Despite fan outrage, Disney's Genie app has proven to be a success for shareholders

click to enlarge Mickey Mouse in the Festival of Fantasy Parade at the Magic Kingdom - Image via Disney
Image via Disney
Mickey Mouse in the Festival of Fantasy Parade at the Magic Kingdom
On Aug. 5, 2020, as the pandemic was still raging with tens of thousands of cast members still furloughed at Disney Parks, Bob Chapek was reporting on his first full fiscal quarter as Disney’s CEO.

Even with the uncertainty of 2020 bearing down on the company, Chapek made it clear he was focused on times beyond the pandemic. For him, the new normal is one where some of Disney’s most loyal fans aren’t as important to the company thanks to their inability or unwillingness to spend the same amount as a vacation goer who may visit only once a year, with Chapek calling the person who may stay a week instead of buying an annual pass “marginally more valuable to the business.”

That comment was in line with the way Chapek had run each division he has overseen at the company. While overseeing home videos, Chapek led the introduction of the much hated Disney Vault, a marketing program that created scarcity by “locking away” certain films. This campaign was a massive success, with many Disney fans racing to purchase Disney videos that they may have previously opted to rent instead. When he moved to Parks and Resorts, Chapek kept this same playbook, this time with limited engagements of popular entertainment, such as the Main Street Electrical Parade.

click to enlarge Former Disney CEO Bob Iger (left) and new CEO Bob Chapek - Photo via Walt Disney Company
Photo via Walt Disney Company
Former Disney CEO Bob Iger (left) and new CEO Bob Chapek
After just over a year and a half on the job, Chapek sat down with the Financial Times in late 2021 to discuss his tenure thus far and what’s next for the company. In that interview, he pushed back at the idea of being a “bean counter” before referring to Disney guests and fans as consumers and compared running a theme park to having “a focus group every day.”

Disney fans have long stated that at his core, Chapek doesn’t understand what makes Disney unique. Since coming to the company, he has consistently made decisions that many fans, and some former employees, point to as tarnishing the brand once the pinnacle of family entertainment. Under his helm, Disney began a direct-to-consumer video business, bringing out titles such as The Lion King 1 ½ and Cinderella II: Dreams Come True. The films initially drove huge sales but have since been mostly forgotten.

Now with his second year in the lead coming to a close, we’re seeing the most significant changes yet from Chapek on Disney with a new wave of nickel-and-diming unlike any seen in decades.

Among the biggest changes has occurred within the parks themselves. After years of speculation, under Chapek’s oversight, the parks ended the free FastPass program, ultimately retiring the term that has become an eponym for skipping a stand-by queue and replacing it with a paid system.

In a reaction that Chapek has seen since his days of home video distribution, the move was met with outrage among Disney fans. That anger obviously wasn’t shared by many, though, with Chapek reporting last week that during the most recent holiday seasons more than half of all guests to Walt Disney World had purchased some form of a FastPass alternative. Overall, more than one in three guests chose to pay for the FastPass alternatives during the quarter, which ended December 31.

The quarter saw other moves, including price increases on nearly every food and beverage item within the parks. Price increases were paired with decreases in portion sizes. When discussing the reduction in portion sizes, Senior Executive Vice President and Disney’s Chief Financial Officer Christine McCarthy was quick to state the move was “probably good for some people’s waistlines.”

Not seen in the most recent earnings report is the impact of another cost-cutting move. This year started with the ending of Magical Express, the complimentary shuttle service to and from the Orlando International Airport.

On last week’s earnings call McCarthy acknowledges the company has used the pandemic as a way to increase profits across the resorts division. “[W]e've been saying this all along through the pandemic, where we have taken measures to really look at the cost base and how we're doing things. And there's been a fundamental shift in some of the operational processes that the parks had used for many, many years,” explained McCarthy. Later adding, “Those kinds of things are all things that add to some upside that we have at the parks…We saw the performance this quarter of Genie and at the other things like Lightning Lane, but it's not just that. It's also really compelling offerings in food, beverage, merchandise…And that's driving some of that incremental spending that's certainly helping the margins get to that level that we've seen this quarter.”

Even as social media continues to rage about all the nickel-and-diming happening at Disney Parks, many investors seem ready to overlook any negative comments, with one analyst going so far as calling the success to draw ever more revenue from guests this past quarter “the most amazing set of drivers that we have ever seen.” The cost increases have yet to diminish park attendance, but how long that can continue is still unknown. With three decades of pushing the boundaries of the Disney brand, Chapek may finally be the one to find if and where those limits exist.

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