Disney Falls Apart

Shares of Walt Disney Co. (NYSE: DIS) have collapsed to a 52-week low. There were two reasons. The first is that the new movie, “Avatar: The Way of Water,” will not become the most successful movie in history as its 2009 predecessor was. Investors found the shortfall in ticket revenue worrisome enough to sell the stock off in another sign of despair about Disney’s future. The second reason for the anxiety is that it has become clear quickly that hero CEO Bob Iger, who helped build Disney into the most successful entertainment company in the world, does not have an ounce of magic that might turn around Disney’s crippled operations.

The new Avatar film was supposed to have domestic ticket sales as high as $179 million, some analysis estimated. Sales weighed in at $134 million. Disney’s most steady earnings engine over the past decades has been studio revenue. This is because of the franchises it bought when it paid tens of billions of dollars for Pixar, Marvel and Star Wars. The success of movies drawn from these franchises may have peaked.

Disney’s most troubling disaster is its streaming business, which lost $1.5 billion last quarter. The blame for this belongs to Iger, who underpriced Disney+ when it was launched in 2019. Disney’s solution has been to raise monthly subscription prices and even offer an ad-supported service. It remains to be seen if it sells enough advertising to compensate for the lower subscription costs. The sharp increase in the price of the traditional service has been pushed up enough to cause churn. Churn is the enemy of streaming companies. Subscribers cancel, and it is expensive to replace them.

Disney has to compete with Netflix, Amazon and a small army of other streaming services. Among these is Apple, which may have the world’s strongest balance sheet of any public corporation. It also has a base of billions of iPhone, iPad and Mac owners to which it can market its streamed content.

Is the drop in Disney stock over? Most likely it is not. Disney’s next quarterly report may be as grim as the last one. And a recession could hit movie ticket sales, streaming income and visits to its massive theme parks.

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