DANIEL VAUGHAN: Why Disney is Likely to End Its Lawsuits Against DeSantis and Florida

September 22, 2023

For all the noise the Walt Disney Company has made in fighting conservatives and Republicans in Florida, the company seems destined to drop the lawsuits. Analysts watching Disney's stock price and statements around earnings reports are seeing a much different Disney, not the culture war touchpoint the company has been for the last decade.

At this point, though, the question is whether or not it's too late for Disney. Will they survive long term, or do they find a strategic partner to bail them out by getting purchased? A few years ago, Disney flew higher than anyone, and analysts believed the company was prepared to dismantle companies like Netflix. That's no longer the case.

Disney's Shifting Priorities

During a recent call with investors, Disney CEO Bob Iger told investors, "The company will 'quiet the noise' in a culture war that has pitted social conservatives against the global media and entertainment conglomerate, according to an analyst note on Wednesday."

As the Reuters report noted, Disney is hurting: "Disney is struggling to make its streaming business profitable, improve the quality of its films, position its flagship sports brand, ESPN, to stream directly to consumers, and potentially shed its television networks. In its most recent quarter, the company beat Wall Street's profit expectations but fell short on revenue."

Disney's Disney+ Steaming Disaster

The company's big bet now is to throw $60 billion at its theme parks and cruises in an effort to boost those divisions. That's not a winning strategy, seeing as how Disney is struggling to fill those same parks right now. And with all due respect to those making a living in it, no one in their right mind thinks of the cruise business as a significant growth industry to turn around Disney's fortunes.

It's even worse when you factor in the streaming side of Disney. Bloomberg reports that Disney now expects to miss its subscriber goals by "tens of millions." Disney+ has fallen below 150 million subscribers, a far cry from the ambitious goals of 260 million subscribers set just a few years ago. In response, Disney is purging Disney+ of content in an attempt to rein in costs, along with canceling billions in projects.

A Potential Sale on the Horizon?

That brings us back to Iger's comments about "quieting the noise." Bob Iger has to do more than that - he has to right a sinking ship. One of the ways he's trying to do that is selling off things like ABC and other local stations. But there are swirling rumors that Disney is trying to lean itself out to get sold to a company like Apple.

But to make a good sale, you must have a good product. Iger doesn't have Disney in a good place to sell, and selling off assets like ABC, ESPN, and more is even more challenging. However the writers and actors strike resolve themselves, costs will unquestionably go up after a new contract gets signed.

Quieting the noise has to mean Disney making itself more palatable to get sold. Why would anyone want to buy a business beset by political lawsuits, where Disney has poisoned the waters of the states where it does most of its park business?

The Bigger Picture: Lawsuits and Declining Value

Bob Iger can have Disney increase its empire, or he can continue in a lawsuit that decreases the company's value. Sometimes, there are reasons for a company to fight the state. But Disney hasn't named many in these lawsuits, especially when compared to the sinking costs of the rest of the company.

The point is similar to Mike Lindell of MyPillow fame. He tied his company to the fate of multiple conspiracy theories regarding the 2020 election. That's his right. But he's decreased the company's value and made it much harder to sell it if he needs to.

Disney has charted a similar course up until now, and unlike MyPillow, they have shareholders. Disney's stock price is hovering around $80 these days, a far cry from the heights it climbed over the last decade. Disney has charted a course that has wiped out a decade of valuation.

Will Bob Iger Follow the Money?

The biggest eyesore right now, and a cost sink, are Disney's lawsuits against Florida and Ron DeSantis. It makes considerable economic sense for Disney to start looking for off-ramps to these lawsuits as a means to end the culture wars. Quieting the noise means ending the noise-makers, and Disney has created several of them.

I would observe Disney over the next year. Ben Stein once said, "The first step to getting the things you want out of life is this: Decide what you want." Bog Iger has to figure that out for Disney's future. Does he want the cultural war fights, or does he want to make Disney profitable again? Disney is incentivized to look for off-ramps and make the company look like a perfect organization with a halo over its head. Disney is not that right now, but they could end the lawsuits, quiet their culture war stances, and get there.

The money leads the way on this one.

" A free people [claim] their rights, as derived from the laws of nature."
Thomas Jefferson
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