New York, Dusseldorf The world’s largest entertainment group, Disney, has drawn the ire of politicians. Florida’s governor Ron DeSantis wants Disney to remove the tax privileges for its theme parks in Florida, which the company has enjoyed since the 1970s. The reason for this is a new law in the state that restricts school classes on sexuality and gender identity. Disney had criticized the project.
“It’s not my job to kneel before some woken corporation, it’s to protect children,” DeSantis recently ranted. The word “woke” is often used in conservative circles as a swear word against those who campaign against discrimination.
Just as Disney does from DeSantis’ point of view: When the new edition of the classic “The Little Mermaid” comes to the screen at the end of May, the leading actress will be dark-skinned for the first time. This had caused criticism among the American right.
Disney is not used to such attacks. And the fight with the upcoming presidential candidate DeSantis is not the only problem of the weakening Mickey Mouse empire: Disney is burdened with a huge mountain of debt, the group is struggling with the competition and activist investors. While the stock is up a good 13 percent this year to over $101, it’s still a long way off the $197 high from spring 2021.
Disney actually wanted to celebrate its 100th anniversary this year: a large Disney exhibition has opened in Munich, which will soon go on a world tour. And Disneyland in Paris is in the black for the first time a good 30 years after it opened. But these six problems overshadow the celebratory mood:
1. Disney is growing fast but suffering from heavy debt
Sales are higher than ever in history: In the second half of the 2022/23 financial year (as of March 31), Disney had sales of $45.3 billion – ten percent more than a year ago. Net income even rose 57 percent to 2.5 Billions of dollars, as the group announced on Thursday night.
However, Disney is sitting on a mountain of $103.3 billion in debt and other liabilities. And the future business of streaming continues to make high losses. At $1.7 billion, the loss in the first half of 2022 rose again by 16 percent compared to the same period last year. So CEO Bob Iger is a long way from his goal of making the streaming division profitable by 2024.
“We are taking all necessary steps to make the streaming business profitable,” said Iger at the analyst conference. But one should not forget that Disney + only started three and a half years ago. “In this respect we are still a start-up.”
Meanwhile, Disney is benefiting from the end of the pandemic. The six leisure resorts with several theme parks and hotels attract thousands of fans who pay hundreds of dollars a day for admission, room and board. This business segment increased its sales by 19 percent and, at $16.5 billion, accounts for about a third of total sales.
Company founder Walt Disney was the pioneer who commercialized the entertainment industry. Today, CEO Iger has to cut costs. He wants to save 5.5 billion per year, 3 billion in the production of content alone. In addition, Iger is cutting around 7,000 jobs, almost four percent of the workforce.
2. Pressure from activist investors
This causes unrest, but Disney wants to alleviate the pressure from activist investors, say observers. In the fall, hedge fund manager Nelson Peltz bought shares in Disney. He’s notorious for disrupting businesses. He criticized the “destruction of value” at Disney.
>> Read also: Disney+ loses users for the first time and cuts 7,000 jobs
The company was able to prevent Peltz from moving into the board of directors, but he warned the Disney management that he would continue to watch them. With Dan Loeb from the hedge fund Third Point, another well-known activist name has bought into the group – and puts him under pressure.
3. Difficult fight for the streaming crown
With strong brands such as Marvel and Star Wars, the Disney+ streaming service has developed into the fiercest competitor to industry leader Netflix. But the growth is expensive, since the launch in 2019 the division has piled up a loss of around ten billion dollars.
The list of competitors is getting longer, the production costs for films and series are enormous, and consumers’ willingness to pay remains low in the face of inflation. Price increases also led to Disney+ losing users again in the past quarter. Disney+ has 157.8 million subscribers, while Netflix has 232.5 million. Disney’s second streaming service, Hulu, had 48.2 million subscribers.
Iger recently admitted that there was a “global arms race” in the industry to present high user numbers. Disney was “a bit too aggressive” in attracting new customers in price campaigns.
