More stories

  • in

    Disney Plans to Spend $60 Billion on Parks and Cruises

    Amid uncertainty for the company’s film and TV divisions, the investment over the next decade doubles the outlay in the last 10 years.Disney’s theme parks will generate an estimated $10 billion in profit this year, up from $2.2 billion a decade ago. Not bad for a 68-year-old business, especially considering the devastation wrought by the pandemic just a couple of years ago.But how much boom is left?Last month, when Robert A. Iger, Disney’s chief executive officer, singled out the parks division as “a key growth engine” on an earnings-related conference call, Wall Street furrowed its brow. Disneyland in Anaheim, Calif., has long been viewed as maxed out, with little room to expand. Walt Disney World near Orlando, Fla., has become a question mark, given that Mr. Iger has said the company’s legal battle with Florida’s governor, Ron DeSantis, could imperil $17 billion in planned expansion at the resort over the next decade. Disney’s overseas parks — aside from Tokyo Disney Resort, which it receives royalties from but does not own — have sometimes struggled to turn a profit.On Tuesday, Disney offered a clearer picture of the opportunity it sees, which can only be described as colossal: The company disclosed in a security filing that it planned to spend roughly $60 billion over the next decade to expand its domestic and international parks and to continue building Disney Cruise Line. That amount is double what Disney spent on parks and the cruise line over the past decade, which was itself a period of greatly increased investment.In the past decade, Disney has opened the Shanghai Disney Resort, more than doubled its cruise line capacity and added rides based on intellectual properties like “Star Wars,” “Guardians of the Galaxy,” “Tron,” Spider-Man, “Avatar” and “Toy Story” to its domestic parks. Disney has also poured money into its Paris and Hong Kong parks, with themed expansions tied to “Frozen” and other Disney films scheduled to open soon. Three more ocean liners are on the way, bringing the Disney fleet to eight ships, and Disney is nearing completion of a new port on a Bahamian island. (Disney already has one private island port.)If that is what $30 billion can buy, imagine what $60 billion might bring.“There are far fewer limits to our parks business than people think,” Mr. Iger said in an email.“The growth trajectory is very compelling if we do nothing beyond what we have already committed,” he continued, referring to attractions and ships that have been announced but are not yet operational. “By dramatically increasing our investment — building big, being ambitious, maintaining quality and high standards and using our most popular I.P. — it will be turbocharged.”Josh D’Amaro, chairman of the parks division, noted that films like “Coco” and “Zootopia” had not yet been incorporated into the parks in a meaningful way.Todd Anderson for The New York TimesDisney shares fell 3 percent on Tuesday on the news, to about $82. Analysts said some investors had been worried about the company’s ability to generate free cash flow at a time when its television business — traditionally a major generator of cash — has been undercut by streaming services.Disney already has a sizable amount of debt, largely because of the pandemic. The company suspended its semiannual shareholder dividend in 2020 to preserve cash, but is expected to restart dividend payments later this year.“We’re incredibly mindful of the financial underpinning of the company, the need to continue to grow in terms of bottom line, the need to invest wisely so that we’re increasing the returns on invested capital, and the need to maintain a balance sheet, for a variety of reasons,” Mr. Iger said on Tuesday afternoon in a blog post.Disney is expanding the investment after a stretch of trouble in almost all its divisions. Cable television, including ESPN, has become a shadow of its former self, the result of cord cutting, advertising weakness and rising sports programming costs. Disney had a disappointing summer at the box office, with movies like “Indiana Jones and the Dial of Destiny” and “Haunted Mansion” selling sharply fewer tickets than anticipated. The company’s Disney+ streaming service continues to lose money; Mr. Iger has said it will be profitable by fall 2024, but some investors are skeptical.In contrast, Disney’s parks and cruise business has been a bright spot, in