Why Disney Will Never Be Great Again

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Why Disney will never be great againDisney (DIS) appears to be in a good groove lately.

Its 17-year-old animated classic -- The Lion King -- was the top draw at the multiplex in its recent two-week theatrical run. It plans to doll up four more of its classics in 3-D over the next two years.

Disney's theme parks are humming along. ESPN is the undisputed juggernaut in sports programming. The family entertainment giant is in the process of doubling its cruise ship fleet to four premium-priced vessels. Disney opened a new resort in Hawaii this summer, and its Florida parks will get a new Pixar-themed resort with over a thousand family-sized suites next year.

Let's hold off on the "...and they lived happily ever after" finish, though.

Disney's competition is getting smarter -- and the House of Mouse has some obstacles to overcome.

Hitting a Brick Wall

Legoland Florida opens less than an hour away from Walt Disney World this weekend. Will it benefit Disney by bringing more tourists to Central Florida, or will the kid-friendly park eat into Disney's turnstile clicks?

Before you answer, let's introduce the wizardry of Harry Potter.

Closer to Mickey Mouse, Universal Studio's Islands of Adventure opened a Potter-themed realm last year. The response has been unbelievable, with attendance spiking more than 30% last year.

Did having a magnetic attraction just a few highway exits away on I-4 help Disney? No. Save for a marginal attendance uptick at Animal Kingdom, Disney's three larger Florida parks suffered declines, according to the Themed Entertainment Association.

Sputtering Along

Disney realizes that it's been coasting on aging attractions for too long. A Cars-themed land is opening next year at Disney's California Adventure. A Fantasyland expansion in Florida's Magic Kingdom will follow in 2012 and 2013. Animal Kingdom will get a high-tech Avatar attraction a few years after that.

Disney's single-day park tickets are up to a whopping $90.53 in Florida. The Goofy pricing is just insensitive until one considers that the media giant's hook is to sell multi-day passes at lower price points per day. It's a strategy that has helped fill its resorts over the years with guests who can spend an entire week on vacation without leaving Disney's property. That's off the table now, since folks going to Florida will make it a point to check out Islands of Adventure and Legoland.

Is Disney Losing Its Touch?

Despite the success of Pumbaa fart jokes in 3-D last month, Disney's flagship animation studio had a rough 2011. Mars Needs Moms was one of the studio's biggest flops in years. Cars 2 fared well at the box office, but it was the first Pixar release that wasn't universally praised.

Viacom's (VIA) Paramount hired David Stainton this week to lead its theatrical animation. Stainton was heading up Disney's studio until the Pixar buyout. Clearly Disney is vulnerable, and Paramount's success with Rango earlier this year suggests that it will be a force to reckon with when it begins cranking out its own films by 2014.

Acquiring Pixar was supposed to restore glory to Disney's fabled animation studio, but it seems as if the Disney brand has been damaged beyond repair. Years of sloppy direct-to-video sequels and half-hearted originals outside of Pixar releases have gotten in the way of John Lasseter's turnaround.

Eye of the Iger

Disney also has a succession battle brewing in its early stages. Bob Iger -- who helped restore credibility to Disney by orchestrating the Pixar acquisition -- surprised investors this month by revealing that he will step down from his position as CEO in 2015.

Perhaps he learned the lesson of Michael Eisner, who was generally revered early in his tenure but then had to sheepishly move on when shareholders grew impatient with Disney's struggles in both animation and at ABC. Perhaps he actually wants to enjoy his well-earned golden years now that he's 60. Either way, there will be uncertainty at the helm until the new chieftain earns shareholder respect.

A Fan's Lament

This hasn't been an easy obituary to write. Disney is the first stock that I ever owned. I practically grew up in Walt Disney World, and my wife knows -- when the time is right -- we're moving to Celebration (the Disney-planned residential community on the outskirts of its Florida resort that it recently relinquished).

However, I have to be a realist. Disney has been stumbling a lot this year.
  • ABC is struggling, and cascading ratings at Charlie's Angels and Pan Am -- two new shows that the network was counting on this season -- appear to make them likely early cancellations.
  • ESPN is a juggernaut, but it's also a victim of escalating programming costs for content that it doesn't really own.
  • Disney Channel used to be the launching pad for teen idols, but lately that baton has been passed to YouTube and American Idol.
  • The opening of its Hawaiian timeshare resort was riddled with accounting errors, and several Disney Vacation Club executives were let go in the process.
The media giant used to routinely trounce Wall Street's profit targets early in Iger's tenure, but Disney has actually come up short in two of the past four quarters.

There's a reason why Disney shares hit a fresh 52-week low earlier this month. Disney's pixie dust doesn't sparkle the way it used to.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Disney. Motley Fool newsletter services have recommended buying shares of Disney.


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