Disney’s fight for the streaming crown causes further problems: With this focus, Disney reaches fewer people through other channels such as TV or cinema, which are important for branding, especially for families, says François Godard, analyst at London-based consulting firm Enders Analysis. “Disney not only needs to make its streaming service profitable, but also draw attention to its iconic content to feed theme parks and merchandising, for example.”
4. The crux of politics
Meanwhile, the dispute with politicians is escalating. Governor DeSantis not only wants to take away Disney’s special tax privileges, but also restrict the company’s expansion in Florida. Disney is taking legal action against it and complains that DeSantis is punishing the company for criticizing the so-called “Don’t say gay” law.
>> Read also: “Threatens our business” – Disney company is suing Florida Gov. DeSantis
Disney is one of the most important employers for the region, from which surrounding companies also benefit. From the point of view of Neil Macker, an expert at the analysis company Morningstar, Disney does not have to reckon with serious consequences: “No one can want the group to migrate.”
Iger clearly criticized DeSantis in the analyst conference without naming the governor. “We employ over 77,000 people in Florida and attract millions of tourists.” The state government’s proposals are therefore an illegal “retaliatory action,” according to Iger. “We never thought that we would have to defend our business interests in federal court.” Relations with Florida have been “excellent” for more than 50 years. “Doesn’t the state of Florida want us to invest more, employ more people and pay more taxes?” Iger said.
Observers evaluate DeSantis’ behavior as campaign maneuvers. The governor is expected to announce his entry into the race for the White House in the spring. He would be the second Republican candidate in the primary, alongside former US President Donald Trump.
Only if DeSantis became US President could the entertainment company face a problem, says analyst Macker. “But that doesn’t just apply to Disney.” The Republicans want to regulate tech companies more closely.
5. Missing answers to the culture war within the company
Among Republicans, DeSantis vs. Disney is representative of the American culture war against what they see as increasing “wokism”. The term stands for people becoming aware of discrimination, such as racism or sexism. It is often used derisively by conservatives.
Recently, Disney has also used characters in its films that are, for example, gay or have a disability. Conservative groups are bothered by these representations. With the start of the live-action adaptation of the “Little Mermaid”, which is embodied for the first time by a black actress, the dispute boiled up again.
Disney is struggling to respond to criticism from the right, after all, the company has stayed out of politics for decades. Rebecca Cline, who has been with Disney since 1989 and is head of corporate archives, told Handelsblatt that as a global company, Disney tries to be as inclusive as possible with its stories. “I think it’s a good thing when we tell stories that reflect real life. All of the people in our audience find something wonderful at Disney to appreciate.”
The amusement park business is picking up again after the end of the pandemic.
(Photo: ddp/abaca press)
Nevertheless, the split in American society has long since passed through the Disney group. Jose Castillo, for example, works as a manager in the hotel complex next to the amusement park in Florida. “Most Disney employees support the DeSantis law. They’re just not as vocal as those who criticize it,” he claims, referring to the don’t say gay law.
The Republican supporter also said that on a talk show. “You wouldn’t believe how much encouragement I got from gay colleagues afterwards,” says Castillo. “I work at Disney and I love Disney,” but the recent course is wrong. Nobody should be allowed to ask their four-year-old daughter if she is a girl or a boy.
6. Is Bob Iger the right Disney boss?
Can Iger successfully steer Disney through these social debates? The 72-year-old was brought back to the top of the group in the fall. He only retired in 2020 after around 16 years as Disney boss.
Critics accuse Iger of running the closed group like a farm. It speaks in his favor that at the turn of the millennium he put the dormant entertainment giant back on the road to success with a successful purchase program. For example, he bought the animation studio Pixar and the rights to the “Star Wars” series. Both are profitable today.
“Bob Iger will leave us in good hands when he retires,” said Disney Archives Director Cline. Iger has a two-year contract – little time to solve Disney’s problems. Analyst Godard said: “Bob Iger is the only person who can hold the company together right now.”
It’s not an easy task: “If you’re conservative, you don’t like Disney’s strides into modernity,” said Shelley Alpern of Rhia Ventures, an organization that advocates for pregnant women’s rights. “And those on the left of the political spectrum think Disney isn’t doing enough.”
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