many ways propping up the whole company. In the most recent quarter, Disney Parks, Experiences and Products generated $2.4 billion in operating income, an 11 percent increase from a year earlier. Disney Media and Entertainment Distribution had $1.1 billion in operating profit, an 18 percent decline.Spending per guest at Disney parks has increased 42 percent since 2019, in part because of higher prices for tickets, food, merchandise and hotel rooms.An attraction based on “Moana” at Disney World is among those that have already been announced but are not yet open to the public.Todd Anderson for The New York TimesStill, increased investment in theme parks brings increased risk. It is a business that will always be sensitive to factors beyond Disney’s control: swings in the economy, gas prices, hurricanes, earthquakes, tension between the United States and China. Disney has greatly increased security, deploying undercover guards and installing metal detectors, but these teeming resorts — Disney parks attracted an estimated 121 million visitors last year — could become ghost towns if a violent event took place.Josh D’Amaro, chairman of Disney Parks, Experiences and Products, said people who focused on such risks overlooked the resilience of theme park fans. He noted that customers had come flooding back when Disney parks reopened during the pandemic.“Every time there has been a moment of crisis or concern, we have managed to bounce back faster than anyone expected,” he said.Mr. D’Amaro declined to specify how the company planned to spend the $60 billion. But he gave hints, noting that Disney movies like “Coco,” “Zootopia,” “Encanto” and others had not yet been incorporated into the company’s parks in meaningful ways.“Imagine bringing Wakanda to life,” he said, referring to the fictional “Black Panther” kingdom. “In terms of bringing the latest Disney-Marvel-Pixar intellectual property to the parks, we haven’t come close to scratching the surface. And we have learned that incorporating Disney I.P. increases the return on investment significantly.”A rendering of an area adjacent to Disneyland in California that Disney wants to redevelop, adding rides based on movies like “Avatar.”DisneyDisney owns 1,000 undeveloped acres across its existing theme park resorts, Mr. D’Amaro noted. (For comparison, he said, that’s the size of seven Disneylands.) One of the biggest areas of opportunity, he said, involves the original Disneyland, which opened in 1955. If the company can persuade the City of Anaheim to change a plan, adopted in the 1990s, that limits where hotels, parking lots and attractions can be built, Disney intends to redevelop land adjacent to Disneyland, greatly expanding capacity. Disney also plans to turn a parking area south of the park into a themed shopping, dining and hotel district.Disney released a 17,000-page environmental impact study for the project last week. The Anaheim City Council is expected to vote on the changes in mid- to late 2024.How much Disney invests in Florida may depend on the courts, where the company is battling Mr. DeSantis and his allies for control over Disney World’s growth plan. Angered over Disney’s criticism of a Florida education law, Mr. DeSantis in April ended the company’s long-held ability to self-govern its 25,000-acre resort as if it were a county. Disney maintains that prior contracts preserve its ability to control development, however.“We want to keep growing and investing and have ambitious plans in Florida,” Mr. D’Amaro said. “For the benefit of our guests, our cast members and the economy of central Florida, we hope the conditions will be there for us to do so.” He declined to comment further.At the moment, Disney does not plan to build parks in new countries or cities. (In the past, the company looked at building a park in India, for instance, and expanding beyond Hong Kong and Shanghai in China.) Rather, the company will focus on developing new ports for its ships.Starting in 2025, a new cruise ship — the biggest in Disney’s fleet so far, with space for more than 6,000 guests — will be based in Singapore. Disney’s ships have grown increasingly themed, with characters and artwork from franchises like “Frozen,” “Star Wars” and Marvel’s Avengers incorporated into restaurants and entertainment zones.“It’s like bringing a theme park to a new part of the world,” Mr. D’Amaro said of Disney Cruise Line, which has recently been booked to 98 percent of capacity. More

