increased – generally offsetting the downfall. Disneyland Paris also released its earnings today and it also performed well, increasing its revenues by 18 percent.
Bob Iger, in the investor conference call, attributed this quarter’s succees to the fact that the Parks offer a unique experience not available elsewhere and to new attractions at both resorts. Mr. Iger singled out the Finding Nemo, Tower of Terror in Paris, and Expedition Everest attractions as examples. High School Musical shows are also draws vacationers into the parks, according to the CEO. Value priced hotel rooms, with their naturally lower prices, have been a success making the parks accessible to a broader audience and extending visitors’ length of stay. Disney now has 75% of their rooms in the moderate or value category, where they previously had 55% of the rooms in the premium category. This shift to affordable room stays (and the strategies intended to keep visitors on resort grounds) makes the Parks more resilient to adverse external economic factors.
This goes to another axiom of business – a company can grow large by appealing to the masses. A company that appeals to the wealthy will always be a niche business. Just compare Walmart to Tiffany’s and you will see the point.
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I like the fact that disney traffic is increasing. I go there once every year. My favorite ride is space mountain.