Disney is set to welcome the Wall Street crowd to Orlando for two days next week at annual event that’s still a go, even after a corporate retreat was nixed amid swirling headlines.
The meeting provides analysts and investors a deep dive into the booming theme parks business that, despite all the attention to streaming, is 30% of revenue and rebounding dramatically from Covid lows.
The event comes as Disney continues to manage the fallout from its slow response to the Florida bill opponents have dubbed “Don’t Say Gay,” which Chapek has acknowledged was botched and apologized for.
Disney is one of the state’s largest employers.
Domestic theme parks are roaring back (the division more than doubled sales last quarter, and a Walt Disney World tour will topline the Monday/Tuesday meeting) and the company is sticking to ambitious subscriber and profit targets for streaming. Analysts Deadline spoke with don’t see the controversy being front and center at the meeting, which is focused on Disney Parks, Experiences & Products. But some say they’re waiting for the CEO to hit his stride after the latest public-relations black eye that also prompted a wider debate about Disney’s corporate culture.
“To expect that somebody can move into one of the most complicated CEO roles in the world during a global pandemic and get all A’s is probably not a reasonable expectation,” said Michael Morris of Guggenheim Partners. “On the other hand, when issues do arise, how you handle them does provide an indicator of your potential to be the right leader for the long term.”
Chapek took the top job back in February 2020 as Covid was rising and entertainment shifting radically. He followed Bob Iger, widely respected for his business acumen as well as his handling of “soft” issues, from talent relations to political hot potatoes. Iger stayed on as chairman after leaving the CEO post until exiting the company at the end of last year. He came out publicly against the “Don’t Say Gay” bill on February 25, the day the Florida House of Representatives passed it, well before Disney did.
“Iger was a once-in-a-lifetime CEO,” says one Wall Streeter. “Chapek is still finding his constituency.”
Florida’s Republican Gov. Rick DeSantis has indicated he’ll soon sign bill formally called The Parental Rights in Education Act, banning discussion of gender orientation for students in kindergarten to third grade and inviting lawsuits if parents think teachers have violated the law. Chapek and Disney have been pilloried for not opposing the legislation until it was too late.
“My guess is, he’ll get a question about it,” said Laura Martin of Needham & Company.
When the controversy began to swirl, Chapek first said that Disney had opted against a public stand because it felt its real influence was “through the inspiring content we produce.” He later apologized to LGBTQ+ employees and agreed the bill was a “challenge to basic human rights. You needed me to be a stronger ally in the fight for equal rights and I let you down. I am sorry.” Both comments were in staff memos.
The CEO took a public swing against the bill at the Disney shareholder meeting March 9. He pledged $5 million to the Human Rights Campaign, but the donation was rejected by HRC leadership.
On March 11, Chapek wrote in a memo that the company had pledged to stop donating to political campaigns in Florida and is building a new framework for all political contributions to ensure its “advocacy better reflects our values.”
Earlier this week, amid a flurry of support on social media, some staffers staged a walkout to protest what they saw as the inadequate response from leadership.
Some Wall Streeters give the CEO credit for course correcting. Doug Creutz of Cowen & Company said Chapek has acknowledged that he fell short. “He said, ‘We didn’t handle it well, and I apologize.’ He didn’t dig in and double down. He admitted he hadn’t done a good job.”
But it’s not Chapek’s first PR challenge.
One analyst blasted the company’s highly public legal feud with Scarlett Johansson last year: Alienating “talent is not good for the long term.” In September, Disney and Johansson settled a lawsuit over Black Widow, which hit cinemas and Disney+ for a premium fee on the day day last July. Johansson sued, saying she’d been promised an exclusive theatrical release. The merits of the suit took a back seat to Disney’s blistering response, revealing the actor’s upfront pay and calling her “callous” for filing it amid “the horrific and prolonged global effects of the Covid-19 pandemic.”
Other issues that have recently raised questions include new theme park pricing strategies, a factor in the division’s higher revenue, that have been blasted by park fans. Several analysts, while blown away by the parks’ progress, wondered if the higher prices are sustainable given economic uncertainties, including rising inflation.
Also, a planned reorganization that involves the Imagineering team would see many relocated from California to Florida. It’s a cost-saving move that’s not been welcomed by a key creative hub of the company.
As for the hot topic of streaming, Disney+ beat forecasts last quarter and the company reaffirmed its outlook that the service will hit 230 million-260 million total paid subscribers and break even by late 2024. “In another year, we’ll have a better of view of the Disney+ trajectory,” said Creutz.
Chapek’s contract expires at the end of 2023.
Said Creutz: “They have laid out some targets they need to hit, and if they don’t that’s a problem.”
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