  • in

    What an Adult Tricycle Says About the World’s Bottleneck Problems

    The supply-chain problems rocking companies may get worse heading into the holidays, as delays continue to snarl global trade and shipping prices jump even higher.Catrike has 500 of its three-wheeled bikes sitting in its workshop in Orlando, Fla., nearly ready to be sent to expectant dealers. The recumbent trikes have been waiting for months for rear derailleurs, a small but crucial part that is built in Taiwan.“We’re sitting on $2 million in inventory for one $30 part,” said Mark Egeland, the company’s general manager.The company’s problems offer a window into how supply-chain disruptions are rocking companies in the United States and around the world, pushing inflation higher, delaying deliveries and exacerbating economic uncertainty.It is unclear when the snarls will clear up — and it’s possible they will get worse before they get better. The holiday season is right around the corner, American companies are running light on inventory, and coronavirus outbreaks continue to shut factories around the world. Demand for goods remains strong as households use money saved during months stuck at home to buy athletic equipment, couches and clothing.That could keep pressure on global goods producers and the transportation routes that serve them even as consumers begin to redirect their spending back toward dinners out and theater tickets — a shift that many analysts had hoped would help supply chains return to normal.The critical questions for economic policymakers are how long the problems will last and how much they will feed into consumer prices, which have jumped sharply this year, both because of data quirks and bottlenecks. Federal Reserve officials regularly say they expect the faster price gains to prove “transitory,” but they are careful to stress that supply chains are a major source of lingering uncertainty, making it unclear how quickly rapid gains will fade.“I’m less in that ‘transitory’ camp,” said Phil Levy, the chief economist at Flexport, which tracks ocean shipments and helps importers plan so that their parts can get in by desired dates. “And more in the ‘we have reason to be concerned’ camp.”Container costs have rocketed up. Earlier this month, container shipping rates from China and East Asia to the United States’ East Coast climbed above $20,000, compared with about $4,000 a year ago, according to data from the freight-tracking firm Freightos. Those attractive high prices are encouraging ships to abandon other routes, causing the problem to spread. And shipping issues have been exacerbated by related imbalances: Boats are backing up at ports, and as demand for goods booms in the United States, empty shipping containers haven’t been able to get back to China fast enough.Chris Miller assembling a wheel for a Catrike. The company thinks that sorting out its supply issues could take 12 to 18 months.Octavio Jones for The New York TimesSome suppliers are eating higher production and transport costs. Full Speed Ahead, which produces crank sets for Catrike, has seen expenses increase as the demand for raw aluminum has risen. Shipping costs are also four to five times what they were a year ago, said Mark Vandermolen, the company’s managing director.Full Speed Ahead has passed “very little, if any at all,” of those cost increases on to customers, he said, and he hopes to “maintain pricing for as long as possible until it is no longer sustainable.”But not all of Catrike’s suppliers have absorbed climbing costs, and whether higher prices for components make for more expensive consumer products — actual inflation, as it is conventionally measured — depends on how companies like Catrike and the dealers they work through decide to adjust.Catrike raised prices by $200 early this year, its first adjustment since 2010, to cover costs. But the company is at a “sweet spot” where it’s outperforming competitors by offering affordable products, so it would prefer to leave prices steady now, Mr. Egeland said.He’s also cautious: Catrike hasn’t printed prices in its newest catalog, in case rising expenses make another increase necessary.The Fed — which has primary responsibility for keeping inflation steady — has made clear that it is content to look past a recent pop in inflation. If companies lift prices once or twice amid reopening challenges, the central bank can tolerate that as a one-off change.Officials would worry more if price increases dragged on for months or years. If that happens, consumers and businesses alike could come to expect consistently higher prices. They might demand higher pay, and a cycle of inflationary increases could take off.It will take time to know whether the bottlenecks will lead to more permanent damage. Supply chains are still badly snarled. The time it takes for parts from one of Catrike’s suppliers to arrive by sea in North America from a factory in Indonesia has jumped to three months, and sometimes it takes four — double what it took before. Estimates from Flexport confirm the problem is widespread along that shipping route. More